Estate Tax

RR 12-2018; RR 8-2019
1. Lorenzo v. Posadas G.R. No. 43082. June 18, 1937
2. Marcos II vs. CA G.R. No. 120880 June 5, 1997
3. Dizon vs. CTA G.R. No. 140944 April 30, 2008

Donors Tax

RR 12-2018; RR 17-2018
Sec. 36 (9) Corporation Code; Sec. 35 (i) Revised Corporation Code
Sec. 13, RA 7166
RMC 31-2019
4. PhilamLife v Sec of Finance GR 210987 11_24_2014 (Art 100 old NIRC)

VAT

RR 16-2005; RR 4-2007; RR 10-2011; RR 13-2012

RR 13-2018; RR 25-2018; RR 26-2018
RMC No. 57-2013, August 23, 2013
RR 12-2012
RMC 77-2008
1. Medicard v CIR GR 222753 Apr 5, 2017
2. CIR vs. Magsaysay Lines, July 26, 2006
3. PSALM v CIR GR No. 198146 Aug 8, 2017
4. CIR vs. CA & Commonwealth Management & Services Corp. March 30, 2000
5. CIR v American Express GR 152609 June 29, 2005
6. CIR v Burmeister GR 153205 Jan 22, 2007
7. Accenture Inc. Vs. CIR, July 11, 2011
8. Toshiba Information Equipment (Phils.), Inc. vs. CIR, March 9, 2010
9. Contex Corp. v. CIR, G.R. No. 151135, July 2, 2004
10. Associated Swedish Steels Phils., Inc. Vs. CIR, CTA EB case No. 854, August 23, 2012
11. JRA Philippines, Inc. vs. CIR, GR No. 177127, October 11, 2010
12. CIR vs. San Roque Power Corp/Taganito Mining Corp vs. CIR/Philex Mining Corp. Vs. CIR, February 12,
2013
13. Mindanao II Geothermal Partnership vs. CIR, March 11, 2013

1
2
 April 5, 2017
G.R. No. 222743
MEDICARD PHILIPPINES, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
REYES,, J.:
This appeal by Petition for Review1 seeks to reverse and set
aside the Decision2 dated September 2, 2015 and
Resolution3 dated January 29, 2016 of the Court of Tax
Appeals (CTA) en bane in CTA EB No. 1224, affirming with
modification the Decision4 dated June 5, 2014 and the
Resolution5 dated September 15, 2014.in CTA Case No. 7948
of the CTA Third Division, ordering petitioner Medicard
Philippines, Inc. (MEDICARD), to pay respondent
Commissioner of Internal Revenue (CIR) the deficiency
Value-Added Tax. (VAT) assessment in the aggregate amount
of ₱220,234,609.48, plus 20% interest per annum  starting
January 25, 2007, until fully paid, pursuant to Section
249(c)6 of the National Internal Revenue Code (NIRC) of 1997.
The Facts
MEDICARD is a Health Maintenance Organization (HMO) that
provides prepaid health and medical insurance coverage to
its clients. Individuals enrolled in its health care programs
pay an annual membership fee and are entitled to various
preventive, diagnostic and curative medical services provided
by duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or accredited by
it.7
MEDICARD filed its First, Second, and Third Quarterly VAT
Returns through Electronic Filing and Payment System (EFPS)
on April 20, 2006, July 25, 2006 and October 20, 2006,
respectively, and its Fourth Quarterly VAT Return on January
25, 2007.8
Upon finding some discrepancies between MEDICARD's
Income Tax Returns (ITR) and VAT Returns, the CIR
informed MEDICARD and issued a Letter Notice (LN) No.
122-VT-06-00-00020 dated
September 20, 2007. Subsequently, the CIR also issued a
Preliminary Assessment Notice (PAN) against MEDICARD for
deficiency VAT. A Memorandum dated December 10, 2007
was likewise issued recommending the issuance of a Formal
Assessment Notice (FAN) against MEDICARD.9 On. January
4, 2008, MEDICARD received CIR's FAN dated December'
10, 2007 for alleged deficiency VAT for taxable year 2006 in
the total amount of Pl 96,614,476.69,10 inclusive of
penalties. 11
According to the CIR, the taxable base of HMOs for VAT
purposes is its gross receipts without any deduction
under Section 4.108.3(k) of Revenue Regulation (RR) No.
16-2005. Citing Commissioner of Internal Revenue v.
Philippine Health Care Providers, Inc., 12 the CIR argued that
since MEDICARD. does not actually provide medical and/or
hospital services, but merely arranges for the same, its
services are not VAT exempt.13
MEDICARD argued that: (1) the services it render is not
limited merely to arranging for the provision of medical
and/or hospital services by hospitals and/or clinics but
include actual and direct rendition of medical and
laboratory services; in fact, its 2006 audited balance sheet
shows that it owns x-ray and laboratory facilities which it used
3
in providing medical and laboratory services to its members;
(2) out of the ₱l .9 Billion membership fees, ₱319 Million was
received from clients that are registered with the Philippine
Export Zone Authority (PEZA) and/or Bureau of Investments;
(3) the processing fees amounting to ₱l 1.5 Million should be
excluded from gross receipts because P5.6 Million of which
represent advances for professional fees due from clients
which were paid by MEDICARD while the remainder was
already previously subjected to VAT; (4) the professional fees
in the amount of Pl 1 Million should also be excluded because
it represents the amount of medical services actually and
directly rendered by MEDICARD and/or its subsidiary
company; and (5) even assuming that it is liable to
pay for the VAT, the 12% VAT rate should not
be applied on the entire amount but only for the
period when the 12% VAT rate was already in
effect, i.e.,  on February 1, 2006. It should not also be
held liable for surcharge and deficiency interest because it did
not pass on the VAT to its members.14
On February 14, 2008, the CIR issued a Tax Verification
Notice authorizing Revenue Officer Romualdo Plocios to verify
the supporting documents of MEDICARD's Protest.
MEDICARD also submitted additional supporting documentary
evidence in aid of its Protest thru a letter dated March 18,
2008.15
BIR:
On June 19, 2009, MEDICARD received CIR's Final Decision
on Disputed Assessment dated May 15, 2009, denying
MEDICARD's protest, to wit:
IN VIEW HEREOF, we deny your letter protest and hereby
reiterate in toto assessment of deficiency [VAT] in total sum of
₱196,614,476.99. It is requested that you pay said deficiency
taxes immediately. Should payment be made later, adjustment
has to be made to impose interest until date of payment. This
is olir final decision. If you disagree, you may take an appeal to
the [CTA] within the period provided by law, otherwise, said
assessment shall become final, executory and demandable. 16
On July 20, 2009, MEDICARD proceeded to file a petition for
review before the CT A, reiterating its position before the tax
authorities. 17
CTA: Affirmed BIR
On June 5, 2014, the CTA Division rendered a
Decision18 affirming with modifications the CIR's deficiency
VAT assessment covering taxable year 2006, viz.:
WHEREFORE, premises considered, the deficiency VAT
assessment issued by [CIR] against [MEDICARD] covering
taxable year 2006 ·is hereby AFFIRMED WITH
MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay
[CIR] the amount of P223,l 73,208.35, inclusive of the twenty-
five percent (25%) surcharge imposed under -Section 248(A)
(3) of the NIRC of 1997, as amended, computed as follows:
Basic Deficiency VAT ₱l78,538,566.68
Add: 25% Surcharge 44,634,641.67
Total ₱223.173.208.35
In addition, [MEDICARD] is ordered to pay:
 a. Deficiency interest at the rate of twenty percent
(20%) per annum on the basis deficiency VAT of Pl
78,538,566.68 computed from January 25, 2007 until
full payment thereof pursuant to Section 249(B) of the
NIRC of 1997, as amended; and
b. Delinquency interest at the rate of twenty percent
(20%) per annum on the total amount of
₱223,173,208.35 representing basic deficiency VAT
of ₱l78,538,566.68 and· 25% surcharge of
₱44,634,64 l .67 and on the 20% deficiency interest
which have accrued as afore-stated in (a), computed
from June 19, 2009 until full payment thereof pursuant
to Section 249(C) of the NIRC of 1997.
SO ORDERED.19
The CTA Division held that: (1) the determination of deficiency
VAT is not limited to the issuance of Letter of Authority (LOA)
alone as the CIR is granted vast powers to perform
examination and assessment functions; (2) in lieu of an LOA,
an LN was issued to MEDICARD informing it· of the
discrepancies between its ITRs and VAT Returns and this
procedure is authorized under Revenue Memorandum Order
(RMO) No. 30-2003 and 42-2003; (3) MEDICARD is estopped
from questioning the validity of the assessment on the ground
of lack of LOA since the assessment issued against
MEDICARD contained the requisite legal and factual bases
that put MEDICARD on notice of the deficiencies and it in fact
availed of the remedies provided by law without questioning
the nullity of the assessment; (4) the amounts that
MEDICARD earmarked , and eventually paid to doctors,
hospitals and clinics cannot be excluded from · the
computation of its gross receipts under the provisions of
RR No. 4-2007 because the act of earmarking or allocation
is by itself an act of ownership and management over the
funds by MEDICARD which is beyond the contemplation
of RR No. 4-2007; (5) MEDICARD's earnings from its clinics
and laboratory facilities cannot be excluded from its gross
receipts because the operation of these clinics and
laboratory is merely an incident to MEDICARD's main line
of business as HMO and there is no evidence that
MEDICARD segregated the amounts pertaining to this at
the time it received the premium from its members; and (6)
MEDICARD was not able to substantiate the amount pertaining
to its January 2006 income and therefore has no basis to
impose a 10% VAT rate.20
Undaunted, MEDICARD filed a Motion for Reconsideration
but it was denied. Hence, MEDICARD elevated the matter to
the CTA en banc.
In a Decision21 dated September 2, 2015, the CTA en
banc partially granted the petition only insofar as the 10% VAT
rate for January 2006 is concerned but sustained the findings
of the CTA Division in all other matters, thus:
WHEREFORE, in view thereof, the instant Petition for Review
is hereby PARTIALLY GRANTED. Accordingly, the Decision
date June 5, 2014 is hereby MODIFIED, as follows:
"WHEREFORE, premises considered, the deficiency VAT
assessment issued by [CIR] against
[MEDICARD] covering taxable year 2006 is hereby AFFIRMED
WITH MODIFICATIONS. Accordingly, [MEDICARD] is ordered
to pay [CIR] the amount of ₱220,234,609.48, inclusive of the
25% surcharge imposed under Section 248(A)(3) of the NIRC
of 1997, as amended, computed as follows:
Basic Deficiency VAT ₱76,187,687.58
Add: 25% Surcharge 44,046,921.90
Total ₱220,234.609.48
4
In addition, [MEDICARD] is ordered to pay:
(a) Deficiency interest at the rate of 20% per
annum on the basic deficiency VAT of ₱l
76,187,687.58 computed from January 25, 2007 until
full payment thereof pursuant to Section 249(B) of the
NIRC of 1997, as amended; and
(b) Delinquency interest at the rate of 20% per
annum on the total amount of ₱220,234,609.48
(representing basic deficiency VAT of
₱l76,187,687.58 and 25% surcharge of
₱44,046,921.90) and on the deficiency interest which
have accrued as afore-stated in (a), computed from
June 19, 2009 until full payment thereof pursuant to
Section 249(C) of the NIRC of 1997, as amended."
SO ORDERED.22
Disagreeing with the CTA en bane's decision, MEDICARD filed
a motion for reconsideration but it was denied.23 Hence,
MEDICARD now seeks recourse to this Court via a petition for
review on certiorari.
The Issues
l. WHETHER THE ABSENCE OF THE LOA IS
FATAL; and
2. WHETHER THE AMOUNTS THAT MEDICARD
EARMARKED AND EVENTUALLY PAID TO THE
MEDICAL SERVICE PROVIDERS SHOULD STILL
FORM PART OF ITS GROSS RECEIPTS FOR VAT
PURPOSES.24
Ruling of the Court
The petition is meritorious.
The absence of an LOA violated
MEDICARD's right to due process
An LOA is the authority given to the appropriate revenue officer
assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account
and other accounting records of a taxpayer for the purpose of
collecting the correct amount of tax. 25 An LOA is premised on
the fact that the examination of a taxpayer who has already
filed his tax returns is a power that statutorily belongs only to
the CIR himself or his duly authorized representatives. Section
6 of the NIRC clearly provides as follows:
SEC. 6. Power of the Commissioner to Make Assessments
and Prescribe Additional Requirements for Tax Administration
and Enforcement. –
(A) Examination of Return and Determination of Tax Due.-
After a return has been filed as required under the provisions
of this Code, the Commissioner or his duly authorized
representative may authorize the examinationof any
taxpayer and the assessment of the correct amount of tax:
Provided, however, That failure to file a return shall not prevent
the Commissioner from authorizing the examination of any
taxpayer.
x x x x (Emphasis and underlining ours)
Based on the afore-quoted provision, it is clear that unless
authorized by the CIR himself or by his duly authorized
representative, through an LOA, an examination of the
taxpayer cannot ordinarily be undertaken. The circumstances
contemplated under Section 6 where the taxpayer may be
assessed through best-evidence obtainable, inventory-taking,
or surveillance among others has nothing to do with the LOA.
These are simply methods of examining the taxpayer in order
to arrive at .the correct amount of taxes. Hence, unless
undertaken by the CIR himself or his duly authorized
representatives, other tax agents may not validly conduct any
of these kinds of examinations without prior authority.
With the advances in information and communication
technology, the Bureau of Internal Revenue (BIR) promulgated
RMO No. 30-2003 to lay down the policies and guidelines once
its then incipient centralized Data Warehouse (DW) becomes
fully operational in conjunction with its Reconciliation of Listing
for Enforcement System (RELIEF System).26 This system can
detect tax leaks by matching the data available under the BIR's
Integrated Tax System (ITS) with data gathered from third-
party sources. Through the consolidation and cross-
referencing of third-party information, discrepancy reports on
sales and purchases can be generated to uncover under
declared income and over claimed purchases of Goods and
services.
Under this RMO, several offices of the BIR are tasked with
specific functions relative to the RELIEF System, particularly
with regard to LNs. Thus, the Systems Operations Division
(SOD) under the Information Systems Group (ISG) is
responsible for: (1) coming up with the List of Taxpayers with
discrepancies within the threshold amount set by management
for the issuance of LN and for the system-generated LNs; and
(2) sending the same to the taxpayer and to the Audit
Information, Tax Exemption and Incentives Division (AITEID).
After receiving the LNs, the AITEID under the Assessment
Service (AS), in coordination with the concerned offices under
the ISG, shall be responsible for transmitting the LNs to the
investigating offices [Revenue District Office (RDO)/Large
Taxpayers District Office (LTDO)/Large Taxpayers Audit and
Investigation Division (LTAID)]. At the level of these
investigating offices, the appropriate action on the LN s issued
to taxpayers with RELIEF data discrepancy would be
determined.
RMO No. 30-2003 was supplemented by RMO No. 42-2003,
which laid down the "no-contact-audit approach"  in the
CIR's exercise of its ·power to authorize any examination of
taxpayer arid the assessment of the correct amount of tax.
The no-contact-audit approach  includes the process of
computerized matching of sales and purchases data contained
in the Schedules of Sales and Domestic Purchases and
Schedule of Importation submitted by VAT taxpayers under the
RELIEF System pursuant to RR No. 7-95, as amended by RR
Nos. 13-97, 7-99 and 8-2002. This may also include the
matching of data from other information or returns filed by the
taxpayers with the BIR such as Alphalist of Payees subject to
Final or Creditable Withholding Taxes.
Under this policy, even without conducting a detailed
examination of taxpayer's books and records, if the
computerized/manual matching of sales and
purchases/expenses appears to reveal discrepancies, the
same shall be communicated to the concerned taxpayer
through the issuance of LN. The LN shall serve as a
discrepancy notice to taxpayer similar to a Notice for Informal
Conference to the concerned taxpayer. Thus, under the
RELIEF System, a revenue officer may begin an examination
of the taxpayer even prior to the issuance of an LN or even in
the absence of an LOA with the aid of a computerized/manual
matching of taxpayers': documents/records. Accordingly, under
the RELIEF System, the presumption that the tax returns are in
accordance with law and are presumed correct since these are
filed under the penalty of perjury27 are easily rebutted and the
taxpayer becomes instantly burdened to explain a purported
discrepancy.
Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are
silent on the statutory requirement of an LOA before any
investigation or examination of the taxpayer may be
conducted. As provided in the RMO No. 42-2003, the LN is
merely similar to a Notice for Informal Conference. However,
for a Notice of Informal Conference, which generally precedes
the issuance of an assessment notice to be valid, the same
5
presupposes that the revenue officer who issued the same is
properly authorized in the first place.
With this apparent lacuna in the RMOs, in November 2005,
RMO No. 30-2003, as supplemented by RMO No. 42-2003,
was amended by RMO No. 32-2005 to fine tune existing
procedures in handing assessments against taxpayers'· issued
LNs by reconciling various revenue issuances which conflict
with the NIRC. Among the objectives in the issuance of RMO
No. 32-2005 is to prescribe procedure in the resolution of LN
discrepancies, conversion of LNs to LOAs and assessment
and collection of deficiency taxes.
IV. POLICIES AND GUIDELINES
xxxx
8. In the event a taxpayer who has been issued an LN
refutes the discrepancy shown in the LN, the concerned
taxpayer will be given an opportunity to reconcile its records
with those of the BIR within
One Hundred and Twenty (120) days from the date of the
issuance of the LN. However, the subject taxpayer shall no
longer be entitled to the abatement of interest and penalties
after the lapse of the sixty (60)-day period from the LN
issuance.
9. In case the above discrepancies remained unresolved at
the end of the One Hundred and Twenty (120)-day period,
the revenue officer (RO) assigned to handle the LN shall
recommend the issuance of [LOA) to replace the LN. The
head of the concerned investigating office shall submit a
summary list of LNs for conversion to LAs (using the herein
prescribed format in Annex "E" hereof) to the OACIR-LTS I
ORD for the preparation of the corresponding LAs with the
notation "This LA cancels LN_________ No. "
xxxx
V. PROCEDURES
xxxx
B. At the Regional Office/Large Taxpayers Service
xxxx
7. Evaluate the Summary List of LNs for Conversion to LAs
submitted by the RDO x x x prior to approval.
8. Upon approval of the above list, prepare/accomplish and
sign the corresponding LAs.
xxxx
Decision 11 G.R. No. 222743
xxxx
10. Transmit the approved/signed LAs, together with the duly
accomplished/approved Summary List of LNs for conversion to
LAs, to the concerned investigating offices for the encoding of
the required information x x x and for service to the concerned
taxpayers.
xxxx
C. At the RDO x x x
xxxx
11. If the LN discrepancies remained unresolved within One
Hundred and Twenty (120) days from issuance thereof,
prepare a summary list of said LN s for conversion to LAs x x
x.
xxxx
16. Effect the service of the above LAs to the concerned
taxpayers.28
In this case, there is no dispute that no LOA was issued prior
to the issuance of a PAN and FAN against MED ICARD.
Therefore no LOA was also served on MEDICARD. The LN
that was issued earlier was also not converted into an LOA
contrary to the above quoted provision. Surprisingly, the CIR
did not even dispute the applicability of the above provision of
RMO 32-2005 in the present case which is clear and
unequivocal on the necessity of an LOA for the· assessment
proceeding to be valid. Hence, the CTA's disregard of
MEDICARD's right to due process warrant the reversal of the
assailed decision and resolution.
In the case of Commissioner of Internal Revenue v. Sony
Philippines, Inc. ,29 the Court said that:
Clearly, there must be a grant of authority before any revenue
officer can conduct an examination or assessment. Equally
important is that the revenue officer so authorized must not go
beyond the authority given. In the absence of such an
authority, the assessment or examination is a
nullity.30 (Emphasis and underlining ours)
The Court cannot convert the LN into the LOA required under
the law even if the same was issued by the CIR himself. Under
RR No. 12-2002, LN is issued to a person found to have
underreported sales/receipts per data generated under the
RELIEF system. Upon receipt of the LN, a taxpayer may avail
of the BIR's Voluntary Assessment and Abatement Program. If
a taxpayer fails or refuses to avail of the said program, the BIR
may avail of administrative and criminal .remedies, particularly
closure, criminal action, or audit and investigation. Since the
law specifically requires an LOA and RMO No. 32-2005
requires the conversion of the previously issued LN to an LOA,
the absence thereof cannot be simply swept under the rug, as
the CIR would have it. In fact Revenue Memorandum Circular
No. 40-2003 considers an LN as a notice of audit or
investigation only for the purpose of disqualifying the taxpayer
from amending his returns.
The following differences between an LOA and LN are crucial.
First, an LOA addressed to a revenue officer is specifically
required under the NIRC before an examination of a taxpayer
may be had while an LN is not found in the NIRC and is only
for the purpose of notifying the taxpayer that a discrepancy is
found based on the BIR's RELIEF System. Second, an LOA is
valid only for 30 days from date of issue while an LN has no
such limitation. Third, an LOA gives the revenue officer only a
period of 10days from receipt of LOA to conduct his
examination of the taxpayer whereas an LN does not contain
such a limitation.31 Simply put, LN is entirely different and
serves a different purpose than an LOA. Due process
demands, as recognized under RMO No. 32-2005, that after
an LN has serve its purpose, the revenue officer should have
properly secured an LOA before proceeding with the further
examination and assessment of the petitioner. Unfortunarely,
this was not done in this case.
Contrary to the ruling of the CTA en banc, an LOA cannot be
dispensed with just because none of the financial books or
records being physically kept by MEDICARD was examined.
To begin with, Section 6 of the NIRC requires an authority from
the CIR or from his duly authorized representatives before an
examination "of a taxpayer" may be made. The requirement of
authorization is therefore not dependent on whether the
taxpayer may be required to physically open his books and
financial records but only on whether a taxpayer is being
subject to examination.
6
The BIR's RELIEF System has admittedly made the BIR's
assessment and collection efforts much easier and faster. The
ease by which the BIR's revenue generating objectives is
achieved is no excuse however for its non-compliance with the
statutory requirement under Section 6 and with its own
administrative issuance. In fact, apart from being a statutory
requirement, an LOA is equally needed even under the BIR's
RELIEF System because the rationale of requirement is the
same whether or not the CIR conducts a physical examination
of the taxpayer's records: to prevent undue harassment of a
taxpayer and level the playing field between the government' s
vast resources for tax assessment, collection and enforcement,
on one hand, and the solitary taxpayer's dual need to
prosecute its business while at the same time responding to
the BIR exercise of its statutory powers. The balance between
these is achieved by ensuring that any examination of the
taxpayer by the BIR' s revenue officers is properly authorized
in the first place by those to whom the discretion to exercise
the power of examination is given by the statute.
That the BIR officials herein were not shown to have acted
unreasonably is beside the point because the issue of their
lack of authority was only brought up during the trial of the
case. What is crucial is whether the proceedings that led to the
issuance of VAT deficiency assessment against MEDICARD
had the prior approval and authorization from the CIR or her
duly authorized representatives. Not having authority to
examine MEDICARD in the first place, the assessment issued
by the CIR is inescapably void.
At any rate, even if it is assumed that the absence of an LOA is
not fatal, the Court still partially finds merit in MEDICARD's
substantive arguments.
The amounts earmarked and
eventually paid by MEDICARD to
the medical service providers do not
form part of gross receipts.for VAT
purposes
MEDICARD argues that the CTA en banc seriously erred in
affirming the ruling of the CT A Division that the gross
receipts of an HMO for VAT purposes shall be the total
amount of money or its equivalent actually received from
members undiminished by any amount paid or payable to
the owners/operators of hospitals, clinics and medical and
dental practitioners.
MEDICARD explains that its business as an HMO involves
two different although interrelated contracts. One is
between a corporate client and MEDICARD, with the
corporate client's employees being considered as
MEDICARD members; and the other is between the health
care institutions/healthcare professionals and MED
ICARD.
Under the first, MEDICARD undertakes to make arrangements
with healthcare institutions/healthcare professionals for the
coverage of MEDICARD members under specific health
related services for a specified period of time in exchange for
payment of a more or less fixed membership fee. Under its
contract with its corporate clients, MEDICARD expressly
provides that 20% of the membership fees per individual,
regardless of the amount involved, already includes the
VAT of 10%/20% excluding the remaining 80o/o because
MED ICARD would earmark this latter portion for medical
utilization of its members. Lastly, MEDICARD also assails
CIR's inclusion in its gross receipts of its earnings from
medical services which it actually and directly rendered to
its members.
Since an HMO like MEDICARD is primarily engaged m
arranging for coverage or designated managed care services
that are needed by plan holders/members for fixed prepaid
membership fees and for a specified period of time, then
MEDICARD is principally engaged in the sale of
services. Its VAT base and corresponding
liability is, thus, determined under Section
108(A)32 of the Tax Code, as amended by
Republic Act No. 9337.
Prior to RR No. 16-2005, an HMO, like a pre-need
company, is treated for VAT purposes as a
dealer in securities whose gross receipts is the
amount actually received as contract price
without allowing any deduction from the gross
receipts.33 This restrictive tenor changed
under RR No. 16-2005. Under this RR, an
HMO's gross receipts and gross
receipts in general were defined, thus:
Section 4.108-3. xxx
xxxx
HMO's gross receipts shall be the total amount of
money or its equivalent representing the service fee actually or
constructively received during the taxable period for the
services performed or to be performed for another person,
excluding the value-added tax. The compensation for their
services representing their service fee, is presumed to be
the total amount received as enrollment fee from their
members plus other charges received.
Section 4.108-4. x x x. "Gross receipts" refers to 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 applied as payments for services rendered, and
advance payments actually or constructively received
during the taxable period for the services performed or to
be performed for another person, excluding the VAT. 34
In 2007, the BIR issued RR No. 4-2007 amending portions of
RR No. 16-2005, including the definition of gross receipts in
general.35
According to the CTA en banc, the entire amount of
membership fees should form part of MEDICARD's gross
receipts because the exclusions to the gross receipts
under RR No. 4-2007 does not apply to MEDICARD. What
applies to MEDICARD is the definition of gross receipts of
an HMO under RR No. 16-2005 and not the modified
definition of gross receipts in general under the RR No. 4-
2007.
COURT:
definition of gross
The CTA en banc overlooked that the
receipts under. RR No. 16-2005 merely
presumed that the amount received by an HMO
as membership fee is the HMO's compensation
for their services. As a mere presumption, an HMO is,
thus, allowed to establish that a portion of the amount it
received as membership fee does NOT actually
compensate it but some other person, which in this case
are the medical service providers themselves. It is a well-
settled principle of legal hermeneutics that words of a statute
will be interpreted in their natural, plain and ordinary
acceptation and signification, unless it is evident that the
legislature intended a technical or special legal meaning to
those words. The Court cannot read the word "presumed" in
any other way.
It is notable in this regard that the
term gross
receipts as elsewhere mentioned as the tax
base under the NIRC does not contain any
7
specific definition.36 Therefore, absent a
statutory definition, this Court has
construed the term gross receipts in its
plain and ordinary meaning, that is, gross
receipts is understood as comprising the
entire receipts without any
deduction.37 Congress, under Section 108, could have
simply left the term gross receipts similarly undefined and its
interpretation subjected to ordinary acceptation,. Instead of
doing so, Congress limited the scope of the term
gross receipts for VAT purposes only to the
amount that the taxpayer received for the
services it performed or to the amount it
received as advance payment for the services it
will render in the future for another person.
In the proceedings ·below, the nature of MEDICARD's
business and the extent of the services it rendered are not
seriously disputed. As an HMO, MEDICARD primarily acts as
an intermediary between the purchaser of healthcare services
(its members) and the healthcare providers (the doctors,
hospitals and clinics) for a fee. By enrolling membership with
MED ICARD, its members will be able to avail of the pre-
arranged medical services from its accredited healthcare
providers without the necessary protocol of posting cash bonds
or deposits prior to being attended to or admitted to hospitals
or clinics, especially during emergencies, at any given time.
Apart from this, MEDICARD may also directly provide medical,
hospital and laboratory services, which depends upon its
member's choice.
Thus, in the course of its business as such, MED ICARD
members can either avail of medical services from
MEDICARD's accredited healthcare providers or directly from
MEDICARD. In the former, MEDICARD members obviously
knew that beyond the agreement to pre-arrange the healthcare
needs of its ·members, MEDICARD would not actually be
providing the actual healthcare service. Thus, based on
industry practice, MEDICARD informs its would-be member
beforehand that 80% of the amount would be earmarked for
medical utilization and only the remaining 20%
comprises its service fee. In the latter case,
MEDICARD's sale of its services is exempt
from VAT under Section 109(G).
The CTA's ruling and CIR's Comment have
not pointed
to any portion of Section 108 of the NIRC
that would extend the definition of gross
receipts even to amounts that do not only
pertain to the services to be performed: by
another person, other than the taxpayer,
but even to amounts that were indisputably
utilized not by MED ICARD itself but by the
medical service providers.
It is a cardinal rule in statutory construction that no word,
clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and
insignificant. To this end, a construction which renders every
word operative is preferred over that which makes some words
idle and nugatory. This principle is expressed in the maxim Ut
magisvaleat quam pereat, that is, we choose the interpretation
which gives effect to the whole of the statute – it’s every word.
In Philippine Health Care Providers, Inc. v. Commissioner of
Internal Revenue,38the Court adopted the principal object and
purpose object in determining whether the MEDICARD therein
is engaged in the business of insurance and therefore liable for
documentary stamp tax. The Court held therein that an HMO
engaged in preventive, diagnostic and curative medical
services is not engaged in the business of an insurance, thus:
To summarize, the distinctive features of the cooperative are
the rendering of service, its extension, the bringing of
physician and patient together, the preventive features,
the regularization of service as well as payment, the
substantial reduction in cost by quantity purchasing in
short, getting the medical job done and paid for; not,
except incidentally to these features, the indemnification
for cost after .the services is rendered. Except the last,
these are not distinctive or generally characteristic of the
insurance arrangement. There is, therefore, a substantial
difference between contracting in this way for the rendering of
service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is
rendered.39 (Emphasis ours)
In sum, the Court said that the main difference between an
HMO arid an insurance company is that HMOs undertake
to provide or arrange for the provision of medical services
through participating physicians while insurance
companies simply undertake to indemnify the insured for
medical expenses incurred up to a pre-agreed limit. In the
present case, the VAT is a tax on the value added by the
performance of the service by the taxpayer. It is, thus, this
service and the value charged thereof by the taxpayer that is
taxable under the NIRC.
To be sure, there are pros and cons in subjecting the entire
amount of membership fees to VAT.40 But the Court's task
however is not to weigh these policy considerations but to
determine if these considerations in favor of taxation can even
be implied from the statute where the CIR purports to derive
her authority. This Court rules that they cannot because the
language of the NIRC is pretty straightforward and clear. As
this Court previously ruled:
What is controlling in this case is the well-settled doctrine of
strict interpretation in the imposition of taxes, not the similar
doctrine as applied to tax exemptions. The rule in the
interpretation of tax laws is that a statute will not be construed
as imposing a tax unless it does so clearly, expressly, and
unambiguously. A tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general
rule of requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws and
the provisions of a taxing act are not to be extended by
implication. In answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes are to
be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the
tax laws. 41 (Citation omitted and emphasis and underlining
ours)
For this Court to subject the entire amount of MEDICARD's
gross receipts without exclusion, the authority should have
been reasonably founded from the language of the statute.
That language is wanting in this case. In the scheme of judicial
tax administration, the need for certainty and predictability in
the implementation of tax laws is crucial. Our tax authorities fill
in the details that Congress may not have the opportunity or
competence to provide. The regulations these authorities issue
are relied upon by taxpayers, who are certain that these will be
followed by the courts. Courts, however, will not uphold these
authorities' interpretations when dearly absurd, erroneous or
improper.42 The CIR's interpretation of gross receipts in the
present case is patently erroneous for lack of both textual and
non-textual support.
As to the CIR's argument that the act of earmarking or
allocation is by itself an act of ownership and management
over the funds, the Court does not agree.1âwphi1 On the
contrary, it is MEDICARD's act of earmarking or allocating 80%
of the amount it received as membership fee at the time of
payment that weakens the ownership imputed to it. By
earmarking or allocating 80% of the amount, MEDICARD
unequivocally recognizes that its possession of the funds is not
in the concept of owner but as a mere administrator of the
8
same. For this reason, at most, MEDICARD's right in relation
to these amounts is a mere inchoate owner which would ripen
into actual ownership if, and only if, there is underutilization of
the membership fees at the end of the fiscal year. Prior to that,
MEDI CARD is bound to pay from the amounts it had allocated
as an administrator once its members avail of the medical
services of MEDICARD's healthcare providers.
Before the Court, the parties were one in submitting the legal
issue of whether the amounts MEDICARD earmarked,
corresponding to 80% of its enrollment fees, and paid to the
medical service providers should form part of its gross receipt
for VAT purposes, after having paid the VAT on the amount
comprising the 20%. It is significant to note in this regard that
MEDICARD established that upon receipt of payment of
membership fee it actually issued two official receipts, one
pertaining to the VAT able portion, representing compensation
for its services, and the other represents the non-vatable
portion pertaining to the amount earmarked for medical
utilization.: Therefore, the absence of an actual and physical
segregation of the amounts pertaining to two different kinds · of
fees cannot arbitrarily disqualify MEDICARD from rebutting the
presumption under the law and from proving that indeed
services were rendered by its healthcare providers for which it
paid the amount it sought to be excluded from its gross
receipts.
With the foregoing discussions on the nullity of the assessment
on due process grounds and violation of the NIRC, on one
hand, and the utter lack of legal basis of the CIR's position on
the computation of MEDICARD's gross receipts, the Court
finds it unnecessary, nay useless, to discuss the rest of the
parties' arguments and counter-arguments.
In fine, the foregoing discussion suffices for the reversal of the
assailed decision and resolution of the CTA en banc  grounded
as it is on due process violation. The Court likewise rules that
for purposes of determining the VAT liability of an HMO, the
amounts earmarked and actually spent for medical utilization of
its members should not be included in the computation of its
gross receipts.
WHEREFORE, in consideration of the foregoing disquisitions,
the petition is hereby GRANTED. The Decision dated
September 2, 2015 and Resolution dated January 29, 2016
issued by the Court of Tax Appeals en bane in CTA EB No.
1224 are REVERSED and SET ASIDE. The definition of gross
receipts under Revenue Regulations Nos. 16-2005 and 4-
2007, in relation to Section 108(A) of the National Internal
Revenue Code, as amended by Republic Act No. 9337, for
purposes of determining its Value-Added Tax liability, is hereby
declared to EXCLUDE the eighty percent (80%) of the amount
of the contract price earmarked as fiduciary funds for the
medical utilization of its members. Further, the Value-Added
Tax deficiency assessment issued against Medicard
Philippines, Inc. is hereby declared unauthorized for having
been issued without a Letter of Authority by the Commissioner
of Internal Revenue or his duly authorized representatives.
SO ORDERED.
G.R. No. 146984             July 28, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC.,
FIM LIMITED OF THE MARDEN GROUP (HK) and
NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the
National Development Company (NDC) of five (5) of its vessels
to the private respondents is subject to value-added tax (VAT)
under the National Internal Revenue Code of 1986 (Tax Code)
then prevailing at the time of the sale. The Court of Tax
Appeals (CTA) and the Court of Appeals commonly ruled that
the sale is not subject to VAT. We affirm, though on a more
unequivocal rationale than that utilized by the rulings under
review. The fact that the sale was not in the course of the trade
or business of NDC is sufficient in itself to declare the sale as
outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC
decided to sell to private enterprise all of its shares in its
wholly-owned subsidiary the National Marine Corporation
(NMC). The NDC decided to sell in one lot its NMC shares and
five (5) of its ships, which are 3,700 DWT Tween-Decker,
"Kloeckner" type vessels.1 The vessels were constructed for
the NDC between 1981 and 1984, then initially leased to Luzon
Stevedoring Company, also its wholly-owned subsidiary.
Subsequently, the vessels were transferred and leased, on a
bareboat basis, to the NMC.2
The NMC shares and the vessels were offered for public
bidding. Among the stipulated terms and conditions for the
public auction was that the winning bidder was to pay "a value
added tax of 10% on the value of the vessels."3 On 3 June
1988, private respondent Magsaysay Lines, Inc. (Magsaysay
Lines) offered to buy the shares and the vessels
for P168,000,000.00. The bid was made by Magsaysay Lines,
purportedly for a new company still to be formed composed of
itself, Baliwag Navigation, Inc., and FIM Limited of the Marden
Group based in Hongkong (collectively, private
respondents).4 The bid was approved by the Committee on
Privatization, and a Notice of Award dated 1 July 1988 was
issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale
was executed between NDC, on one hand, and Magsaysay
Lines, Baliwag Navigation, and FIM Limited, on the other.
Paragraph 11.02 of the contract stipulated that "[v]alue-added
tax, if any, shall be for the account of the PURCHASER."5 Per
arrangement, an irrevocable confirmed Letter of Credit
previously filed as bidders bond was accepted by NDC as
security for the payment of VAT, if any. By this time, a formal
request for a ruling on whether or not the sale of the vessels
was subject to VAT had already been filed with the Bureau of
Internal Revenue (BIR) by the law firm of Sycip Salazar
Hernandez & Gatmaitan, presumably in behalf of private
respondents. Thus, the parties agreed that should no favorable
ruling be received from the BIR, NDC was authorized to draw
on the Letter of Credit upon written demand the amount
needed for the payment of the VAT on the stipulated due date,
20 December 1988.6
In January of 1989, private respondents through counsel
received VAT Ruling No. 568-88 dated 14 December 1988
from the BIR, holding that the sale of the vessels was subject
to the 10% VAT. The ruling cited the fact that NDC was a VAT-
registered enterprise, and thus its "transactions incident to its
normal VAT registered activity of leasing out personal property
including sale of its own assets that are movable, tangible
9
objects which are appropriable or transferable are subject to
the 10% [VAT]."7
Private respondents moved for the reconsideration of VAT
Ruling No. 568-88, as well as VAT Ruling No. 395-88 (dated
18 August 1988), which made a similar ruling on the sale of the
same vessels in response to an inquiry from the Chairman of
the Senate Blue Ribbon Committee. Their motion was denied
when the BIR issued VAT Ruling Nos. 007-89 dated 24
February 1989, reiterating the earlier VAT rulings. At this point,
NDC drew on the Letter of Credit to pay for the VAT, and the
amount of P15,120,000.00 in taxes was paid on 16 March
1989.
On 10 April 1989, private respondents filed an Appeal and
Petition for Refund with the CTA, followed by a Supplemental
Petition for Review on 14 July 1989. They prayed for the
reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as
well as the refund of the VAT payment made amounting
to P15,120,000.00.8 The Commissioner of Internal Revenue
(CIR) opposed the petition, first arguing that private
respondents were not the real parties in interest as they were
not the transferors or sellers as contemplated in Sections 99
and 100 of the then Tax Code. The CIR also squarely
defended the VAT rulings holding the sale of the vessels liable
for VAT, especially citing Section 3 of Revenue Regulation No.
5-87 (R.R. No. 5-87), which provided that "[VAT] is imposed on
any sale or transactions ‘deemed sale’ of taxable goods
(including capital goods, irrespective of the date of
acquisition)." The CIR argued that the sale of the vessels were
among those transactions "deemed sale," as enumerated in
Section 4 of R.R. No. 5-87. It seems that the CIR particularly
emphasized Section 4(E)(i) of the Regulation, which classified
"change of ownership of business" as a circumstance that
gave rise to a transaction "deemed sale."
In a Decision dated 27 April 1992, the CTA rejected the CIR’s
arguments and granted the petition.9 The CTA ruled that the
sale of a vessel was an "isolated transaction," not done in the
ordinary course of NDC’s business, and was thus not subject
to VAT, which under Section 99 of the Tax Code, was applied
only to sales in the course of trade or business. The CTA
further held that the sale of the vessels could not be "deemed
sale," and thus subject to VAT, as the transaction did not fall
under the enumeration of transactions deemed sale as listed
either in Section 100(b) of the Tax Code, or Section 4 of R.R.
No. 5-87. Finally, the CTA ruled that any case of doubt should
be resolved in favor of private respondents since Section 99 of
the Tax Code which implemented VAT is not an exemption
provision, but a classification provision which warranted the
resolution of doubts in favor of the taxpayer.
The CIR appealed the CTA Decision to the Court of
Appeals,10 which on 11 March 1997, rendered a Decision
reversing the CTA.11 While the appellate court agreed that the
sale was an isolated transaction, not made in the course of
NDC’s regular trade or business, it nonetheless found that the
transaction fell within the classification of those "deemed sale"
under R.R. No. 5-87, since the sale of the vessels together
with the NMC shares brought about a change of ownership in
NMC. The Court of Appeals also applied the principle
governing tax exemptions that such should be strictly
construed against the taxpayer, and liberally in favor of the
government.12
However, the Court of Appeals reversed itself upon
reconsidering the case, through a Resolution dated 5 February
2001.13 This time, the appellate court ruled that the "change of
ownership of business" as contemplated in R.R. No. 5-87 must
be a consequence of the "retirement from or cessation of
business" by the owner of the goods, as provided for in Section
100 of the Tax Code. The Court of Appeals also agreed with
the CTA that the classification of transactions "deemed sale"
was a classification statute, and not an exemption statute, thus
warranting the resolution of any doubt in favor of the
taxpayer.14
To the mind of the Court, the arguments raised in the present
petition have already been adequately discussed and refuted
in the rulings assailed before us. Evidently, the petition should
be denied. Yet the Court finds that Section 99 of the Tax Code
is sufficient reason for upholding the refund of VAT payments,
and the subsequent disquisitions by the lower courts on the
applicability of Section 100 of the Tax Code and Section 4 of
R.R. No. 5-87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in
order. VAT is ultimately a tax on consumption, even though it is
assessed on many levels of transactions on the basis of a fixed
percentage.15 It is the end user of consumer goods or services
which ultimately shoulders the tax, as the liability therefrom is
passed on to the end users by the providers of these goods or
services16 who in turn may credit their own VAT liability (or
input VAT) from the VAT payments they receive from the final
consumer (or output VAT).17 The final purchase by the end
consumer represents the final link in a production chain that
itself involves several transactions and several acts of
consumption. The VAT system assures fiscal adequacy
through the collection of taxes on every level of
consumption,18 yet assuages the manufacturers or providers of
goods and services by enabling them to pass on their
respective VAT liabilities to the next link of the chain until finally
the end consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional
level. Its assessment bears direct relevance to the taxpayer’s
role or link in the production chain. Hence, as affirmed by
Section 99 of the Tax Code and its subsequent
incarnations,19 the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such
activities, in the course of trade or business. These
transactions outside the course of trade or business may
invariably contribute to the production chain, but they do so
only as a matter of accident or incident. As the sales of goods
or services do not occur within the course of trade or business,
the providers of such goods or services would hardly, if at all,
have the opportunity to appropriately credit any VAT liability as
against their own accumulated VAT collections since the
accumulation of output VAT arises in the first place only
through the ordinary course of trade or business.
That the sale of the vessels was not in the ordinary course of
trade or business of NDC was appreciated by both the CTA
and the Court of Appeals, the latter doing so even in its first
decision which it eventually reconsidered.20 We cite with
approval the CTA’s explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R.
No. L-7924, September 30, 1955 (97 Phil. 992), the
term "carrying on business" does not mean the
performance of a single disconnected act, but means
conducting, prosecuting and continuing business by
performing progressively all the acts normally incident
thereof; while "doing business" conveys the idea of
business being done, not from time to time, but all the
time. [J. Aranas, UPDATED NATIONAL INTERNAL
REVENUE CODE (WITH ANNOTATIONS), p. 608-9
(1988)]. "Course of business" is what is usually
done in the management of trade or business. [Idmi
v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65,
cited in Words & Phrases, Vol. 10, (1984)].
What is clear therefore, based on the aforecited
jurisprudence, is that "course of business" or "doing
business" connotes regularity of activity. In the instant
case, the sale was an isolated transaction. The sale
which was involuntary and made pursuant to the
declared policy of Government for privatization could
no longer be repeated or carried on with regularity. It
should be emphasized that the normal VAT-registered
activity of NDC is leasing personal property.21
This finding is confirmed by the Revised Charter22 of the NDC
which bears no indication that the NDC was created for the
primary purpose of selling real property.23
10
The conclusion that the sale was not in the course of trade or
business, which the CIR does not dispute before this
Court,24 should have definitively settled the matter. Any sale,
barter or exchange of goods or services not in the course of
trade or business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section
4(E)(i) of R.R. No. 5-87 now relied upon by the CIR, is
captioned "Value-added tax on sale of goods," and it expressly
states that "[t]here shall be levied, assessed and collected on
every sale, barter or exchange of goods, a value added tax x x
x." Section 100 should be read in light of Section 99, which
lays down the general rule on which persons are liable for VAT
in the first place and on what transaction if at all. It may even
be noted that Section 99 is the very first provision in Title IV of
the Tax Code, the Title that covers VAT in the law. Before any
portion of Section 100, or the rest of the law for that matter,
may be applied in order to subject a transaction to VAT, it must
first be satisfied that the taxpayer and transaction involved is
liable for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported
to define the phrase "in the course of trade or business" as
expressed in Section 99. If that were so, reference to Section
100 would have been necessary as a means of ascertaining
whether the sale of the vessels was "in the course of trade or
business," and thus subject to
VAT. But that is not the case. What Section 100 and Section
4(E)(i) of R.R. No. 5-87 elaborate on is not the meaning of "in
the course of trade or business," but instead the identification
of the transactions which may be deemed as sale. It would
become necessary to ascertain whether under those two
provisions the transaction may be deemed a sale, only if it is
settled that the transaction occurred in the course of trade or
business in the first place. If the transaction transpired outside
the course of trade or business, it would be irrelevant for the
purpose of determining VAT liability whether the transaction
may be deemed sale, since it anyway is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding
that the transaction in question was not made in the course of
trade or business of the seller, NDC that is, the sale is not
subject to VAT pursuant to Section 99 of the Tax Code, no
matter how the said sale may hew to those transactions
deemed sale as defined under Section 100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87
were to find application in this case, the Court finds the
discussions offered on this point by the CTA and the Court of
Appeals (in its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the
transactions deemed sale those involving "change of
ownership of business." However, Section 4(E) of R.R. No. 5-
87, reflecting Section 100 of the Tax Code, clarifies that such
"change of ownership" is only an attending circumstance to
"retirement from or cessation of business[, ] with respect to all
goods on hand [as] of the date of such retirement or
cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly
characterizes the "change of ownership of business" as only a
"circumstance" that attends those transactions "deemed sale,"
which are otherwise stated in the same section.26
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
 August 8, 2017
G.R. No. 198146
POWER SECTOR ASSETS AND LIABILITIES
MANAGEMENT CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 27 September 2010
Decision2 and the 3 August 2011 Resolution3 of the Court of
Appeals in CA-G.R. SP No. 108156. The Court of Appeals
nullified the Decisions dated 13 March 2008 and 14 January
2009 of the Secretary of Justice in OSJ Case No. 2007- 3 for
lack of jurisdiction.
The Facts
Petitioner Power Sector Assets and Liabilities Management
Corporation (PSALM) is a government-owned and controlled
corporation created under Republic Act No. 9136 (RA 9136),
also known as the Electric Power Industry Reform Act of 2001
(EPIRA).4 Section 50 of RA 9136 states that the principal
purpose of PSALM is to manage the orderly sale, disposition,
and privatization of the National Power Corporation (NPC)
generation assets, real estate and other disposable assets,
and Independent Power Producer (IPP) contracts with the
objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner.
PSALM conducted public biddings for the privatization of the
Pantabangan-Masiway Hydroelectric Power Plant
(Pantabangan-Masiway Plant) and Magat Hydroelectric Power
Plant (Magat Plant) on 8 September 2006 and 14 December
2006, respectively. First Gen Hydropower Corporation with its
$129 Million bid and SN Aboitiz Power Corporation with its
$530 Million bid were the winning bidders for the
PantabanganMasiway Plant and Magat Plant, respectively.
On 28 August 2007, the NPC received a letter5 dated 14
August 2007 from the Bureau of Internal Revenue (BIR)
demanding immediate payment of ₱3,813,080,4726 deficiency
value-added tax (VAT) for the sale of the Pantabangan-
Masiway Plant and Magat Plant. The NPC indorsed BIR's
demand letter to PSALM.
On 30 August 2007, the BIR, NPC, and PSALM executed a
Memorandum of Agreement (MOA),7 wherein they agreed that:
A) NPC/PSALM shall remit under protest to the BIR the
amount of Php 3,813,080,472.00, representing basic VAT as
shown in the BIR letter dated August 14, 2007, upon execution
of this Memorandum of Agreement (MOA).
B) This remittance shall be without prejudice to the outcome of
the resolution of the Issues before the appropriate courts or
body.
C) NPC/PSALM and BIR mutually undertake to seek final
resolution of the Issues by the appropriate courts or body.
D) BIR shall waive any and all interests and surcharges on the
aforesaid BIR letter, except when the case is elevated by the
BIR before an appellate court.
E) Nothing contained in this MOA shall be claimed or
construed to be an admission against interest as to any party
or evidence of any liability or wrongdoing whatsoever nor an
11
abandonment of any position taken by NPC/PSALM in
connection with the Issues.
F) Each Party to this MOA hereto expressly represents that the
authorized signatory hereto has the legal authority to bind [the]
party to all the terms of this MOA.
G) Any resolution by the appropriate courts or body in favor of
the BIR, other than a decision by the Supreme Court, shall not
constitute as precedent and sufficient legal basis as to the
taxability of NPC/PSALM's transactions pursuant to the
privatization of NPC's assets as mandated by the EPIRA Law.
H) Any resolution in favor of NPC/PSALM by any appropriate
court or body shall be immediately executory without necessity
of notice or demand from NPC/PSALM. A ruling from the
Department of Justice (DOJ) that is favorable to NPC/PSALM
shall be tantamount to the filing of an application for refund (in
cash)/tax credit certificate (TCC), at the option of NPC/PSALM.
BIR undertakes to immediately process and approve the
application, and release the tax refund/TCC within fifteen (15)
working days from issuance of the DOJ ruling that is favorable
to NPC/PSALM.
I) Either party has the right to appeal any adverse decision
against it before any appropriate court or body.
J) In the event of failure by the BIR to fulfill the undertaking
referred to in (H) above, NPC/PSALM shall assign to DOF its
right to the refund of the subject remittance, and the DOF shall
offset such amount against any liability of NPC/PSALM to the
National Government pursuant to the objectives of the EPIRA
on the application of the privatization proceeds.8
In compliance with the MOA, PSALM remitted under protest to
the BIR the amount of ₱3, 813, 080, 472, representing the total
basic VAT due.
On 21 September 2007, PSALM filed with the Department of
Justice (DOJ) a petition for the adjudication of the dispute with
the BIR to resolve the issue of whether the sale of the power
plants should be subject to VAT. The case was docketed as
OSJ Case No. 2007-3.
On 13 March 2008, the DOJ ruled in favor of PSALM, thus:
In cases involving purely question[s] of law, such as in the
instant case, between and among the government-owned and
controlled corporation and government bureau, the issue is
best settled in this Department. In the final analysis, there is
but one party in interest, the Government itself in this litigation.
xxxx
The instant petition is an original petition involving only [a]
question of law on whether or not the sale of the Pantabangan-
Masiway and Magat Power Plants to private entities under the
mandate of the EPIRA is subject to VAT. It is to be stressed
that this is not an appeal from the decision of the
Commissioner of Internal Revenue involving disputed
assessments, refunds of internal revenue taxes, fees or other
charges, or other matters arising under the National Internal
Revenue Code or other law.
xxxx
Moreover, it must be noted that respondent already invoked
this Office's jurisdiction over it by praying in respondent's
Motion for Extension of Time to File Comment (On Petitioner's
Petition dated 21 September 2007) and later, Omnibus Motion
To Lift Order dated 22 October 2007 and To Admit Attached
Comment. The Court has held that the filing of motions seeking
affirmative relief, such as, to admit answer, for additional time
to answer, for reconsideration of a default judgment, and to lift
order of default with motion for reconsideration, are considered
voluntary submission to the jurisdiction of the court. Having
sought this Office to grant extension of time to file answer or
comment to the instant petition, thereby submitting to the
jurisdiction of this Court [sic], respondent cannot now repudiate
the very same authority it sought.
xxxx
When petitioner was created under Section 49 of R.A. No.
9136, for the principal purpose to manage the orderly sale,
disposition, and privatization of NPC generation assets, real
estate and other disposable assets, IPP contracts with the
objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner, there was, by
operation of law, the transfer of ownership of NPC assets.
Such transfer of ownership was not carried out in the ordinary
course of transfer which must be accorded with the required
elements present for a valid transfer, but in this case, in
accordance with the mandate of the law, that is, EPIRA. Thus,
respondent cannot assert that it was NPC who was the actual
seller of the Pantabangan-Masiway :md Magat Power Plants,
because at the time of selling the aforesaid power plants, the
owner then was already the petitioner and not the NPC.
Consequently, petitioner cannot also be considered a
successor-in-· interest of NPC.
Since it was petitioner who sold the Pantabangan-Masiway
and Magat Power Plants and not the NPC, through a
competitive and public bidding to the private entities, Section
24(A) of R.A. No. 9337 cannot be applied to the instant case.
Neither the grant of exemption and revocation of the tax
exemption accorded to the NPC, be also affected to petitioner.
xxxx
Clearly, the disposition of Pantabangan-Masiway and Magat
Power Plants was not in the regular conduct or pursuit of a
commercial or an economic activity, but was effected by the
mandate of the EPIRA upon petitioner to direct the orderly
sale, disposition, and privatization of NPC generation assets,
real estate and other disposable assets, and IPP contracts,
and afterward, to liquidate the outstanding obligations of the
NPC.
xxxx
Verily, to subject the sale of generation assets in accordance
with a privatization plan submitted to and approved by the
President, which is a one time sale, to VAT would run counter
to the purpose of obtaining optimal proceeds since potential
bidders would necessarily have to take into account such extra
cost of VAT.
WHEREFORE, premises considered, the imposition by
respondent Bureau of lnternal Revenue of deficiency Value-
Added Tax in the amount of ₱3,813,080,472.00 on the
privatization sale of the Pantabangan Masiway and Magat
Power Plants, done in accordance with the mandate of the
Electric Power Industry Reform Act of 2001, is hereby declared
NULL and VOID. Respondent is directed to refund the amount
of ₱3,813,080,472.00 remitted under protest by petitioner to
respondent.9
The BIR moved for reconsideration, alleging that the DOJ had
no jurisdiction since the dispute involved tax laws administered
by the BIR and therefore within the jurisdiction of the Court of
Tax Appeals (CTA). Furthermore, the BIR stated that the sale
of the subject power plants by PSALM to private entities is in
the course of trade or business, as contemplated under
Section 105 of the National Internal Revenue Code (NIRC) of
1997, which covers incidental transactions. Thus, the sale is
subject to VAT. On 14 January 2009, the DOJ denied BIR's
Motion for Reconsideration.10
On 7 April 2009,11 the BIR Commissioner (Commissioner of
Internal Revenue) filed with the Court of Appeals a petition
for certiorari, seeking to set aside the DOJ's decision for lack of
12
jurisdiction. In a Resolution dated 23 April 2009, the Court of
Appeals dismissed the petition for failure to attach the relevant
pleadings and documents.12 Upon motion for reconsideration,
the Court of Appeals reinstated the petition in its Resolution
dated 10 July 2009.13
The Ruling of the Court of Appeals
The Court of Appeals held that the petition filed by PSALM with
the DOJ was really a protest against the assessment of
deficiency VAT, which under Section 20414 of the NIRC of 1997
is within the authority of the Commissioner of Internal Revenue
(CIR) to resolve. In fact, PSALM's objective in filing the petition
was to recover the ₱3,813,080,472 VAT which was allegedly
assessed erroneously and which PSALM paid under protest to
the BIR.
Quoting paragraph H15 of the MOA among the BIR, NPC, and
PSALM, the Court of Appeals stated that the parties in effect
agreed to consider a DOJ ruling favorable to PSALM as the
latter's application for refund.
Citing Section 416 of the NIRC of 1997, as amended by Section
3 of Republic Act No. 8424 (RA 8424)17 and Section 718 of
Republic Act No. 9282 (RA 9282),19 the Court of Appeals ruled
that the CIR is the proper body to resolve cases involving
disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other
matters arising under the NIRC or other laws administered by
the BIR. The Court of Appeals stressed that jurisdiction is
conferred by law or by the Constitution; the parties, such as in
this case, cannot agree or stipulate on it by conferring
jurisdiction in a body that has none. Jurisdiction over the
person can be waived but not the jurisdiction over the subject
matter which is neither subject to agreement nor conferred by
consent of the parties. The Court of Appeals held that the DOJ
Secretary erred in ruling that the CIR is estopped from
assailing the jurisdiction of the DOJ after having agreed to
submit to its jurisdiction. As a general rule, estoppel does not
confer jurisdiction over a cause of action to a tribunal where
none, by law, exists.
In conclusion, the Court of Appeals found that the DOJ
Secretary gravely abused his discretion amounting to lack of
jurisdiction when he assumed jurisdiction over OSJ Case No.
2007-3. The dispositive portion of the Court of Appeals' 27
September 2010 Decision reads:
WHEREFORE, premises considered, we hereby GRANT the
petition. Accordingly: (1) the [D]ecision dated March 13, 2008,
and the Decision dated January 14, 2009 both issued by the
public respondent Secretary of Justice in [OSJ Case No.]
2007-3 are declared NULL and VOID for having been issued
without jurisdiction.
No costs.
SO ORDERED.20
PSALM moved for reconsideration, which the Court of Appeals
denied in its 3 August 2011 Resolution. Hence, this petition.
The Issues
Petitioner PSALM raises the following issues:
I. DID THE COURT OF APPEALS MISAPPLY THE LAW IN
GIVING DUE COURSE TO THE PETITION FOR
CERTIORARI IN CA-G.R. SP NO. 108156?
II. DID THE SECRETARY OF JUSTICE ACT IN
ACCORDANCE WITH THE LAW IN ASSUMING
JURISDICTION AND SETTLING THE DISPUTE BY AND
BETWEEN THE BIR AND PSALM?
III. DID THE SECRETARY OF JUSTICE ACT IN
ACCORDANCE WITH THE LAW AND JURISPRUDENCE IN
RENDERING JUDGMENT THAT THERE SHOULD BE·NO
VAT ON THE PRIVATIZATION, SALE OR DISPOSAL OF
GENERATION ASSETS?
IV. DOES PUBLIC RESPONDENT DESERVE THE RELIEF
OF CERTIORARI?21
The Ruling of the Court
We find the petition meritorious.
I. Whether the Secretary of Justice has jurisdiction over
the case.
The primary issue in this case is whether the DOJ Secretary
has jurisdiction over OSJ Case No. 2007-3 which involves the
resolution of whether the sale of the Pantabangan-Masiway
Plant and Magat Plant is subject to VAT.
We agree with the Court of Appeals that jurisdiction over the
subject matter is vested by the Constitution or by law, and not
by the parties to an action.22 Jurisdiction cannot be conferred
by consent or acquiescence of the parties23 or by erroneous
belief of the court, quasi-judicial office or government agency
that it exists.
However, contrary to the ruling of the Court of Appeals, we find
that the DOJ is vested by law with jurisdiction over this case.
This case involves a dispute between PSALM and NPC, which
are both wholly government owned corporations, and the BIR,
a government office, over the imposition of VAT on the sale of
the two power plants. There is no question
that original jurisdiction is with the CIR, who issues the
preliminary and the final tax assessments. However, if the
government entity disputes the tax assessment, the dispute is
already between the BIR (represented by the CIR) and another
government entity, in this case, the petitioner PSALM. Under
Presidential Decree No. 24224 (PD 242), all disputes and
claims solely between government agencies and offices,
including government-owned or controlled· corporations,
shall be administratively settled or adjudicated by the
Secretary of Justice, the Solicitor General, or the
Government Corporate Counsel, depending on the issues
and government agencies involved. As regards cases
involving only questions of law, it is the Secretary of Justice
who has jurisdiction. Sections 1, 2, and 3 of PD 242 read:
Section 1. Provisions of law to the contrary
notwithstanding, all disputes, claims and controversies
solely between or among the departments, bureaus,
offices, agencies and instrumentalities of the National
Government, including constitutional offices or agencies,
arising from the interpretation and application of statutes,
contracts or agreements, shall henceforth be
administratively settled or adjudicated as provided
hereinafter: Provided, That, this shall not apply to cases
already pending in court at the time of the effectivity of this
decree.
Section 2. In all cases involving only questions of law, the
same shall be submitted to and settled or adjudicated by
the Secretary of Justice, as Attorney General and ex officio
adviser of all government owned or controlled corporations and
entities, in consonance with Section 83 of the Revised
Administrative Code. His ruling or determination of the
question in each case shall be conclusive and binding
upon all the parties concerned.
Section 3. Cases involving mixed questions of law and of fact
or only factual issues shall be submitted to and settled or
adjudicated by:
(a) The Solicitor General, with respect to disputes or
claims [or] controversies between or among the
13
departments, bureaus, offices and other agencies of
the National Government;
(b) The Government Corporate Counsel, with respect
to disputes or claims or controversies between or
among the government-owned or controlled
corporations or entities being served by the Office of
the Government Corporate Counsel; and
(c) The Secretary of Justice, with respect to all other
disputes or claims or controversies which do not fall
under the categories mentioned in paragraphs (a) and
(b). (Emphasis supplied)
The use of the word "shall" in a statute connotes a mandatory
order or an imperative obligation.25 Its use rendered the
provisions mandatory and not merely permissive, and unless
PD 242 is declared unconstitutional, its provisions must be
followed. The use of the word "shall" means that administrative
settlement or adjudication of disputes and claims between
government agencies and offices, including government-
owned or controlled corporations, is not merely permissive but
mandatory and imperative. Thus, under PD 242, it is
mandatory that disputes and claims "solely" between
government agencies and offices, including government-
owned or controlled corporations, involving only questions of
law, be submitted to and settled or adjudicated by the
Secretary of Justice.
The law is clear and covers "all disputes, claims and
controversies solely between or among the departments,
bureaus, offices, agencies and instrumentalities of the
National Government, including constitutional offices or
agencies arising from the interpretation and application of
statutes, contracts or agreements." When the law says "all
disputes, claims and controversies solely" among government
agencies, the law means all, without exception. Only those
cases already pending in court at the time of the effectivity of
PD 242 are not covered by the law.
The purpose of PD 242 is to provide for a speedy and
efficient administrative settlement or adjudication of
disputes between government offices or agencies under
the Executive branch, as well as to filter cases to lessen
the clogged dockets of the courts. As explained by the
Court in Philippine Veterans Investment Development
Corp. (PHIVIDEC) v. Judge Velez:26
Contrary to the opinion of the lower court, P.D. No. 242 is not
unconstitutional. It does not diminish the jurisdiction of [the]
courts but only prescribes an administrative procedure for the
settlement of certain types of disputes between or among
departments, bureaus, offices, agencies, and instrumentalities
of the National Government, including government-owned or
controlled corporations, so that they need not always repair to
the courts for the settlement of controversies arising from the
interpretation and application of statutes, contracts or
agreements. The procedure is not much different, and no less
desirable, than the arbitration procedures provided in Republic
Act No. 876 (Arbitration Law) and in Section 26, R.A. 6715
(The Labor Code). It is an alternative to, or a substitute for,
traditional litigation in court with the added advantage of
avoiding the delays, vexations and expense of court
proceedings. Or, as P.D. No. 242 itself explains, its purpose is
"the elimination of needless clogging of court dockets to
prevent the waste of time and energies not only of the
government lawyers but also of the courts, and eliminates
expenses incurred in the filing and prosecution of judicial
actions."27
PD 242 is only applicable to disputes, claims, and
controversies solely between or among the departments,
bureaus, offices, agencies and instrumentalities of the National
Government, including government-owned or controlled
corporations, and where no private party is involved. In other
words, PD 242 will only apply when all the parties involved
are purely government offices and government-owned or
controlled corporations.28 Since this case is a dispute
between PSALM arid NPC, both government owned and
controlled corporations, and the BIR, a National Government
office, PD 242 clearly applies and the Secretary of Justice has
jurisdiction over this case. In fact, the MOA executed by the
BIR, NPC, and PSALM explicitly provides that "[a] ruling from
the Department of Justice (DOJ) that is favorable to
NPC/PSALM shall be tantamount to the filing of an application
for refund (in cash)/tax credit certificate (TCC), at the option of
NPC/PSALM."29 Such provision indicates that the BIR and
petitioner PSALM and the NPC acknowledged that the
Secretary of Justice indeed has jurisdiction to resolve their
dispute.
This case is different from the case of Philippine National Oil
Company v. Court of Appeals,30 (PNOC v. CA) which involves
not only the BIR (a government bureau) and the PNOC and
PNB (both government-owned or controlled corporations), but
also respondent Tirso Savellano, a private citizen. Clearly, PD
242 is not applicable to the case of PNOCv.CA. Even
the ponencia in PNOC v. CA stated that the dispute in that
case is not covered by PD 242, thus:
Even if, for the sake of argument, that P.D. No. 242 should
prevail over Rep. Act No. 1125, the present dispute would still
not be covered by P.D. No. 242. Section 1 of P.D. No. 242
explicitly provides that only disputes, claims and controversies
solely between or among departments, bureaus, offices,
agencies, and instrumentalities of the National Government,
including constitutional offices or agencies, as well as
government-owned and controlled corporations, shall be
administratively settled or adjudicated. While the BIR is
obviously a government bureau, and both PNOC and PNB
are government-owned and controlled corporations,
respondent Savellano is a private. citizen. His standing in
the controversy could not be lightly brushed aside. It was
private respondent Savellano who gave the BIR the
information that resulted in the investigation of PNOC and
PNB; who requested the BIR Commissioner to reconsider the
compromise agreement in question; and who initiated the CTA
Case No. 4249 by filing a Petition for Review.31 (Emphasis
supplied)
In contrast, since this case is a dispute solely between PSALM
and NPC, both government-owned and controlled
corporations, and the BIR, a National Government office, PD
242 clearly applies and the Secretary of Justice has jurisdiction
over this case.
It is only proper that intra-governmental disputes be settled
administratively since the opposing government offices,
agencies and instrumentalities are all under the
President's executive control and supervision. Section 17,
Article VII of the Constitution states unequivocally that: "The
President shall have control of all the executive
departments, bureaus and offices. He shall ensure that the
laws be faithfully executed." In Carpio v. Executive
Secretary,32 the Court expounded on the President's control
over all the executive departments, bureaus and offices, thus:
This presidential power of control over the executive branch of
government extends over all executive officers from Cabinet
Secretary to the lowliest clerk and has been held by us, in the
landmark case of Mondano vs. Silvosa, to mean "the power of
[the President] to alter or modify or nullify or set aside what a
subordinate officer had done in the performance of his duties
and to substitute the judgment of the former with that of the
latter." It is said to be at the very "heart of the meaning of Chief
Executive."
Equally well accepted, as a corollary rule to the control powers
of the President, is the "Doctrine of Qualified Political Agency."
As the President cannot be expected to exercise his control
powers all at the same time and in person, he will have to
delegate some of them to his Cabinet members.
Under this doctrine, which recognizes the establishment of a
single executive, "all executive and administrative
organizations are adjuncts of the Executive Department, the
14
heads of the various executive departments are assistants and
agents of the Chief Executive, and, except in cases where the
Chief Executive is required by the Constitution or law to act in
person on the exigencies of the situation demand that he act
personally, the multifarious executive and administrative
functions of the Chief Executive are performed by and through
the executive departments, and the acts of the Secretaries of
such departments, performed and promulgated in the regular
course of business, are, unless disapproved or reprobated by
the Chief Executive presumptively the acts of the Chief
Executive."
Thus, and in short, "the President's power of control is directly
exercised by him over the members of the Cabinet who, in
turn, and by his authority, control the bureaus and other offices
under their respective jurisdictions in the executive department.
"33
This power of control vested by the Constitution in the
President cannot be diminished by law. As held in Rufino v.
Endriga,34 Congress cannot by law deprive the President of his
power of control, thus:
The Legislature cannot validly enact a law· that puts a
government office in the Executive branch outside the control
of the President in the guise of insulating that office from
politics or making it independent. If the office is part of the
Executive branch, it must remain subject to the control of
the President. Otherwise, the Legislature can deprive the
President of his constitutional power of control over "all
the executive x x x offices." If the Legislature can do this
with the Executive branch, then the Legislature can also
deal a similar blow to the Judicial branch by enacting a
law putting decisions of certain lower courts beyond the
review power of the Supreme Court. This will destroy the
system of checks and balances finely structured in the 1987
Constitution among the Executive, Legislative, and Judicial
branches.35 (Emphasis supplied)
Clearly, the President's constitutional power of control over all
the executive departments, bureaus and offices cannot be
curtailed or diminished by law. "Since the Constitution has
given the President the power of control, with all its awesome
implications, it is the Constitution alone which can curtail such
power."36 This. constitutional power of control of the
President cannot be diminished by the CTA. Thus, if two
executive offices or agencies cannot agree, it is only
proper and logical that the President, as the sole
Executive who under the Constitution has control over
both offices or agencies in dispute, should resolve the
dispute instead of the courts. The judiciary should not
intrude in this executive function of determining which is
correct between the opposing government offices or
agencies, which are both under the sole control of the
President. Under his constitutional power of control, the
President decides the dispute between the two executive
offices. The judiciary cannot substitute its decision over
that of the President. Only after the President has decided or
settled the dispute can the courts' jurisdiction be invoked. Until
such time, the judiciary should not interfere since the issue is
not yet ripe for judicial adjudication. Otherwise, the judiciary
would infringe on the President's exercise of his constitutional
power of control over all the executive departments, bureaus,
and offices.
Furthermore, under the doctrine of exhaustion of
administrative remedies, it is mandated that where a
remedy before an administrative body is provided by
statute, relief must be sought by exhausting this remedy
prior to bringing an action in court in order to give the
administrative body every opportunity to decide a matter
that comes within its jurisdiction.37 A litigant cannot go to
court without first pursuing his administrative remedies;
otherwise, his action is premature and his case is not ripe for
judicial determination.38 PD 242 (now Chapter 14, Book IV of
Executive Order No. 292), provides for such administrative
remedy. Thus, only after the President has decided the dispute
between government offices and agencies can the losing party
resort to the courts, if it so desires. Otherwise, a resort to the
courts would be premature for failure to exhaust administrative
remedies. Non-observance of the doctrine of exhaustion of
administrative remedies would result in lack of cause of
action,39 which is one of the grounds for the dismissal of a
complaint.
The rationale of the doctrine of exhaustion. of administrative
remedies was aptly explained by the Court in Universal Robina
Corp. (Corn Division) v. Laguna Lake Development Authority:40
The doctrine of exhaustion of administrative remedies is a
cornerstone of our judicial system. The thrust of the rule is that
courts must allow administrative agencies to carry out their
functions and discharge their responsibilities within the
specialized areas of their respective competence. The
rationale for this doctrine is obvious. It entails lesser expenses
and provides for the speedier resolution of the controversies.
Comity and convenience also impel courts of justice to shy
away from a dispute until the system of administrative redress
has been completed.41
In requiring parties to exhaust administrative remedies before
pursuing action in a court, the doctrine prevents overworked
courts from considering issues when remedies are available
through administrative channels.42 Furthermore, the doctrine
endorses a more economical and less formal means of
resolving disputes,43 and promotes efficiency since disputes
and claims are generally resolved more quickly and
economically through administrative proceedings rather than
through court litigations.44
The Court of Appeals ruled that under the 1997 NIRC, the
dispute between the parties is within the authority of the CIR to
resolve. Section 4 of the 1997 NIRC reads:
SEC 4. Power of the Commissioner to Interpret Tax Laws and
to Decide Tax Cases. - The power to interpret the provisions of
this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance.
The power to decide disputed assessments, refunds in internal
revenue taxes, fees or other charges. penalties imposed in
relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.
(Emphasis supplied)
The first paragraph of Section 4 of the 1997 NIRC provides
that the power of the CIR to interpret the NIRC provisions and
other tax laws is subject to review by the Secretary of
Finance, who is the alter ego of the President. Thus, the
constitutional power of control of the President over all the
executive departments, bureaus, and offices45 is still preserved.
The President's power of control, which cannot be limited or
withdrawn by Congress, means the power of the President to
alter, modify, nullify, or set aside the judgment or action of a
subordinate in the performance of his duties.46
The second paragraph of Section 4 of the 1997 NIRC,
providing for the exclusive appellate jurisdiction of the CTA as
regards the CIR's decisions on matters involving disputed
assessments, refunds in internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters
arising under NIRC, is in conflict with PD 242. Under PD
242, all disputes and claims solely between government
agencies and offices, including government-owned or
controlled corporations, shall be administratively settled or
adjudicated by the Secretary of Justice, the Solicitor General,
or the Government Corporate Counsel, depending on the
issues and government agencies involved.
To harmonize Section 4 of the 1997 NIRC with PD 242, the
following interpretation should be adopted: (1) As
regards private entities and the BIR, the power to decide
disputed assessments, refunds of internal revenue taxes, fees
15
or other charges, penalties in relation thereto, or other matters
arising under the NIRC or other laws administered by the. BIR
is vested in the CIR subject to the exclusive appellate
jurisdiction of the CTA, in accordance with Section 4 of the
NIRC; and (2) Where the disputing parties are all public
entities (covers disputes between the BIR and other
government entities), the case shall be governed by PD 242.
Furthermore, it should be noted that the 1997 NIRC is a
general law governing the imposition of national internal
revenue taxes, fees, and charges.47 On the other hand, PD
242 is a special law that applies only to disputes involving
solely government offices, agencies, or
instrumentalities. The difference between a special law and a
general law was clarified in Vinzons-Chato v. Fortune Tobacco
Corporation:48
A general statute is one which embraces a class of subjects or
places and does not omit any subject or place naturally
belonging to such class. A special statute, as the term is
generally understood, is one which relates to particular
persons or things of a class or to a particular portion or section
of the state only.
A general law and a special law on the same subject are
statutes in pari materia and should, accordingly, be read
together and harmonized, if possible, with a view to giving
effect to both. The rule is that where there are two acts, one of
which is special and particular and the other general which, if
standing alone, would include the same matter and thus
conflict with the special act, the special law must prevail since
it evinces the legislative intent more clearly than that of a
general statute and must not be taken as intended to affect the
more particular and specific provisions of the earlier act, unless
it is absolutely necessary so to construe it in order to give its
words any meaning at all.
The circumstance that the special law is passed before or after
the general act does not change the principle. Where the
special law is later, it will be regarded as an exception to, or a
qualification of, the prior general act; and where the general act
is later, the special statute will be construed as remaining an
exception to its terms, unless repealed expressly or by
necessary implication.49
Thus, even if the 1997 NIRC, a general statute, is a later
act, PD 242, which is a special law, will still prevail and is
treated as an exception to the terms of the 1997 NIRC with
regard solely to intragovernmental disputes. PD 242 is a
special law while the 1997 NIRC is a general law, insofar as
disputes solely between or among government agencies are
concerned. Necessarily, such disputes must be resolved under
PD 242 and not under the NIRC, precisely because PD 242
specifically mandates the settlement of such disputes in
accordance with PD 242. PD 242 is a valid law prescribing the
procedure for administrative settlement or adjudication of
disputes among government offices, agencies, and
instrumentalities under the executive control and supervision of
the President.50
Even the BIR, through its authorized representative, then OIC-
Commissioner of Internal Revenue Lilian B. Hefti,
acknowledged in the MOA executed by the BIR, NPC, and
PSALM, that the Secretary of Justice has jurisdiction to resolve
its dispute with petitioner PSALM and the NPC. This is clear
from the provision in the MOA which states:
H) Any resolution in favor of NPC/PSALM by any appropriate
court or body shall be immediately executory without necessity
of notice or demand from NPC/PSALM. A ruling from the
Department of Justice (DOJ) that is favorable to
NPC/PSALM shall be tantamount to the filing of an
application for refund (in cash)/tax credit certificate (TCC),
at the option of NPC/PSALM. BIR undertakes to
immediately process and approve the application, and
release the tax refund/TCC within fifteen (15) working days
from issuance of the DOJ ruling that is favorable to
NPC/PSALM. (Emphasis supplied)
PD 242 is now embodied in Chapter 14, Book IV of Executive
Order No. 292 (EO 292), otherwise known as the
Administrative Code of 1987, which took effect on 24
November 1989.51 The pertinent provisions read:
Chapter 14- Controversies Among Government
Offices and Corporations
SEC. 66. How Settled. - All disputes, claims and controversies,
solely between or among the departments, bureaus, offices,
agencies and instrumentalities of the National Government,
including government-owned or controlled corporations, such
as those arising from the interpretation and application of
statutes, contracts or agreements, shall be administratively
settled or adjudicated in the manner provided in this Chapter.
This Chapter shall, however, not apply to disputes involving the
Congress, the Supreme Court, the Constitutional
Commissions, and local governments.
SEC. 67. Disputes Involving Questions of Law. - All cases
involving only questions of law shall be submitted to and
settled or adjudicated by the Secretary of Justice as Attorney-
General of the National Government and as ex officio legal
adviser of all government-owned or controlled corporations.
His ruling or decision thereon shall be conclusive and binding
on all the parties concerned.
SEC. 68. Disputes Involving Questions of Fact and Law. -
Cases involving mixed questions of law and of fact or only
factual issues shall be submitted to and settled or adjudicated
by:
(1) The Solicitor General, if the dispute, claim or
controversy involves only departments, bureaus,
offices and other agencies of the National
Government as well as government-owned or
controlled corporations or entities of whom he is the
principal law officer or general counsel; and
(2) The Secretary of Justice, in all other cases not
falling under paragraph (1).
SEC. 69. Arbitration. - The determination of factual issues may
be referred to an arbitration panel composed of one
representative each of the parties involved and presided over
by a representative of the Secretary of Justice or the Solicitor
General, as the case may be.
SEC. 70. Appeals. - The decision of the Secretary of Justice as
well as that of the Solicitor General, when approved by the
Secretary of Justice, shall be final and binding upon the parties
involved. Appeals may, however, be taken to the President
where the amount of the claim or the value of the property
exceeds one million pesos. The decision of the President shall
be final.
SEC. 71. Rules and Regulations. - The Secretary of Justice
shall promulgate the rules and regulations necessary to carry
out the provisions of this Chapter.
Since the amount involved in this case is more than one million
pesos, the DOJ Secretary's decision may be appealed to the
Office of the President in accordance with Section 70, Chapter
14, Book IV of EO 292 and Section 552 of PD 242. If the
appeal to the Office of the President is denied, the aggrieved
party can still appeal to the Court of Appeals under Section 1,
Rule 43 of the 1997 Rules of Civil Procedure.53 However, in
order not to further delay the disposition of this case, the Court
resolves to decide the substantive issue raised in the petition.54
II. Whether the sale of the power plants is subject to VAT.
To resolve the issue of whether the sale of the Pantabangan-
Masiway and Magat Power Plants by petitioner PSALM to
private entities is subject to VAT, the Court must determine
16
whether the sale is "in the course of trade or business" as
contemplated under Section 105 of the NIRC, which reads:
SEC 105. Persons Liable. - Any person who, in the course
of trade or business, sells, barters, exchanges, leases
goods or properties, renders services, and any person
who imports .goods shall be subject to the value-added
tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax
may be shifted or passed on to the buyer, transferee or lessee
of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties
or services at the time of the effectivity of Republic Act 7716.
The phrase 'in the course of trade or business' means the
regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental
thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members
or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services
as defined in this Code rendered in the Philippines by
nonresident foreign persons shall be considered as being
rendered in the course of trade or business. (Emphasis
supplied)
Under Section 50 of the EPIRA law, PSALM's principal
purpose is to manage the orderly sale, disposition, and
privatization of the NPC generation assets, real estate and
other disposable assets, and IPP contracts with the objective
of liquidating all NPC financial obligations and stranded
contract costs in an optimal manner.
PSALM asserts that the privatization of NPC assets, such as
the sale of the Pantabangan-Masiway and Magat Power
Plants, is pursuant to PSALM's mandate under the EPIRA law
and is not conducted in the course of trade or business.
PSALM cited the 13 May 2002 BIR Ruling No. 020- 02, that
PSALM' s sale of assets is not conducted in pursuit of any
commercial or profitable activity as to fall within the ambit of a
VAT-able transaction under Sections 105 and 106 of the NIRC.
The pertinent portion of the ruling adverted to states:
2. Privatization of assets by PSALM is not subject to VAT
Pursuant to Section 105 in relation to Section 106, both of the
Tax Code of 1997, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the
goods, is collected from any person, who, in the course of
trade or business, sells, barters, exchanges, leases goods or
properties, which tax shall be paid by the seller or transferor.
The phrase "in the course of trade or business" means the
regular conduct or pursuit of a commercial activity, including
transactions incidental thereto.
Since the disposition or sale of the assets is a consequence of
PSALM's mandate to ensure the orderly sale or disposition of'
the property and thereafter to liquidate the outstanding loans
and obligations of NPC, utilizing the proceeds from sales and
other property contributed to it, including the proceeds from the
Universal Charge, and not conducted in pursuit of any
commercial or profitable activity, including transactions
incidental thereto, the same will be considered an isolated
,transaction, which will therefore not be subject to VAT.
(BIR Ruling No. 113-98 dated July 23, 1998)55 (Emphasis
supplied)
On the other hand, the CIR argues that the previous exemption
of NPC from VAT under Section 13 of Republic Act No.
639556 (RA 6395) was expressly repealed by Section 24 of
Republic Act No. 933757 (RA 9337), which reads:
SEC. 24. Repealing Clause. - The following laws or provisions
of laws are hereby repealed and the persons and/or
transactions affected herein are made subject to the value-
added tax subject to the provisions of Title IV of the National
Internal Revenue Code of 1997, as amended:
(A) Section 13 of R.A. No. 6395 on the exemption
from value-added tax of National Power Corporation
(NPC);
(B) Section 6, fifth paragraph of R.A. No. 9136 on the
zero VAT rate imposed on the sale of generated
power by generation companies; and
(C) All other laws, acts, decrees, executive orders,
issuances and rules and regulations or parts thereof
which are contrary to and inconsistent with any
provisions of this Act are hereby repealed, amended
or modified accordingly.
As a consequence, the CIR posits that the VAT exemption
accorded to PSALM under BIR Ruling No. 020-02 is also
deemed revoked since PSALM is a successor-in-interest of
NPC. Furthermore, the CIR avers that prior to the sale, NPC
still owned the power plants and not PSALM, which is just
considered as the trustee of the NPC properties. Thus, the sale
made by NPC or its successors-in-interest of its power plants
should be subject to the 10% VAT beginning 1 November 2005
and 12% VAT beginning 1 February 2007.
We do not agree with the CIR's position, which is anchored on
the wrong premise that PSALM is a successor-in-interest of
NPC. PSALM is not a successor-in-interest of NPC. Under its
charter, NPC is mandated to "undertake the development of
hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well
as the transmission of electric power on a nationwide
basis."58 With the passage of the EPIRA law which restructured
the electric power industry into generation, transmission,
distribution, and supply sectors, the NPC is now primarily
mandated to perform missionary electrification function through
the Small Power Utilities Group (SPUG) and is responsible for
providing power generation and associated power delivery
systems in areas that are not connected to the transmission
system.59 On the other hand, PSALM, a government-owned
and controlled corporation, was created under the EPIRA law
to manage the orderly sale and privatization of NPC assets
with the objective of liquidating all of NPC's financial
obligations in an optimal manner. Clearly, NPC and PSALM
have different functions. Since PSALM is not a successor-in-
interest of NPC, the repeal by RA 9337 of NPC's VAT
exemption does not affect PSALM.
In any event, even if PSALM is deemed a successor-in-interest
of NPC, still the sale of the power plants is not "in the course of
trade or business" as contemplated under Section 105 of the
NIRC, and thus, not subject to VAT. The sale of the power
plants is not in pursuit of a commercial or economic
activity but a governmental function mandated by law to
privatize NPC generation assets. PSALM was created
primarily to liquidate all NPC financial obligations and stranded
contract costs in an optimal manner. The purpose and
objective of PSALM are explicitly stated in Section 50 of the
EPIRA law, thus:
SEC. 50. Purpose and Objective, Domicile and Term of
Existence. - The principal purpose of the PSALM Corp. is to
manage the orderly sale, disposition, and privatization of
NPC generation assets, real estate and other disposable
assets, and IPP contracts with the objective of liquidating
all NPC financial obligations and stranded contract costs
in an optimal manner.
The PSALM Corp. shall have its principal office and place of
business within Metro Manila.
17
The PSALM Corp. shall exist for a period of twenty-five (25)
years from the effectivity of this Act, unless otherwise provided
by law, and all assets held by it, all moneys and properties
belonging to it, and all its liabilities outstanding upon the
expiration of its term of existence shall revert to and be
assumed by the National Government. (Emphasis supplied)
PSALM is limited to selling only NPC assets and IPP contracts
of NPC. The sale of NPC assets by PSALM is not "in the
course of trade or business" but purely for the specific purpose
of privatizing NPC assets in order to liquidate all NPC financial
obligations. PSALM is tasked to sell and privatize the NPC
assets within the term of its existence.60 The EPIRA law even
requires PSALM to submit a plan for the endorsement by the
Joint Congressional Power Commission and the approval of
the President of the total privatization of the NPC assets and
IPP contracts. Section 47 of the EPIRA law provides:
SEC 47. NPC Privatization. - Except for the assets of SPUG,
the generation assets, real estate, and other disposable assets
as well as IPP contracts of NPC shall be privatized in
accordance with this Act. Within six (6) months from the
effectivity of this Act, the PSALM Corp. shall submit a plan for
the endorsement by the Joint Congressional Power
Commission and the approval of the President of the
Philippines, on the total privatization of the generation assets,
real estate, other disposable assets as well as existing IPP
contracts of NPC and thereafter, implement the same, in
accordance with the following guidelines, except as provided
for in Paragraph (f) herein:
(a) The privatization value to the National
Government of the NPC generation assets, real
estate, other disposable assets as well as IPP
contracts shall be optimized;
(b) The participation by Filipino citizens and
corporations in the purchase of NPC assets shall be
encouraged. In the case of foreign investors, at least
seventy-five percent (75%) of the funds used to
acquire NPC-generation assets and IPP contracts
shall be inwardly remitted and registered with the
Bangko Sentral ng Pilipinas;
(c) The NPC plants and/or its IPP contracts assigned
to IPP Administrators, its related assets and assigned
liabilities, if any, shall be grouped in a manner which
shall promote the viability of the resulting generation
companies (gencos), ensure economic efficiency,
encourage competition, foster reasonable electricity
rates and create market appeal to optimize returns to
the government from the sale and disposition of such
assets in a manner consistent with the objectives of
this Act. In the grouping of the generation assets and
IPP contracts of NPC, the following criteria shall be
considered:
(1) A sufficient scale of operations and
balance sheet strength to promote the
financial viability of the restructured units;
(2) Broad geographical groupings to ensure
efficiency of operations but without the
formation of regional companies or
consolidation of market power;
(3) Portfolio of plants and IPP contracts to
achieve management and operational
synergy without dominating any part of the
market or the load curve; and
(4) Such other factors as may be deemed
beneficial to the best interest of the National
Government while ensuring attractiveness to
potential investors.
 (d) All assets of NPC shall be sold in open and
transparent manner through public bidding, and the
same shall apply to the disposition of IPP contracts;
(e) In cases of transfer of possession, control,
operation or privatization of multi-purpose hydro
facilities, safeguards shall be prescribed to ensure
that the national government may direct water usage
in cases of shortage to protect potable water,
irrigation, and all other requirements imbued with
public interest;
(f) The Agus and Pulangi complexes in Mindanao
shall be excluded from an1ong the generation
companies that will be initially privatized. Their
ownership shall be transferred to the PSALM Corp.
and both shall continue to be operated by the NPC.
Said complexes may be privatized not earlier than ten
(10) years from the effectivity of this Act, and, except
for Agus Ill, shall not be subject to BuildOperate-
Transfer (B-0-T), Build-Rehabilitate-OperateTransfer
(B-R-0-T) and other variations thereof pursuant to
Republic Act No. 6957. as amended by Republic Act
No. 7718. The privatization of Agus and Pulangi
complexes hall be left to the discretion of PSALM
Corp. in consultation with Congress;
(g) The steamfield assets and generating plants of
each geothermal complex shall not be sold
separately. They shall be combined and each
geothermal complex shall be sold as one package
through public bidding. The geothermal complexes
covered by this requirement include, but are not
limited to, Tiwi-Makban, Leyte A and B (Tongonan),
Palinpinon, and Mt. Apo;
(h) The ownership of the Caliraya-Botokan-Kalayaan
(CBK) pump storage complex shall be transferred to
the PSALM Corporation;
(i) Not later than three (3) years from the effectivity of
this Act, and in no case later than the initial
implementation of open access, at least seventy
percent (70%) of the total capacity of generating
assets of NPC and of the total capacity of the power
plants under contract with NPC located in Luzon and
Visayas spall have been privatized: Provided, That
any unsold capacity shall be privatized not later than
eight (8) years from the effectivity of this Act; and
(j) NPC may generate and sell electricity only from the
undisposed generating assets and IPP contracts of
PSALM Corp. and shall not incur any new obligations
to purchase power through bilateral contracts with
generation companies or other suppliers.
Thus, it is very clear that the sale of the power plants was
an exercise of a governmental function mandated by law
for the primary purpose of privatizing NPC assets in
accordance with the guidelines imposed by the EPIRA law.
In the 2006 case of Commissioner of Internal Revenue v.
Magsaysay Lines, Inc. (Magsaysay),61 the Court ruled that the
sale of the vessels of the National Development Company
(NDC) to Magsaysay Lines, Inc. is not subject to VAT since it
was not in the course of trade or business, as it was
involuntary and made pursuant to the government's policy of
privatization. The Court cited the CT A ruling that the phrase
"course of business" or "doing business" connotes regularity of
activity. Thus, since the sale of the vessels was an isolated
transaction, made pursuant to the government's privatization
policy, and which transaction could no longer be repeated or
carried on with regularity, such sale was not in the course of
trade or business and was not subject to VAT.
Similarly, the sale of the power plants in this case is not subject
to VAT since the sale was made pursuant to PSALM' s
18
mandate to privatize NPC assets, and was not undertaken in
the course of trade or business. In selling the power plants,
PSALM was merely exercising a governmental function for
which it was created under the EPIRA law.
The CIR argues that the Magsaysay case, which involved the
sale in 1988 of NDC vessels, is not applicable in this case
since it was decided under the 1986 NIRC. The CIR maintains
that under Section 105 of the 1997 NIRC, which amended
Section 9962 of the 1986 NIRC, the phrase "in the course of
trade or business" was expanded, and now covers incidental
transactions. Since NPC still owns the power plants and
PSALM may only be considered as trustee of the NPC assets,
the sale of the power plants is considered an incidental
transaction which is subject to VAT.
We disagree with the CIR's position. PSALM owned the power
plants which were sold. PSALM's ownership of the NPC assets
is clearly stated under Sections 49, 51, and 55 of the EPIRA
law. The pertinent provisions read:
SEC. 49. Creation of Power Sector Assets and Liabilities
Management Corporation. - There is hereby created a
government-owned and -controlled corporation to be
known as the "Power Sector Assets and Liabilities
Management Corporation," hereinafter referred to as
"PSALM Corp.," which shall take ownership of all existing
NPC generation assets, liabilities, IPP contracts, real
estate and all other disposable assets. All outstanding
obligations of the NPC arising from loans, issuances of bonds,
securities and other instruments of indebtedness shall be
transferred to and assumed by the PSALM Corp. within one
hundred eighty (180) days from the approval of this Act.
SEC 51. Powers. - The Corporation shall, in the performance
of its functions and for the attainment of its objectives, have the
following powers:
(a) To formulate and implement a program for the
sale and privatization of the NPC assets and IPP
contracts and the liquidation of the NPC debts and
stranded costs, such liquidation to be completed
within the term of existence of the PSALM Corp.;
(b) To take title to and possession of, administer
and conserve the assets transferred to it; to sell or
dispose of the same at such price and under such
terms and conditions as it may deem necessary or
proper, subject to applicable laws, rules and
regulations;
xxxx
SEC. 55. Property of PSALM Corp. -The following funds,
assets, contributions and other property shall constitute
the property of PSALM Corp.:
(a) The generation assets, real estate, IPP
contracts, other disposable assets of
NPC, proceeds from the sale or disposition of such
assets and residual assets from B-0-T, R-0-T, and
other variations thereof;
(b) Transfers from the National Government;
(c) Proceeds from loans incurred to restructure or
refinance NPC's transferred liabilities: Provided,
however, That all borrowings shall be fully paid for by
the end of the life of the PSALM Corp.;
(d) Proceeds from the universal charge allocated for
stranded contract costs and the stranded debts of the
NPC;
(e) Net profit of NPC;
 (f) Net profit of TRANSCO;

(g) Official assistance, grants, and donations from

external sources; and

(h) Other sources of funds as may be determined by

PSALM Corp. necessary for the above-mentioned
purposes. (Emphasis supplied)

Under the EPIRA law, the ownership of the generation assets,

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

In the more recent case of Mindanao II Geothermal

Partnership v. Commissioner of Internal Revenue (Mindanao
11),63 which was decided under the 1997 NIRC, the Court held
that the sale of a fully depreciated vehicle that had been used
in Mindanao II's business was subject to VAT, even if such
sale may be considered isolated. The Court ruled that it does
not follow that an isolated transaction cannot be an incidental
transaction for VAT purposes. The Court then cited Section
105 of the 1997 NIRC which shows that a transaction "in the
course of trade or business" includes "transactions incidental
thereto." Thus, the Court held that the sale of the vehicle is an
incidental transaction made in the course of Mindanao II's
business which should be subject to VAT.

The CIR alleges that the sale made by NPC and/or its
successors-in-interest of the power plants is an incidental
transaction which should be subject to VAT. This is erroneous.
As previously discussed, the power plants are already owned
by PSALM, not NPC. Under the EPIRA law, the ownership of
these power plants was transferred to PSALM for sale,
disposition, and privatization in order to liquidate all NPC
financial obligations. Unlike the Mindanao II case, the power
plants in this case were not previously used in PSALM's
business. The power plants, which were previously owned by
NPC were transferred to PSALM for the specific purpose of
privatizing such assets. The sale of the power plants cannot be
considered as an incidental transaction made in the course of
NPC's or PSALM's business. Therefore, the sale of the power
plants should not be subject to VAT.

Hence, we agree with the Decisions dated 13 March 2008 and

14 January 2009 of the Secretary of Justice in OSJ Case No.
2007-3 that it was erroneous for the BIR to hold PSALM liable
for deficiency VAT in the amount of ₱3,813,080,472 for the
sale of the Pantabangan-Masiway and Magat Power Plants.
The ₱3,813,080,472 deficiency VAT remitted by PSALM under
protest should therefore be refunded to PSALM.

However, to give effect to Section 70, Chapter 14, Book IV of

the Administrative Code of 1987 on appeals from decisions of
the Secretary of Justice, the BIR is given an opportunity to
appeal the Decisions dated 13 March 2008 and 14 January
2009 of the Secretary of Justice to the Office of the President
within 10 days from finality of this Decision.64

WHEREFORE, we GRANT the petition. We SETASIDE the 27

September 2010 Decision and the 3 August 2011 Resolution of
the Court of Appeals in CA-G.R. SP No. 108156. The
Decisions dated 13 March 2008 and 14 January 2009 of the
Secretary of Justice in OSJ Case No. 2007- 3
are REINSTATED. No costs.

SO ORDERED.

19
G.R. No. 125355             March 30, 2000
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS and COMMONWEALTH
MANAGEMENT AND SERVICES
CORPORATION, respondents.
PARDO, J.:
What is before the Court is a petition for review on certiorari of
the decision of the Court of Appeals,1 reversing that of the
Court of Tax Appeals,2 which affirmed with modification the
decision of the Commissioner of Internal Revenue ruling that
Commonwealth Management and Services Corporation, is
liable for value added tax for services to clients during taxable
year 1988.
Commonwealth Management and Services Corporation
(COMASERCO, for brevity), is a corporation duly organized
and existing under the laws of the Philippines. It is an affiliate
of Philippine American Life Insurance Co. (Philamlife),
organized by the letter to perform collection, consultative and
other technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.1âwphi1.nêt
On January 24, 1992, the Bureau of Internal Revenue (BIR)
issued an assessment to private respondent COMASERCO for
deficiency value-added tax (VAT) amounting to P351,851.01,
for taxable year 1988, computed as follows:
P1,679,155.00
Taxable sale/receipt ===========
= CANCELLED for lack of legal and factual basis. 6
10% tax due thereon 167,915.50
25% surcharge 41,978.88
20% interest per annum 125,936.63
Compromise penalty for late payment 16,000.00
TOTAL AMOUNT DUE AND P351,831.01 3 Court of Appeals held that COMASERCO was not liable to pay
COLLECTIBLE ===========
=
COMASERCO's annual corporate income tax return ending
December 31, 1988 indicated a net loss in its operations in the
amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a
letter-protest objecting to the latter's finding of deficiency VAT.
On August 20, 1992, the Commissioner of Internal Revenue
sent a collection letter to COMASERCO demanding payment
of the deficiency VAT.
On September 29, 1992, COMASERCO filed with the Court of
Tax Appeals4 a petition for review contesting the
Commissioner's assessment. COMASERCO asserted that the
services it rendered to Philamlife and its affiliates, relating to
collections, consultative and other technical assistance,
including functioning as an internal auditor, were on a "no-
profit, reimbursement-of-cost-only" basis. It averred that it was
not engaged in the business of providing services to Philamlife
and its affiliates. COMASERCO was established to ensure
operational orderliness and administrative efficiency of
Philamlife and its affiliates, and not in the sale of services.
COMASERCO stressed that it was not profit-motivated, thus
not engaged in business. In fact, it did not generate profit but
suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not
liable to pay VAT.
20
On June 22, 1995, the Court of Tax Appeals rendered decision
in favor of the Commissioner of Internal Revenue, the
dispositive portion of which reads:
WHEREFORE, the decision of the Commissioner of
Internal Revenue assessing petitioner deficiency
value-added tax for the taxable year 1988 is
AFFIRMED with slight modifications. Accordingly,
petitioner is ordered to pay respondent Commissioner
of Internal Revenue the amount of P335,831.01
inclusive of the 25% surcharge and interest plus 20%
interest from January 24, 1992 until fully paid
pursuant to Section 248 and 249 of the Tax Code.
The compromise penalty of P16,000.00 imposed by
the respondent in her assessment letter shall not be
included in the payment as there was no compromise
agreement entered into between petitioner and
respondent with respect to the value-added tax
deficiency.5
On July 26, 1995, respondent filed with the Court of Appeals, a
petition for review of the decision of the Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals
rendered decision reversing that of the Court of Tax Appeals,
the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is
hereby rendered REVERSING and SETTING ASIDE
the questioned Decision promulgated on 22 June
1995. The assessment for deficiency value-added tax
for the taxable year 1988 inclusive of surcharge,
interest and penalty charges are ordered
The Court of Appeals anchored its decision on the ratiocination
in another tax case involving the same parties,7 where it was
held that COMASERCO was not liable to pay fixed and
contractor's tax for services rendered to Philamlife and its
affiliates. The Court of Appeals, in that case, reasoned that
COMASERCO was not engaged in business of providing
services to Philamlife and its affiliates. In the same manner, the
VAT for it was not engaged in the business of selling services.
On July 16, 1996, the Commissioner of Internal Revenue filed
with this Court a petition for review on certiorari assailing the
decision of the Court of Appeals.
On August 7, 1996, we required respondent COMASERCO to
file comment on the petition, and on September 26, 1996,
COMASERCO complied with the resolution.8
We give due course to the petition.
At issue in this case is whether COMASERCO was engaged in
the sale of services, and thus liable to pay VAT thereon.
Petitioner avers that to "engage in business" and to "engage in
the sale of services" are two different things. Petitioner
maintains that the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are
subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is
derived from rendering the service.
We agree with the Commissioner.
Sec. 99 of the National Internal Revenue Code of 1986, as
amended by Executive Order (E. O.) No. 273 in 1988, provides
that:
 Sec. 99. Persons liable. — Any person who, in the
course of trade or business, sells, barters or
exchanges goods, renders services, or engages in
similar transactions and any person who, imports
goods shall be subject to the value-added tax (VAT)
imposed in Sections 100 to 102 of this Code. 9
COMASERCO contends that the term "in the course of trade or
business" requires that the "business" is carried on with a view
to profit or livelihood. It avers that the activities of the entity
must be profit-oriented. COMASERCO submits that it is not
motivated by profit, as defined by its primary purpose in the
articles of incorporation, stating that it is operating "only on
reimbursement-of-cost basis, without any profit." Private
respondent argues that profit motive is material in ascertaining
who to tax for purposes of determining liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716,
the Expanded VAT Law (EVAT), amending among other
sections, Section 99 of the Tax Code. On January 1, 1998,
Republic Act 8424, the National Internal Revenue Code of
1997, took effect. The amended law provides that:
Sec. 105. Persons Liable. — Any person who, in the
course of trade or business, sells, barters, exchanges,
leases goods or properties, renders services, and any
person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 and
108 of this Code.
The value-added tax is an indirect tax and the amount
of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing sale
or lease of goods, properties or services at the time of
the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business"
means the regular conduct or pursuit of a commercial
or an economic activity, including transactions
incidental thereto, by any person regardless of
whether or not the person engaged therein is a
nonstock, nonprofit organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members of their guests), or
government entity.
The rule of regularity, to the contrary notwithstanding,
services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade
or business.
Contrary to COMASERCO's contention the above provision
clarifies that even a non-stock, non-profit, organization or
government entity, is liable to pay VAT on the sale of goods or
services. VAT is a tax on transactions, imposed at every stage
of the distribution process on the sale, barter, exchange of
goods or property, and on the performance of services, even in
the absence of profit attributable thereto. The term "in the
course of trade or business" requires the regular conduct or
pursuit of a commercial or an economic activity regardless of
whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business"
present law applies to all transactions even to those made prior
to its enactment. Executive Order No. 273 stated that any
person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT.
The present law merely stresses that even a nonstock,
nonprofit organization or government entity is liable to pay VAT
for the sale of goods and services.
Sec. 108 of the National Internal Revenue Code of
1997 10 defines the phrase "sale of services" as the
21
"performance of all kinds of services for others for a fee,
remuneration or consideration." It includes "the supply of
technical advice, assistance or services rendered in connection
with technical management or administration of any scientific,
industrial or commercial undertaking or project." 11
On February 5, 1998, the Commissioner of Internal Revenue
issued BIR Ruling No. 010-98 12 emphasizing that a domestic
corporation that provided technical, research, management
and technical assistance to its affiliated companies and
received payments on a reimbursement-of-cost basis, without
any intention of realizing profit, was subject to VAT on services
rendered. In fact, even if such corporation was organized
without any intention realizing profit, any income or profit
generated by the entity in the conduct of its activities was
subject to income tax.
Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for services
rendered to its affiliates on a reimbursement-on-cost basis
only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then
the service rendered is subject to VAT.1awp++i1
At any rate, it is a rule that because taxes are the lifeblood of
the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government.
Otherwise stated, any exemption from the payment of a tax
must be clearly stated in the language of the law; it cannot be
merely implied therefrom. 13 In the case of VAT, Section 109,
Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO
do not fall within the exemptions.
Both the Commissioner of Internal Revenue and the Court of
Tax Appeals correctly ruled that the services rendered by
COMASERCO to Philamlife and its affiliates are subject to
VAT. As pointed out by the Commissioner, the performance of
all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT.
As the government agency charged with the enforcement of
the law, the opinion of the Commissioner of Internal Revenue,
in the absence of any showing that it is plainly wrong, is
entitled to great weight. 14 Also, it has been the long standing
policy and practice of this Court to respect the conclusions of
quasi-judicial agencies, such as the Court of Tax Appeals
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, unless there has been
an abuse or improvident exercise of its authority. 15
There is no merit to respondent's contention that the Court of
Appeals' decision in CA-G.R. No. 34042, declaring the
COMASERCO as not engaged in business and not liable for
the payment of fixed and percentage taxes, binds petitioner.
The issue in CA-G.R. No. 34042 is different from the present
case, which involves COMASERCO's liability for VAT. As
heretofore stated, every person who sells, barters, or
exchanges goods and services, in the course of trade or
business, as defined by law, is subject to VAT.
WHEREFORE, the Court GRANTS the petition and
REVERSES the decision of the Court of Appeals in CA-G.R.
SP No. 37930. The Court hereby REINSTATES the decision of
the Court of Tax Appeals in C. T. A. Case No. 4853.
No costs.
SO ORDERED.1âwphi1.nêt
 [G.R. NO. 152609 : June 29, 2005] I
P59,597 P5,959. P17,513,8 P6,778,18 P677,818
1st
COMMISSIONER OF INTERNAL .20 72 01.11 2.30 .23
qtr
REVENUE, Petitioner, v. AMERICAN EXPRESS
INTERNATIONAL, INC. (PHILIPPINE J
BRANCH), Respondent. 2n 67,517. 6,751.7 17,937,36 9,333,242. 933,324.2
d 20 2 1.51 90 9
DECISION qtr
K
PANGANIBAN, J.: 3r 51,936. 5,193.6 19,627,24 8,438,357. 843,835.7
d 60 6 5.36 00 0
As a general rule, the value-added tax (VAT) system uses the qtr
destination principle. However, our VAT law itself provides for
a clear exception, under which the supply of service shall be L
zero-rated when the following requirements are met: (1) the 4t 67,994. 6,799.4 25,231,22 13,080,82 1,308,082
service is performed in the Philippines; (2) the service falls h 30 3 5.22 2.10 .21
under any of the categories provided in Section 102(b) of the qtr
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 respondent's services meet
these requirements, they are zero-rated. Petitioner's Revenue
Regulations that alter or revoke the above requirements
To P247,04 P24,70 P80,309,6 P37,630,6 P3,763,0
are ultra vires and invalid.
tal 5.30 4.53 33.20 04.30 60.43
The Case

Before us is a Petition for Review1 under Rule 45 of the Rules

of Court, assailing the February 28, 2002 Decision2 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 AFFIRMED in toto."3
The Facts
"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:

Quoting the CTA, the CA narrated the undisputed facts as 'Section 110. Tax Credits. -
follows:
xxx
"[Respondent] is a Philippine branch of American Express
International, Inc., a corporation duly organized and existing
'(B) Excess Output or Input Tax. - If at the end of any taxable
under and by virtue of the laws of the State of Delaware,
quarter the output tax exceeds the input tax, the excess shall
U.S.A., with office in the Philippines at the Ground Floor, ACE
be paid by the VAT-registered person. If the input tax exceeds
Building, corner Rada and de la Rosa Streets, Legaspi Village,
the output tax, the excess shall be carried over to the
Makati City. It is a servicing unit of American Express
succeeding quarter or quarters. Any input tax attributable to the
International, Inc. - Hongkong Branch (Amex-HK) and is
purchase of capital goods or to zero-rated sales by a VAT-
engaged primarily to facilitate the collections of Amex-HK
registered person may at his option be refunded or credited
receivables from card members situated in the Philippines and
against other internal revenue taxes, subject to the provisions
payment to service establishments in the Philippines.
of Section 112.'

"Amex Philippines registered itself with the Bureau of Internal "There being no immediate action on the part of the [petitioner],
Revenue (BIR), Revenue District Office No. 47 (East Makati) as [respondent's] petition was filed on April 15, 1999.
a value-added tax (VAT) taxpayer effective March 1988 and
was issued VAT Registration Certificate No. 088445 bearing "In support of its Petition for Review, the following arguments
VAT Registration No. 32A-3-004868. For the period January 1, were raised by [respondent]:
1997 to December 31, 1997, [respondent] filed with the BIR
its quarterly VAT returns as follows: 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
Exhibit Period Covered Date Filed with existing regulations of the Bangko Sentral ng Pilipinas, are
subject to [VAT] at zero percent (0%). According to
D 1997 1st Qtr. April 18, 1997 [respondent], being a VAT-registered entity, it is subject to the
VAT imposed under Title IV of the Tax Code, to wit:
F 2nd Qtr. July 21, 1997
G 3rd Qtr. October 2, 1997 'Section 102.(sic) Value-added tax on sale of services. -
(a) Rate and base of tax. -  There shall be levied, assessed and
H 4th Qtr. January 20, 1998 collected, a value-added tax equivalent to 10% percent of
gross receipts derived by any person engaged in the sale of
"On March 23, 1999, however, [respondent] amended the services. The phrase "sale of services" means the
aforesaid returns and declared the following: 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
Ex Taxable Output Zero-rated Domestic Input estate, commercial, customs and immigration brokers; lessors
h Sales VAT Sales Purchases VAT of personal property; lessors or distributors of cinematographic
19 films; persons engaged in milling, processing, manufacturing or
97 repacking goods for others; and similar services regardless of
22
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) x x x
(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.
23
(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 decision7 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 latter's excess
input VAT paid for the year 1997. '"8
Ruling of the Court of Appeals
In affirming the CTA, the CA held that respondent's 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 respondent's
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 Court's Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code11 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:
xxx
'(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);
xxx
'(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;
xxx
"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];' "
xxx
Zero Rating of "Other" Services
24
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 company's 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 main business 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 banks18 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 drafts23 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, respondent's role in the consumer
credit26 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 charges27 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 office29 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 petitioner's 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 company's 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 person40 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 consumption41 "expressed as a
percentage of the value added to goods or
services"42 purchased by the producer or taxpayer.43 As an
indirect tax44 on services,45 its main object is the
transaction46 itself or, more concretely, the performance of all
kinds of services47 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
25
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 petitioner's
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 performer's 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 Respondent's 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.
Respondent's 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 v. Product Arising from
Performance
Again, contrary to petitioner's stand, for the cost of
respondent's 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 services performed 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 jurisdiction60 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.
xxx
" (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
26
and duly accounted for under the regulations of the Central
Bank of the Philippines.
xxx
'(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 by VAT-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
respondent's 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;' "
xxx
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  enumerations under Section 102 are zero-rated provided that
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 effect85 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 24687 of the Tax Code apply.
27
Though vested with the power to interpret the provisions of the
Tax Code88 and not bound by predecessors' acts or rulings, the
BIR commissioner may render a different construction to a
statute89 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?cralawlibrary
"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
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.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
"Now, when we say 'services other than those mentioned in
the preceding subsection[,'] may I have some examples of
these?cralawlibrary
"Senator Herrera: Which portion is the Gentleman referring
to?cralawlibrary
"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.

xxx

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?cralawlibrary

"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 former's 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 respondent's refund is in order.

WHEREFORE, the Petition is hereby DENIED, and the

assailed Decision AFFIRMED. No pronouncement as to costs.

SO ORDERED.

28
G.R. No. 153205             January 22, 2007
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR
MINDANAO, INC., Respondent.
DECISION
CARPIO,  J.:
The Case
This petition for review1 seeks to set aside the 16 April 2002
Decision2 of the Court of Appeals in CA-G.R. SP No. 66341
affirming the 8 August 2001 Decision3 of the Court of Tax
Appeals (CTA). The CTA ordered the Commissioner of Internal
Revenue (petitioner) to issue a tax credit certificate
for P6,994,659.67 in favor of Burmeister and Wain
Scandinavian Contractor Mindanao, Inc. (respondent).
The Antecedents
The CTA summarized the facts, which the Court of Appeals
adopted, as follows:
[Respondent] is a domestic corporation duly organized and
existing under and by virtue of the laws of the Philippines with
principal address located at Daruma Building, Jose P. Laurel
Avenue, Lanang, Davao City.
It is represented that a foreign consortium composed of
Burmeister and Wain Scandinavian Contractor A/S (BWSC-
Denmark), Mitsui Engineering and Shipbuilding, Ltd., and
Mitsui and Co., Ltd. entered into a contract with the National
Power Corporation (NAPOCOR) for the operation and
maintenance of [NAPOCOR’s] two power barges. The
Consortium appointed BWSC-Denmark as its coordination
manager.
BWSC-Denmark established [respondent] which subcontracted
the actual operation and maintenance of NAPOCOR’s two
power barges as well as the performance of other duties and
acts which necessarily have to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in
a mixture of currencies (Mark, Yen, and Peso). The freely
convertible non-Peso component is deposited directly to the
Consortium’s bank accounts in Denmark and Japan, while the
Peso-denominated component is deposited in a separate and
special designated bank account in the Philippines. On the
other hand, the Consortium pays [respondent] in foreign
currency inwardly remitted to the Philippines through the
banking system.
In order to ascertain the tax implications of the above
transactions, [respondent] sought a ruling from the BIR which
responded with BIR Ruling No. 023-95 dated February 14,
1995, declaring therein that if [respondent] chooses to register
as a VAT person and the consideration for its services is paid
for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas, the aforesaid services shall be subject to
VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. On May 26,
1995, the Certificate of Registration bearing RDO Control No.
95-113-007556 was issued in favor of [respondent] by the
Revenue District Office No. 113 of Davao City.
For the year 1996, [respondent] seasonably filed its quarterly
Value-Added Tax Returns reflecting, among others, a total
zero-rated sales of P147,317,189.62 with VAT input taxes
of P3,361,174.14, detailed as follows:
29
Zero-Rated
Qtr. Exh. Date Filed VAT Input Tax
Sales
1st E 04-18-96 P 33,019,651.07 P608,953.48
2nd F 07-16-96 37,108,863.33 756,802.66
3rd G 10-14-96 34,196,372.35 930,279.14
4th H 01-20-97 42,992,302.87 1,065,138.86
Totals P147,317,189.62 P3,361,174.14
On December 29, 1997, [respondent] availed of the Voluntary
Assessment Program (VAP) of the BIR. It allegedly
misinterpreted Revenue Regulations No. 5-96 dated February
20, 1996 to be applicable to its case. Revenue Regulations No.
5-96 provides in part thus:
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue
Regulations No. 7-95 are hereby amended 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."
x x x x x x x x x x.
In [conformity] with the aforecited Revenue Regulations,
[respondent] subjected its sale of services to the Consortium to
the 10% VAT in the total amount of P103,558,338.11
representing April to December 1996 sales since said Revenue
Regulations No. 5-96 became effective only on April 1996. The
sum of P43,893,951.07, representing January to March 1996
sales was subjected to zero rate. Consequently, [respondent]
filed its 1996 amended VAT return consolidating therein the
VAT output and input taxes for the four calendar quarters of
1996. It paid the amount of P6,994,659.67 through BIR’s
collecting agent, PCIBank, as its output tax liability for the year
1996, computed as follows:
Amount subject to 10% VAT P103,558,338.11
Multiply by 10%
VAT Output Tax P 10,355,833.81
Less: 1996 Input VAT P 3,361,174.14
VAT Output Tax Payable P 6,994,659.67
On January 7,1999, [respondent] was able to secure VAT
Ruling No. 003-99 from the VAT Review Committee which
reconfirmed BIR Ruling No. 023-95 "insofar as it held that the
services being rendered by BWSCMI is subject to VAT at zero
percent (0%)."
On the strength of the aforementioned rulings, [respondent] on
April 22,1999, filed a claim for the issuance of a tax credit
certificate with Revenue District No. 113 of the BIR.
[Respondent] believed that it erroneously paid the output VAT
for 1996 due to its availment of the Voluntary Assessment
Program (VAP) of the BIR.4
On 27 December 1999, respondent filed a petition for review
with the CTA in order to toll the running of the two-year
prescriptive period under the Tax Code.
The Ruling of the Court of Tax Appeals
In its 8 August 2001 Decision, the CTA ordered petitioner to
issue a tax credit certificate for P6,994,659.67 in favor of
respondent. The CTA’s ruling stated:
[Respondent’s] sale of services to the Consortium [was] paid
for in acceptable foreign currency inwardly remitted to the
Philippines and accounted for in accordance with the rules and
regulations of Bangko Sentral ng Pilipinas. These were
established by various BPI Credit Memos showing remittances
in Danish Kroner (DKK) and US dollars (US$) as payments for
the specific invoices billed by [respondent] to the consortium.
These remittances were further certified by the Branch
Manager x x x of BPI-Davao Lanang Branch to represent
payments for sub-contract fees that came from Den Danske
Aktieselskab Bank-Denmark for the account of [respondent].
Clearly, [respondent’s] sale of services to the Consortium is
subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax
Code.
xxxx
The zero-rating of [respondent’s] sale of services to the
Consortium was even confirmed by the [petitioner] in BIR
Ruling No. 023-95 dated February 15, 1995, and later by VAT
Ruling No. 003-99 dated January 7,1999, x x x.
Since it is apparent that the payments for the services
rendered by [respondent] were indeed subject to VAT at zero
percent, it follows that it mistakenly availed of the Voluntary
Assessment Program by paying output tax for its sale of
services. x x x
x x x Considering the principle of solutio indebiti which requires
the return of what has been delivered by mistake, the
[petitioner] is obligated to issue the tax credit certificate prayed
for by [respondent]. x x x5
Petitioner filed a petition for review with the Court of Appeals,
which dismissed the petition for lack of merit and affirmed the
CTA decision.6
Hence, this petition.
The Court of Appeals’ Ruling
In affirming the CTA, the Court of Appeals rejected petitioner’s
view that since respondent’s services are not destined for
consumption abroad, they are not of the same nature as
project studies, information services, engineering and
architectural designs, and other similar services mentioned in
Section 4.102-2(b)(2) of Revenue Regulations No. 5-967 as
subject to 0% VAT. Thus, according to petitioner, respondent’s
services cannot legally qualify for 0% VAT but are subject to
the regular 10% VAT.8
The Court of Appeals found untenable petitioner’s contention
that under VAT Ruling No. 040-98, respondent’s services
should be destined for consumption abroad to enjoy zero-
rating. Contrary to petitioner’s interpretation, there are two
kinds of transactions or services subject to zero percent VAT
under VAT Ruling No. 040-98. These are (a) services other
than repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported; and
(b) 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 Bangko Sentral ng Pilipinas (BSP).9
30
The Court of Appeals stated that "only the first classification is
required by the provision to be consumed abroad in order to be
taxed at zero rate. In x x x the absence of such express or
implied stipulation in the statute, the second classification need
not be consumed abroad."10
The Court of Appeals further held that assuming petitioner’s
interpretation of Section 4.102-2(b)(2) of Revenue Regulations
No. 5-96 is correct, such administrative provision is void being
an amendment to the Tax Code. Petitioner went beyond
merely providing the implementing details by adding another
requirement to zero-rating. "This is indicated by the additional
phrase ‘as well as services by a resident to a non-resident
foreign client, such as project studies, information services and
engineering and architectural designs and other similar
services.’ In effect, this phrase adds not just one but two
requisites: (a) services must be rendered by a resident to a
non-resident; and (b) these must be in the nature of project
studies, information services, etc."11
The Court of Appeals explained that under Section 108(b)(2) of
the Tax Code,12 for services which were performed in the
Philippines to enjoy zero-rating, these must comply only with
two requisites, to wit: (1) payment in acceptable foreign
currency and (2) accounted for in accordance with the rules of
the BSP. Section 108(b)(2) of the Tax Code does not provide
that services must be "destined for consumption abroad" in
order to be VAT zero-rated.13
The Court of Appeals disagreed with petitioner’s argument that
our VAT law generally follows the destination principle (i.e.,
exports exempt, imports taxable).14 The Court of Appeals
stated that "if indeed the ‘destination principle’ underlies and is
the basis of the VAT laws, then petitioner’s proper remedy
would be to recommend an amendment of Section 108(b)(2) to
Congress. Without such amendment, however, petitioner
should apply the terms of the basic law. Petitioner could not
resort to administrative legislation, as what [he] had done in
this case."15
The Issue
The lone issue for resolution is whether respondent is entitled
to the refund of P6,994,659.67 as erroneously paid output VAT
for the year 1996.16
The Ruling of the Court
We deny the petition.
At the outset, the Court declares that the denial of the instant
petition is not on the ground that respondent’s services are
subject to 0% VAT. Rather, it is based on the non-retroactivity
of the prejudicial revocation of BIR Ruling No. 023-9517 and
VAT Ruling No. 003-99,18 which held that respondent’s
services are subject to 0% VAT and which respondent invoked
in applying for refund of the output VAT.
Section 102(b) of the Tax Code,19 the applicable provision in
1996 when respondent rendered the services and paid the
VAT in question, enumerates which services are zero-rated,
thus:
(b) Transactions 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 Bangko Sentral ng
Pilipinas (BSP);
 (2) Services other than those mentioned in the
preceding sub-paragraph, the consideration for
which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas  (BSP);
(3) Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to
zero rate;
(4) Services rendered to vessels engaged exclusively
in international shipping; and
(5) Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose export
sales exceed seventy percent (70%) of total annual
production. (Emphasis supplied)
In insisting that its services should be zero-rated, respondent
claims that it complied with the requirements of the Tax Code
for zero rating under the second paragraph of Section 102(b).
Respondent asserts that (1) the payment of its service fees
was in acceptable foreign currency, (2) there was inward
remittance of the foreign currency into the Philippines, and (3)
accounting of such remittance was in accordance with BSP
rules. Moreover, respondent contends that its services which
"constitute the actual operation and management of two (2)
power barges in Mindanao" are not "even remotely similar to
project studies, information services and engineering and
architectural designs under Section 4.102-2(b)(2) of Revenue
Regulations No. 5-96." As such, respondent’s services need
not be "destined to be consumed abroad in order to be VAT
zero-rated."
Respondent is mistaken.
The Tax Code not only requires that the services be other than
"processing, manufacturing or repacking of goods" and that
payment for such services be in acceptable foreign currency
accounted for in accordance with BSP rules. Another essential
condition for qualification to zero-rating under Section 102(b)
(2) is that the recipient of such services is doing business
outside the Philippines. While this requirement is not expressly
stated in the second paragraph of Section 102(b), this is clearly
provided in the first paragraph of Section 102(b) where the
listed services must be "for other persons doing business
outside the Philippines." The phrase "for other persons doing
business outside the Philippines" not only refers to the services
enumerated in the first paragraph of Section 102(b), but also
pertains to the general term "services" appearing in the second
paragraph of Section 102(b). In short, services other than
processing, manufacturing, or repacking of goods must
likewise be performed for persons doing business outside the
Philippines.
This can only be the logical interpretation of Section 102(b)(2).
If the provider and recipient of the "other services" are both
doing business in the Philippines, the payment of foreign
currency is irrelevant. Otherwise, those subject to the regular
VAT under Section 102(a) can avoid paying the VAT by simply
stipulating payment in foreign currency inwardly remitted by the
recipient of services. To interpret Section 102(b)(2) to apply to
a payer-recipient of services doing business in the Philippines
is to make the payment of the regular VAT under Section
102(a) dependent on the generosity of the taxpayer. The
provider of services can choose to pay the regular VAT or
avoid it by stipulating payment in foreign currency inwardly
remitted by the payer-recipient. Such interpretation removes
Section 102(a) as a tax measure in the Tax Code, an
interpretation this Court cannot sanction. A tax is a mandatory
exaction, not a voluntary contribution.
When Section 102(b)(2) stipulates payment in "acceptable
foreign currency" under BSP rules, the law clearly envisions
the payer-recipient of services to be doing business outside the
31
Philippines. Only those not doing business in the Philippines
can be required under BSP rules20 to pay in acceptable foreign
currency for their purchase of goods or services from the
Philippines. In a domestic transaction, where the provider and
recipient of services are both doing business in the Philippines,
the BSP cannot require any party to make payment in foreign
currency.
Services covered by Section 102(b) (1) and (2) are in the
nature of export sales since the payer-recipient of services is
doing business outside the Philippines. Under BSP rules,21 the
proceeds of export sales must be reported to the Bangko
Sentral ng Pilipinas. Thus, there is reason to require the
provider of services under Section 102(b) (1) and (2) to
account for the foreign currency proceeds to the BSP. The
same rationale does not apply if the provider and recipient of
the services are both doing business in the Philippines since
their transaction is not in the nature of an export sale even if
payment is denominated in foreign currency.
Further, when the provider and recipient of services are both
doing business in the Philippines, their transaction falls
squarely under Section 102(a) governing domestic sale or
exchange of services. Indeed, this is a purely local sale or
exchange of services subject to the regular VAT, unless of
course the transaction falls under the other provisions of
Section 102(b).
Thus, when Section 102(b)(2) speaks of "[s]ervices other
than those mentioned in the preceding subparagraph," the
legislative intent is that only the services are different between
subparagraphs 1 and 2. The requirements for zero-rating,
including the essential condition that the recipient of services is
doing business outside the Philippines, remain the same under
both subparagraphs.
Significantly, the amended Section 108(b)22 [previously Section
102(b)] of the present Tax Code clarifies this legislative intent.
Expressly included among the transactions subject to 0% VAT
are "[s]ervices other than those mentioned in the [first]
paragraph [of Section 108(b)] rendered to a person engaged in
business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines
when the services are performed, the consideration for which
is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP."
In this case, the payer-recipient of respondent’s services is the
Consortium which is a joint-venture doing business in the
Philippines. While the Consortium’s principal members are
non-resident foreign corporations, the Consortium itself is
doing business in the Philippines. This is shown clearly in BIR
Ruling No. 023-95 which states that the contract between the
Consortium and NAPOCOR is for a 15-year term, thus:
This refers to your letter dated January 14, 1994 requesting for
a clarification of the tax implications of a contract between a
consortium composed of Burmeister & Wain Scandinavian
Contractor A/S ("BWSC"), Mitsui Engineering & Shipbuilding,
Ltd. (MES), and Mitsui & Co., Ltd. ("MITSUI"), all referred to
hereinafter as the "Consortium", and the National Power
Corporation ("NAPOCOR") for the operation and
maintenance of two 100-Megawatt power barges ("Power
Barges") acquired by NAPOCOR for a 15-year
term.23 (Emphasis supplied)
Considering this length of time, the Consortium’s operation and
maintenance of NAPOCOR’s power barges cannot be
classified as a single or isolated transaction. The Consortium
does not fall under Section 102(b)(2) which requires that the
recipient of the services must be a person doing business
outside the Philippines. Therefore, respondent’s services to the
Consortium, not being supplied to a person doing business
outside the Philippines, cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates and
maintains NAPOCOR’s power barges in the Philippines.
NAPOCOR pays the Consortium, through its non-resident
partners, partly in foreign currency outwardly remitted. In turn, SO ORDERED.
the Consortium pays respondent also in foreign currency
inwardly remitted and accounted for in accordance with BSP
rules. This payment scheme does not entitle respondent to 0%
VAT. As the Court held in Commissioner of Internal Revenue
v. American Express International, Inc. (Philippine
Branch),24 the place of payment is immaterial, much less is the
place where the output of the service is ultimately used. An
essential condition for entitlement to 0% VAT under Section
102(b)(1) and (2) is that the recipient of the services is a
person doing business outside the Philippines. In this case, the
recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has
a 15-year contract to operate and maintain NAPOCOR’s two
100-megawatt power barges in Mindanao.

The Court recognizes the rule that the VAT system generally
follows the "destination principle" (exports are zero-rated
whereas imports are taxed). However, as the Court stated in
American Express, there is an exception to this rule.25 This
exception refers to the 0% VAT on services enumerated in
Section 102 and performed in the Philippines. For services
covered by Section 102(b)(1) and (2), the recipient of the
services must be a person doing business outside the
Philippines. Thus, to be exempt from the destination principle
under Section 102(b)(1) and (2), the services must be (a)
performed in the Philippines; (b) for a person doing business
outside the Philippines; and (c) paid in acceptable foreign
currency accounted for in accordance with BSP rules.

Respondent’s reliance on the ruling in American Express26 is

misplaced. That case involved a recipient of services,
specifically American Express International, Inc. (Hongkong
Branch), doing business outside the Philippines. There, the
Court stated:

Respondent [American Express International, Inc. (Philippine

Branch)] is a VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-
resident foreign client [American Express International, Inc.
(Hongkong Branch)], for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in
accordance with BSP rules and regulations. x x x
x27 (Emphasis supplied)

In contrast, this case involves a recipient of services – the

Consortium – which is doing business in the Philippines.
Hence, American Express’ services were subject to 0% VAT,
while respondent’s services should be subject to 10% VAT.

Nevertheless, in seeking a refund of its excess output tax,

respondent relied on VAT Ruling No. 003-99,28 which
reconfirmed BIR Ruling No. 023-9529 "insofar as it held that the
services being rendered by BWSCMI is subject to VAT at zero
percent (0%)." Respondent’s reliance on these BIR rulings
binds petitioner.

Petitioner’s filing of his Answer before the CTA challenging

respondent’s claim for refund effectively serves as a revocation
of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
However, such revocation cannot be given retroactive effect
since it will prejudice respondent. Changing respondent’s
status will deprive respondent of a refund of a substantial
amount representing excess output tax.30 Section 246 of the
Tax Code provides that any revocation of a ruling by the
Commissioner of Internal Revenue shall not be given
retroactive application if the revocation will prejudice the
taxpayer. Further, there is no showing of the existence of any
of the exceptions enumerated in Section 246 of the Tax Code
for the retroactive application of such revocation.

However, upon the filing of petitioner’s Answer dated 2 March

2000 before the CTA contesting respondent’s claim for refund,
respondent’s services shall be subject to the regular 10%
VAT.31 Such filing is deemed a revocation of VAT Ruling No.
003-99 and BIR Ruling No. 023-95.

WHEREFORE, the Court DENIES the petition.

32
 [G.R. NO. 190102 - July 11, 2012]
Domestic Purchases-
P63,238,758.00 P6,323,875.80
Services
ACCENTURE, INC., Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent. Total Input Tax P27,682,459.38

DECISION

SERENO, J.:
This is a Petition filed under Rule 45 of the 1997 Rules of Civil
Procedure, praying for the reversal of the Decision of the Court
of Tax Appeals En Banc (CTA En Banc ) dated 22 September
2009 and its subsequent Resolution dated 23 October
2009.1ςrνll
Accenture, Inc. (Accenture) is a corporation engaged in the
business of providing management consulting, business
strategies development, and selling and/or licensing of
software.2 It is duly registered with the Bureau of Internal
Revenue (BIR) as a Value Added Tax (VAT) taxpayer or
enterprise in accordance with Section 236 of the National
Internal Revenue Code (Tax Code).3ςrνll
On 9 August 2002, Accenture filed its Monthly VAT Return for
the period 1 July 2002 to 31 August 2002 (1st period). Its
Quarterly VAT Return for the fourth quarter of 2002, which
covers the 1st period, was filed on 17 September 2002; and an
Amended Quarterly VAT Return, on 21 June 2004.4 The
following are reflected in Accenture s VAT Return for the fourth
quarter of 2002:5ςηαñrοblεš  Î½Î¹r†υαl  lαω
lιbrαrÿ
Purchases Amount Input VAT
Domestic Purchases- P12,312,722.0
P1,231,272.20
Capital Goods 0 issuance of a Tax Credit Certificate (TCC). The DoF did not act
Domestic Purchases-
P64,789,507.9
Goods other than capital P6,478,950.79
0
Goods
P545,686,639.1
Zero-rated Sales
8
P572,880,982.6
Total Sales P
8
The monthly and quarterly VAT returns of Accenture show that,
notwithstanding its application of the input VAT credits earned
from its zero-rated transactions against its output VAT
liabilities, it still had excess or unutilized input VAT credits.
These VAT credits are in the amounts of P9,355,809.80 for the
1st period and P27,682,459.38 for the 2nd period, or a total of
P37,038,269.18.7ςrνll
Out of the P37,038,269.18, only P35,178,844.21 pertained to
the allocated input VAT on Accenture s "domestic purchases of
taxable goods which cannot be directly attributed to its zero-
rated sale of services."8 This allocated input VAT was broken
down to P8,811,301.66 for the 1st period and P26,367,542.55
for the 2nd period.9ςrνll
The excess input VAT was not applied to any output VAT that
Accenture was liable for in the same quarter when the amount
was earned or to any of the succeeding quarters. Instead, it
was carried forward to petitioner s 2nd Quarterly VAT Return
for 2003.10ςrνll
Thus, on 1 July 2004, Accenture filed with the Department of
Finance (DoF) an administrative claim for the refund or the
on the claim of Accenture. Hence, on 31 August 2004, the
latter filed a Petition for Review with the First Division of the
Court of Tax Appeals (Division), praying for the issuance of a
TCC in its favor in the amount of P35,178,844.21.

Domestic Purchases- P16,455,868.1

P1,645,586.81 The Commissioner of Internal Revenue (CIR), in its
Services 0
Answer,11 argued thus:ςηαñrοblεš  Î½Î¹r†υαl  lαω
Total Input Tax P9,355,809.80 lιbrαrÿ

1. The sale by Accenture of goods and services to its clients

are not zero-rated transactions.
P316,113,513.3
Zero-rated Sales
4 2. Claims for refund are construed strictly against the claimant,
and Accenture has failed to prove that it is entitled to a refund,
P335,640,544.7 because its claim has not been fully substantiated or
Total Sales
4 documented.

Accenture filed its Monthly VAT Return for the month of chanrobles virtual law library
September 2002 on 24 October 2002; and that for October
2002, on 12 November 2002. These returns were amended on In a 13 November 2008 Decision,12 the Division denied the
9 January 2003. Accenture s Quarterly VAT Return for the first Petition of Accenture for failing to prove that the latter s sale of
quarter of 2003, which included the period 1 September 2002 services to the alleged foreign clients qualified for zero percent
to 30 November 2002 (2nd period), was filed on 17 December VAT.13ςrνll
2002; and the Amended Quarterly VAT Return, on 18 June
2004. The latter contains the following In resolving the sole issue of whether or not Accenture was
information:6ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ entitled to a refund or an issuance of a TCC in the amount of
P35,178,844.21,14 the Division ruled that Accenture had failed
to present evidence to prove that the foreign clients to which
Purchases Amount Input VAT the former rendered services did business outside the
Philippines.15 Ruling that Accenture s services would qualify for
Domestic Purchases- zero-rating under the 1997 National Internal Revenue Code of
P80,765,294.10 P8,076,529.41
Capital Goods the Philippines (Tax Code) only if the recipient of the services
was doing business outside of the Philippines,16 the Division
Domestic Purchases- cited Commissioner of Internal Revenue v. Burmeister and
P132,820,541.7
Goods other than P13,282,054.17 Wain Scandinavian Contractor Mindanao, Inc.
0
capital Goods (Burmeister)17 as basis.

33
Accenture appealed the Division s Decision through a Motion
for Reconsideration (MR).18 In its MR, it argued that the
reliance of the Division on Burmeister was misplaced19 for the
following reasons:ςηαñrοblεš  Î½Î¹r†υαl  lαω
lιbrαrÿ
1. The issue involved in Burmeister was the entitlement of the
applicant to a refund, given that the recipient of its service was
doing business in the Philippines; it was not an issue of failure
of the applicant to present evidence to prove the fact that the
recipient of its services was a foreign corporation doing
business outside the Philippines.20ςrνll
2. Burmeister emphasized that, to qualify for zero-rating, the
recipient of the services should be doing business outside the
Philippines, and Accenture had successfully established
that.21ςrνll
3. Having been promulgated on 22 January 2007 or after
Accenture filed its Petition with the Division, Burmeister cannot
be made to apply to this case.22ςrνll
chanrobles virtual law library
Accenture also cited Commissioner of Internal Revenue v.
American Express (Amex)23 in support of its position. The MR
was denied by the Division in its 12 March 2009
Resolution.24ςrνll
Accenture appealed to the CTA En Banc. There it argued that
prior to the amendment introduced by Republic Act No. (R.A.)
9337, 25 there was no requirement that the services must be
rendered to a person engaged in business conducted outside
the Philippines to qualify for zero-rating. The CTA En Banc
agreed that because the case pertained to the third and the
fourth quarters of taxable year 2002, the applicable law was
the 1997 Tax Code, and not R.A. 9337.26 Still, it ruled that even
though the provision used in Burmeister was Section 102(b)(2)
of the earlier 1977 Tax Code, the pronouncement therein
requiring recipients of services to be engaged in business
outside the Philippines to qualify for zero-rating was applicable
to the case at bar, because Section 108(B)(2) of the 1997 Tax
Code was a mere reenactment of Section 102(b)(2) of the
1977 Tax Code.
The CTA En Banc concluded that Accenture failed to
discharge the burden of proving the latter s allegation that its
clients were foreign-based.27ςrνll
Resolute, Accenture filed a Petition for Review with the CTA
En Banc, but the latter affirmed the Division s Decision and
Resolution.28 A subsequent MR was also denied in a
Resolution dated 23 October 2009.
Hence, the present Petition for Review29 under Rule 45.
In a Joint Stipulation of Facts and Issues, the parties and the
Division have agreed to submit the following issues for
resolution:ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
1. Whether or not Petitioner s sales of goods and services are
zero-rated for VAT purposes under Section 108(B)(2)(3) of the
1997 Tax Code.
2. Whether or not petitioner s claim for refund/tax credit in the
amount of P35,178,884.21 represents unutilized input VAT
paid on its domestic purchases of goods and services for the
period commencing from 1 July 2002 until 30 November 2002.
3. Whether or not Petitioner has carried over to the succeeding
taxable quarter(s) or year(s) the alleged unutilized input VAT
paid on its domestic purchases of goods and services for the
period commencing from 1 July 2002 until 30 November 2002,
and applied the same fully to its output VAT liability for the said
period.
34
4. Whether or not Petitioner is entitled to the refund of the
amount of P35,178,884.21, representing the unutilized input
VAT on domestic purchases of goods and services for the
period commencing from 1 July 2002 until 30 November 2002,
from its sales of services to various foreign clients.
5. Whether or not Petitioner s claim for refund/tax credit in the
amount of P35,178,884.21, as alleged unutilized input VAT on
domestic purchases of goods and services for the period
covering 1 July 2002 until 30 November 2002 are duly
substantiated by proper documents.30ςrνll
chanrobles virtual law library
For consideration in the present Petition are the following
issues:ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
1. Should the recipient of the services be "doing business
outside the Philippines" for the transaction to be zero-rated
under Section 108(B)(2) of the 1997 Tax Code?
chanroblesvirtualawlibrary
2. Has Accenture successfully proven that its clients are
entities doing business outside the Philippines?
chanrobles virtual law library
Recipient of services must be doing business outside the
Philippines for the transactions to qualify as zero-rated.
Accenture anchors its refund claim on Section 112(A) of the
1997 Tax Code, which allows the refund of unutilized input
VAT earned from zero-rated or effectively zero-rated sales.
The provision reads:ςrαlαω
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. Section 108(B) referred to in the
foregoing provision was first seen when Presidential Decree
No. (P.D.) 199431 amended Title IV of P.D. 1158,32 which is
also known as the National Internal Revenue Code of 1977.
Several Decisions have referred to this as the 1986 Tax Code,
even though it merely amended Title IV of the 1977 Tax Code.
Two years thereafter, or on 1 January 1988, Executive Order
No. (E.O.) 27333 further amended provisions of Title IV. E.O.
273 by transferring the old Title IV provisions to Title VI and
filling in the former title with new provisions that imposed a
VAT.
The VAT system introduced in E.O. 273 was restructured
through Republic Act No. (R.A.) 7716.34 This law, which was
approved on 5 May 1994, widened the tax base. Section 3
thereof reads:ςrαlαω
SECTION 3. Section 102 of the National Internal Revenue
Code, as amended, is hereby further amended to read as
follows:ςrαlαω
"SEC. 102. Value-added tax on sale of services and use or
lease of properties. x x x
xxx     xxx     xxx
"(b) Transactions subject to zero-rate. The following services
performed in the Philippines by VAT-registered persons shall
be subject to 0%:ςηαñrοblεš  Î½Î¹r†υαl  lαω
lιbrαrÿ
"(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 sub-
paragraph, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas
(BSP)."
chanrobles virtual law library
Essentially, Section 102(b) of the 1977 Tax Code as amended
by P.D. 1994, E.O. 273, and R.A. 7716 provides that if the
consideration for the services provided by a VAT-registered
person is in a foreign currency, then this transaction shall be
subjected to zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977
Tax Code in its Section 108(B), to wit:ςrαlαω
(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.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
(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
paragraph, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
x x x.
chanrobles virtual law library
On 1 November 2005, Section 6 of R.A. 9337, which amended
the foregoing provision, became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby
further amended to read as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of
Properties. -
(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:ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
(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
35
with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
"(2) Services other than those mentioned in the preceding
paragraph rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person
not engaged in business who is outside the Philippines when
the services are performed, the consideration for which is paid
for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); x x x." (Emphasis
supplied)cralawlibrary
chanrobles virtual law library
The meat of Accenture s argument is that nowhere does
Section 108(B) of the 1997 Tax Code state that services, to be
zero-rated, should be rendered to clients doing business
outside the Philippines, the requirement introduced by R.A.
9337.35 Required by Section 108(B), prior to the amendment, is
that the consideration for the services rendered be in foreign
currency and in accordance with the rules of the Bangko
Sentral ng Pilipinas (BSP). Since Accenture has complied with
all the conditions imposed in Section 108(B), it is entitled to the
refund prayed for.
In support of its claim, Accenture cites Amex, in which this
Court supposedly ruled that Section 108(B) reveals a clear
intent on the part of the legislators not to impose the condition
of being "consumed abroad" in order for the services
performed in the Philippines to be zero-rated.36ςrνll
The Division ruled that this Court, in Amex and Burmeister, did
not declare that the requirement that the client must be doing
business outside the Philippines can be disregarded, because
this requirement is expressly provided in Article 108(2) of the
Tax Code.37ςrνll
Accenture questions the Division s application to this case of
the pronouncements made in Burmeister. According to
petitioner, the provision applied to the present case was
Section 102(b) of the 1977 Tax Code, and not Section 108(B)
of the 1997 Tax Code, which was the law effective when the
subject transactions were entered into and a refund was
applied for.
In refuting Accenture s theory, the CTA En Banc ruled that
since Section 108(B) of the 1997 Tax Code was a mere
reproduction of Section 102(b) of the 1977 Tax Code, this
Court s interpretation of the latter may be used in interpreting
the former, viz:ςrαlαω
In the Burmeister case, the Supreme Court harmonized both
Sections 102(b)(1) and 102(b)(2) of the 1977 Tax Code, as
amended, pertaining to zero-rated transactions. A parallel
approach should be accorded to the renumbered provisions of
Sections 108(B)(2) and 108(B)(1) of the 1997 NIRC. This
means that Section 108(B)(2) must be read in conjunction with
Section 108(B)(1). Section 108(B)(2) requires as follows: a)
services other than processing, manufacturing or repacking
rendered by VAT registered persons in the Philippines; and b)
the transaction paid for in acceptable foreign currency duly
accounted for in accordance with BSP rules and regulations.
The same provision made reference to Section 108(B)(1)
further imposing the requisite c) that the recipient of services
must be performing business outside of Philippines. Otherwise,
if both the provider and recipient of service are doing business
in the Philippines, the sale transaction is subject to regular VAT
as explained in the Burmeister case x x x.
xxx     xxx     xxx
Clearly, the Supreme Court s pronouncements in the
Burmeister case requiring that the recipient of the services
must be doing business outside the Philippines as mandated
by law govern the instant case.38ςrνll
Assuming that the foregoing is true, Accenture still argues that
the tax appeals courts cannot be allowed to apply to
Burmeister this Court s interpretation of Section 102(b) of the
1977 Tax Code, because the Petition of Accenture had already
been filed before the case was even promulgated on 22
January 2007,39 to wit:Ï‚rαlαω
x x x. While the Burmeister case forms part of the legal system
and assumes the same authority as the statute itself, however,
the same cannot be applied retroactively against the Petitioner
because to do so will be prejudicial to the latter.40ςrνll
The CTA en banc is of the opinion that Accenture cannot
invoke the non-retroactivity of the rulings of the Supreme
Court, whose interpretation of the law is part of that law as of
the date of its enactment.41ςrνll
We rule that the recipient of the service must be doing
business outside the Philippines for the transaction to qualify
for zero-rating under Section 108(B) of the Tax Code.
This Court upholds the position of the CTA en banc that,
because Section 108(B) of the 1997 Tax Code is a verbatim
copy of Section 102(b) of the 1977 Tax Code, any
interpretation of the latter holds true for the former.
Moreover, even though Accenture s Petition was filed before
Burmeister was promulgated, the pronouncements made in
that case may be applied to the present one without violating
the rule against retroactive application. When this Court
decides a case, it does not pass a new law, but merely
interprets a preexisting one.42 When this Court interpreted
Section 102(b) of the 1977 Tax Code in Burmeister, this
interpretation became part of the law from the moment it
became effective. It is elementary that the interpretation of a
law by this Court constitutes part of that law from the date it
was originally passed, since this Court's construction merely
establishes the contemporaneous legislative intent that the
interpreted law carried into effect.43ςrνll
Accenture questions the CTA s application of Burmeister,
because the provision interpreted therein was Section 102(b)
of the 1977 Tax Code. In support of its position that Section
108 of the 1997 Tax Code does not require that the services
be rendered to an entity doing business outside the
Philippines, Accenture invokes this Court s pronouncements in
Amex. However, a reading of that case will readily reveal that
the provision applied was Section 102(b) of the 1977 Tax
Code, and not Section 108 of the 1997 Tax Code. As
previously mentioned, an interpretation of Section 102(b) of the
1977 Tax Code is an interpretation of Section 108 of the 1997
Tax Code, the latter being a mere reproduction of the former.
This Court further finds that Accenture s reliance on Amex is
misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does
not require that the services be consumed abroad to be zero-
rated. However, nowhere in that case did this Court discuss
the necessary qualification of the recipient of the service, as
this matter was never put in question. In fact, the recipient of
the service in Amex is a nonresident foreign client.
The aforementioned case explains how the credit card system
works. The issuance of a credit card allows the holder thereof
to obtain, on credit, goods and services from certain
establishments. As proof that this credit is extended by the
establishment, a credit card draft is issued. Thereafter, the
company issuing the credit card will pay for the purchases of
the credit card holders by redeeming the drafts. The obligation
to collect from the card holders and to bear the loss in case
they do not pay rests on the issuer of the credit card.
The service provided by respondent in Amex consisted of
gathering the bills and credit card drafts from establishments
located in the Philippines and forwarding them to its parent
company's regional operating centers outside the country. It
36
facilitated in the Philippines the collection and payment of
receivables belonging to its Hong Kong-based foreign client.
The Court explained how the services rendered in Amex were
considered to have been performed and consumed in the
Philippines, to wit:ςrαlαω
Consumption is "the use of a thing in a way that thereby
exhausts it." Applied to services, the term means the
performance or "successful completion of a contractual duty,
usually resulting in the performer s release from any past or
future liability x x x." 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.44ςrνll
The effect of the place of consumption on the zero-rating of the
transaction was not the issue in Burmeister. Instead, this Court
addressed the squarely raised issue of whether the recipient of
services should be doing business outside the Philippines for
the transaction to qualify for zero-rating. We ruled that it
should. Thus, another essential condition for qualification for
zero-rating under Section 102(b)(2) of the 1977 Tax Code is
that the recipient of the business be doing that business
outside the Philippines. In clarifying that there is no conflict
between this pronouncement and that laid down in Amex, we
ruled thus:ςrαlαω
x x x. As the Court held in Commissioner of Internal Revenue
v. American Express International, Inc. (Philippine Branch), the
place of payment is immaterial, much less is the place where
the output of the service is ultimately used. An essential
condition for entitlement to 0% VAT under Section 102 (b) (1)
and (2) is that the recipient of the services is a person doing
business outside the Philippines. In this case, the recipient of
the services is the Consortium, which is doing business not
outside, but within the Philippines because it has a 15-year
contract to operate and maintain NAPOCOR s two 100-
megawatt power barges in Mindanao. (Emphasis in the
original)45ςrνll
In Amex we ruled that the place of performance and/or
consumption of the service is immaterial. In Burmeister, the
Court found that, although the place of the consumption of the
service does not affect the entitlement of a transaction to zero-
rating, the place where the recipient conducts its business
does.
Amex does not conflict with Burmeister. In fact, to fully
understand how Section 102(b)(2) of the 1977 Tax Code and
consequently Section 108(B)(2) of the 1997 Tax Code was
intended to operate, the two aforementioned cases should be
taken together. The zero-rating of the services performed by
respondent in Amex was affirmed by the Court, because
although the services rendered were both performed and
consumed in the Philippines, the recipient of the service was
still an entity doing business outside the Philippines as
required in Burmeister.
That the recipient of the service should be doing business
outside the Philippines to qualify for zero-rating is the only
logical interpretation of Section 102(b)(2) of the 1977 Tax
Code, as we explained in Burmeister:ςrαlαω
This can only be the logical interpretation of Section 102 (b)
(2). If the provider and recipient of the "other services" are both
doing business in the Philippines, the payment of foreign
currency is irrelevant. Otherwise, those subject to the regular
VAT under Section 102 (a) can avoid paying the VAT by simply
stipulating payment in foreign currency inwardly remitted by the
recipient of services. To interpret Section 102 (b) (2) to apply to
a payer-recipient of services doing business in the Philippines
is to make the payment of the regular VAT under Section 102
(a) dependent on the generosity of the taxpayer. The provider
of services can choose to pay the regular VAT or avoid it by
stipulating payment in foreign currency inwardly remitted by the
payer-recipient. Such interpretation removes Section 102 (a)
as a tax measure in the Tax Code, an interpretation this Court
cannot sanction. A tax is a mandatory exaction, not a voluntary
contribution.
xxx     xxx     xxx
Further, when the provider and recipient of services are both
doing business in the Philippines, their transaction falls
squarely under Section 102 (a) governing domestic sale or
exchange of services. Indeed, this is a purely local sale or
exchange of services subject to the regular VAT, unless of
course the transaction falls under the other provisions of
Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than
those mentioned in the preceding subparagraph," the
legislative intent is that only the services are different between
subparagraphs 1 and 2. The requirements for zero-rating,
including the essential condition that the recipient of services is
doing business outside the Philippines, remain the same under
both subparagraphs. (Emphasis in the original)46ςrνll
Lastly, it is worth mentioning that prior to the promulgation of
Burmeister, Congress had already clarified the intent behind
Sections 102(b)(2) of the 1977 Tax Code and 108(B)(2) of the
1997 Tax Code amending the earlier provision. R.A. 9337
added the following phrase: "rendered to a person engaged in
business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines
when the services are performed."
Accenture has failed to establish that the recipients of its
services do business outside the Philippines.
Accenture argues that based on the documentary evidence it
presented,47 it was able to establish the following
circumstances:ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ
1. The records of the Securities and Exchange Commission
(SEC) show that Accenture s clients have not established any
branch office in which to do business in the Philippines.
2. For these services, Accenture bills another corporation,
Accenture Participations B.V. (APB), which is likewise a foreign
corporation with no "presence in the Philippines."
3. Only those not doing business in the Philippines can be
required under BSP rules to pay in acceptable currency for
their purchase of goods and services from the Philippines.
Thus, in a domestic transaction, where the provider and
recipient of services are both doing business in the Philippines,
the BSP cannot require any party to make payment in foreign
currency.48ςrνll
chanrobles virtual law library
Accenture claims that these documentary pieces of evidence
are supported by the Report of Emmanuel Mendoza, the
Court-commissioned Independent Certified Public Accountant.
He ascertained that Accenture s gross billings pertaining to
zero-rated sales were all supported by zero-rated Official
Receipts and Billing Statements. These documents show that
these zero-rated sales were paid in foreign exchange currency
and duly accounted for in the rules and regulations of the
BSP.49ςrνll
In the CTA s opinion, however, the documents presented by
Accenture merely substantiate the existence of the sales,
receipt of foreign currency payments, and inward remittance of
the proceeds of these sales duly accounted for in accordance
with BSP rules. Petitioner presented no evidence whatsoever
that these clients were doing business outside the
Philippines.50ςrνll
37
Accenture insists, however, that it was able to establish that it
had rendered services to foreign corporations doing business
outside the Philippines, unlike in Burmeister, which allegedly
involved a foreign corporation doing business in the
Philippines.51ςrνll
We deny Accenture s Petition for a tax refund.
The evidence presented by Accenture may have established
that its clients are foreign. This fact does not automatically
mean, however, that these clients were doing business outside
the Philippines. After all, the Tax Code itself has provisions for
a foreign corporation engaged in business within the
Philippines and vice versa, to wit:
SEC. 22. Definitions - When used in this Title:ςηαñrοblεš
νιr†υαl  lαω  lιbrαrÿ
xxx     xxx     xxx
(H) The term "resident foreign corporation" applies to a foreign
corporation engaged in trade or business within the
Philippines.
(I) The term nonresident foreign corporation applies to a
foreign corporation not engaged in trade or business within the
Philippines. (Emphasis in the original)
chanrobles virtual law library
Consequently, to come within the purview of Section 108(B)(2),
it is not enough that the recipient of the service be proven to be
a foreign corporation; rather, it must be specifically proven to
be a nonresident foreign corporation.
There is no specific criterion as to what constitutes "doing" or
"engaging in" or "transacting" business. We ruled thus in
Commissioner of Internal Revenue v. British Overseas Airways
Corporation:52ςrνll
x x x. There is no specific criterion as to what constitutes
"doing" or "engaging in" or "transacting" business. Each case
must be judged in the light of its peculiar environmental
circumstances. The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of
the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object
of the business organization. "In order that a foreign
corporation may be regarded as doing business within a State,
there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent,
and not one of a temporary character."53ςrνll
A taxpayer claiming a tax credit or refund has the burden of
proof to establish the factual basis of that claim. Tax refunds,
like tax exemptions, are construed strictly against the
taxpayer.54ςrνll
Accenture failed to discharge this burden. It alleged and
presented evidence to prove only that its clients were foreign
entities. However, as found by both the CTA Division and the
CTA En Banc, no evidence was presented by Accenture to
prove the fact that the foreign clients to whom petitioner
rendered its services were clients doing business outside the
Philippines.
As ruled by the CTA En Banc, the Official Receipts,
Intercompany Payment Requests, Billing Statements, Memo
Invoices-Receivable, Memo Invoices-Payable, and Bank
Statements presented by Accenture merely substantiated the
existence of sales, receipt of foreign currency payments, and
inward remittance of the proceeds of such sales duly
accounted for in accordance with BSP rules, all of these were
devoid of any evidence that the clients were doing business
outside of the Philippines.55ςrνll
WHEREFORE, the instant Petition is DENIED. The 22
September 2009 Decision and the 23 October 2009 Resolution
of the Court of Tax Appeals En Banc in C.T.A. EB No. 477,
dismissing the Petition for the refund of the excess or
unutilized input VAT credits of Accenture, Inc., are AFFIRMED.

SO ORDERED.

38
G.R. No. 157594               March 9, 2010
TOSHIBA INFORMATION EQUIPMENT (PHILS.),
INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
In this Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court, petitioner Toshiba Information Equipment
(Philippines), Inc. (Toshiba) seeks the reversal and setting
aside of (1) the Decision2 dated August 29, 2002 of the Court
of Appeals in CA-G.R. SP No. 63047, which found that
Toshiba was not entitled to the credit/refund of its unutilized
input Value-Added Tax (VAT) payments attributable to its
export sales, because it was a tax-exempt entity and its export
sales were VAT-exempt transactions; and (2) the
Resolution3 dated February 19, 2003 of the appellate court in
the same case, which denied the Motion for Reconsideration of
Toshiba. The herein assailed judgment of the Court of Appeals
reversed and set aside the Decision4 dated October 16, 2000
of the Court of Tax Appeals (CTA) in CTA Case No. 5762
granting the claim for credit/refund of Toshiba in the amount of
₱1,385,282.08.
Toshiba is a domestic corporation principally engaged in the
business of manufacturing and exporting of electric machinery,
equipment systems, accessories, parts, components, materials
and goods of all kinds, including those relating to office
automation and information technology and all types of
computer hardware and software, such as but not limited to
HDD-CD-ROM and personal computer printed circuit board.5 It
is registered with the Philippine Economic Zone Authority
(PEZA) as an Economic Zone (ECOZONE) export enterprise in
the Laguna Technopark, Inc., as evidenced by Certificate of
Registration No. 95-99 dated September 27, 1995.6 It is also
registered with Regional District Office No. 57 of the Bureau of
Internal Revenue (BIR) in San Pedro, Laguna, as a VAT-
taxpayer with Taxpayer Identification No. (TIN) 004-739-137.7
In its VAT returns for the first and second quarters of
1997,8 filed on April 14, 1997 and July 21, 1997, respectively,
Toshiba declared input VAT payments on its domestic
purchases of taxable goods and services in the aggregate sum
of ₱3,875,139.65,9 with no zero-rated sales. Toshiba
subsequently submitted to the BIR on July 23, 1997 its
amended VAT returns for the first and second quarters of
1997,10 reporting the same amount of input VAT payments but,
this time, with zero-rated sales totaling ₱7,494,677,000.00.11
On March 30, 1999, Toshiba filed with the One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance (DOF One-Stop Shop) two separate
applications for tax credit/refund12 of its unutilized input VAT
payments for the first half of 1997 in the total amount of
₱3,685,446.73.13
The next day, on March 31, 1999, Toshiba likewise filed with
the CTA a Petition for Review14 to toll the running of the two-
year prescriptive period under Section 230 of the Tax Code of
1977,15 as amended.16 In said Petition, docketed as CTA Case
No. 5762, Toshiba prayed that –
[A]fter due hearing, judgment be rendered ordering [herein
respondent Commissioner of Internal Revenue (CIR)] to refund
or issue to [Toshiba] a tax refund/tax credit certificate in the
amount of P3,875,139.65 representing unutilized input taxes
paid on its purchase of taxable goods and services for the
period January 1 to June 30, 1997.17
The Commissioner of Internal Revenue (CIR) opposed the
claim for tax refund/credit of Toshiba, setting up the following
special and affirmative defenses in his Answer18 –
39
5. [Toshiba’s] alleged claim for refund/tax credit is
subject to administrative routinary
investigation/examination by [CIR’s] Bureau;
6. [Toshiba] failed miserably to show that the total
amount of ₱3,875,139.65 claimed as VAT input taxes,
were erroneously or illegally collected, or that the
same are properly documented;
7. Taxes paid and collected are presumed to have
been made in accordance with law; hence, not
refundable;
8. In an action for tax refund, the burden is on the
taxpayer to establish its right to refund, and failure to
sustain the burden is fatal to the claim for refund;
9. It is incumbent upon [Toshiba] to show that it has
complied with the provisions of Section 204 in relation
to Section 229 of the Tax Code;
10. Well-established is the rule that claims for
refund/tax credit are construed in strictissimi
juris against the taxpayer as it partakes the nature of
exemption from tax.19
Upon being advised by the CTA,20 Toshiba and the CIR filed a
Joint Stipulation of Facts and Issues,21 wherein the opposing
parties "agreed and admitted" that –
1. [Toshiba] is a duly registered value-added tax entity
in accordance with Section 107 of the Tax Code, as
amended.
2. [Toshiba] is subject to zero percent (0%) value-
added tax on its export sales in accordance with then
Section 100(a)(2)(A) of the Tax Code, as amended.
3. [Toshiba] filed its quarterly VAT returns for the first
two quarters of 1997 within the legally prescribed
period.
xxxx
7. [Toshiba] is subject to zero percent (0%) value-
added tax on its export sales.
8. [Toshiba] has duly filed the instant Petition for
Review within the two-year prescriptive period
prescribed by then Section 230 of the Tax Code.22
In the same pleading, Toshiba and the CIR jointly submitted
the following issues for determination by the CTA –
Whether or not [Toshiba] has incurred input taxes in the
amount of ₱3,875,139.65 for the period January 1 to June 30,
1997 which are directly attributable to its export sales[.]
Whether or not the input taxes incurred by [Toshiba] for the
period January 1 to June 30, 1997 have not been carried over
to the succeeding quarters[.]
Whether or not input taxes incurred by [Toshiba] for the first
two quarters of 1997 have not been offset against any output
tax[.]
Whether or not input taxes incurred by [Toshiba] for the first
two quarters of 1997 are properly substantiated by official
receipts and invoices.23
During the trial before the CTA, Toshiba presented
documentary evidence in support of its claim for tax
credit/refund, while the CIR did not present any evidence at all.
With both parties waiving the right to submit their respective
memoranda, the CTA rendered its Decision in CTA Case No.
5762 on October 16, 2000 favoring Toshiba. According to the
CTA, the CIR himself admitted that the export sales of Toshiba
were subject to zero percent (0%) VAT based on Section
100(a)(2)(A)(i) of the Tax Code of 1977, as amended. Toshiba
could then claim tax credit or refund of input VAT paid on its
purchases of goods, properties, or services, directly
attributable to such zero-rated sales, in accordance with
Section 4.102-2 of Revenue Regulations No. 7-95. The CTA,
though, reduced the amount to be credited or refunded to
Toshiba to ₱1,385,292.02.
The dispositive portion of the October 16, 2000 Decision of the
CTA fully reads –
Section 103(q) of the Tax Code of 1977, as amended
Sec. 103. Exempt transactions. – The following shall be
exempt from the value-added tax:
xxxx
(q) Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972,
1491, and 1950, and non-electric cooperatives under Republic
Act No. 6938, or international agreements to which the
Philippines is a signatory.
Section 4.103-1 of Revenue Regulations No. 7-95

WHEREFORE, [Toshiba’s] claim for refund of unutilized input SEC. 4.103-1. Exemptions. – (A) In general. – An exemption
VAT payments is hereby GRANTED but in a reduced amount means that the sale of goods or properties and/or services and
of ₱1,385,282.08 computed as follows: the use or lease of properties is not subject to VAT (output tax)
and the seller is not allowed any tax credit on VAT (input tax)
previously paid.
1st Quarter 2nd Total
Quarter
The person making the exempt sale of goods, properties or
Amount of claimed services shall not bill any output tax to his customers because
input taxes filed with the said transaction is not subject to VAT. On the other hand, a
the DOF One Stop P3,268,682 P416,764 P3,685,446 VAT-registered purchaser of VAT-exempt goods, properties or
Shop Center .34 .39 .73 services which are exempt from VAT is not entitled to any input
tax on such purchase despite the issuance of a VAT invoice or
Less: 1) Input taxes receipt.
not properly
supported by VAT
invoices and The CIR contended that under Section 24 of Republic Act No.
official receipts 7916, a special law, all businesses and establishments within
a. Per SGV’s the ECOZONE were to remit to the government five percent
verification ₱ ₱154,391 ₱ (5%) of their gross income earned within the zone, in lieu of all
(Exh. I) 242,491.45 .13 396,882.58 taxes, including VAT. This placed Toshiba within the ambit of
Section 103(q) of the Tax Code of 1977, as amended, which
b. Per this court’s exempted from VAT the transactions that were exempted
further verification under special laws. Following Section 4.103-1(A) of Revenue
₱1,852,437 ₱ ₱1,887,545 Regulations No. 7-95, the VAT-exemption of Toshiba meant
(Annex A)
.65 35,108.00 .65 that its sale of goods was not subject to output VAT and
₱189,499.13 ₱2,30
0,164.65 Toshiba as seller was not allowed any tax credit on the input
VAT it had previously paid.
₱1,158,016 ₱227,265 ₱1,385,282
Amount Refundable
.82 .26 .08
On January 17, 2001, the CTA issued a Resolution28 denying
both Motions for Reconsideration of Toshiba and the CIR.
Respondent Commissioner of Internal Revenue is ORDERED
to REFUND to [Toshiba] or in the alternative, ISSUE a TAX The CTA took note that the pieces of evidence referred to by
CREDIT CERTIFICATE in the amount of ₱1,385,282.08 Toshiba in its Motion for Reconsideration were insufficient
representing unutilized input taxes paid by [Toshiba] on its substantiation, being mere schedules of input VAT payments it
purchases of taxable goods and services for the period had purportedly paid for the first and second quarters of 1997.
January 1 to June 30, 1997.24 While the CTA gives credence to the report of its
commissioned certified public accountant (CPA), it does not
Both Toshiba and the CIR sought reconsideration of the render its decision based on the findings of the said CPA
foregoing CTA Decision. alone. The CTA has its own CPA and the tax court itself
conducts an investigation/examination of the documents
presented. The CTA stood by its earlier disallowance of the
Toshiba asserted in its Motion for Reconsideration25 that it had amount of ₱1,887,545.65 as tax credit/refund because it was
presented proper substantiation for the ₱1,887,545.65 input not supported by VAT invoices and/or official receipts.1avvphi1
VAT disallowed by the CTA.

The CTA refused to consider the argument that Toshiba was

The CIR, on the other hand, argued in his Motion for
Reconsideration26 that Toshiba was not entitled to the
credit/refund of its input VAT payments because as a PEZA-
registered ECOZONE export enterprise, Toshiba was not
subject to VAT. The CIR invoked the following statutory and
regulatory provisions –
not entitled to a tax credit/refund under Section 24 of Republic
Act No. 7916 because it was only raised by the CIR for the first
time in his Motion for Reconsideration. Also, contrary to the
assertions of the CIR, the CTA held that Section 23, and not
Section 24, of Republic Act No. 7916, applied to Toshiba.
According to Section 23 of Republic Act No. 7916 –

Section 24 of Republic Act No. 791627
SECTION 24. Exemption from Taxes Under the National
Internal Revenue Code. – Any provision of existing laws, rules
and regulations to the contrary notwithstanding, no taxes, local
and national, shall be imposed on business establishments
operating within the ECOZONE. In lieu of paying taxes, five
percent (5%) of the gross income earned by all businesses and
enterprises within the ECOZONE shall be remitted to the
national government. x x x.
SECTION 23. Fiscal Incentives. – Business establishments
operating within the ECOZONES shall be entitled to the fiscal
incentives as provided for under Presidential Decree No. 66,
the law creating the Export Processing Zone Authority, or
those provided under Book VI of Executive Order No. 226,
otherwise known as the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local materials as
inputs shall enjoy the benefits provided for in the Export
Development Act of 1994.

40
Among the fiscal incentives granted to PEZA-registered
enterprises by the Omnibus Investments Code of 1987 was the
income tax holiday, to wit –
Art. 39. Incentives to Registered Enterprises. – All registered
enterprises shall be granted the following incentives to the
extent engaged in a preferred area of investment:
(a) Income Tax Holiday. —
(1) For six (6) years from commercial
operation for pioneer firms and four (4) years
for non-pioneer firms, new registered firms
shall be fully exempt from income taxes
levied by the national government. Subject to
such guidelines as may be prescribed by the
Board, the income tax exemption will be
extended for another year in each of the
following cases:
(i) The project meets the prescribed
ratio of capital equipment to number
of workers set by the Board;
(ii) Utilization of indigenous raw
materials at rates set by the Board;
(iii) The net foreign exchange
savings or earnings amount to at
least US$500,000.00 annually
during the first three (3) years of
operation.
The preceding paragraph notwithstanding,
no registered pioneer firm may avail of this
incentive for a period exceeding eight (8)
years.
(2) For a period of three (3) years from
commercial operation, registered expanding
firms shall be entitled to an exemption from
income taxes levied by the National
Government proportionate to their expansion
under such terms and conditions as the
Board may determine: Provided, however,
That during the period within which this
incentive is availed of by the expanding firm
it shall not be entitled to additional deduction
for incremental labor expense.
(3) The provision of Article 7(14)
notwithstanding, registered firms shall not be
entitled to any extension of this incentive.
The CTA pointed out that Toshiba availed itself of the income
tax holiday under the Omnibus Investments Code of 1987, so
Toshiba was exempt only from income tax but not from other
taxes such as VAT. As a result, Toshiba was liable for output
VAT on its export sales, but at zero percent (0%) rate, and
entitled to the credit/refund of the input VAT paid on its
purchases of goods and services relative to such zero-rated
export sales.
Unsatisfied, the CIR filed a Petition for Review29 with the Court
of Appeals, docketed as CA-G.R. SP No. 63047.
In its Decision dated August 29, 2002, the Court of Appeals
granted the appeal of the CIR, and reversed and set aside the
Decision dated October 16, 2000 and the Resolution dated
January 17, 2001 of the CTA. The appellate court ruled that
Toshiba was not entitled to the refund of its alleged unused
input VAT payments because it was a tax-exempt entity under
Section 24 of Republic Act No. 7916. As a PEZA-registered
corporation, Toshiba was liable for remitting to the national
government the five percent (5%) preferential rate on its gross
41
income earned within the ECOZONE, in lieu of all other
national and local taxes, including VAT.
The Court of Appeals further adjudged that the export sales of
Toshiba were VAT-exempt, not zero-rated, transactions. The
appellate court found that the Answer filed by the CIR in CTA
Case No. 5762 did not contain any admission that the export
sales of Toshiba were zero-rated transactions under Section
100(a)(2)(A) of the Tax Code of 1977, as amended. At the
least, what was admitted by the CIR in said Answer was that
the Tax Code provisions cited in the Petition for Review of
Toshiba in CTA Case No. 5762 were correct. As to the Joint
Stipulation of Facts and Issues filed by the parties in CTA Case
No. 5762, which stated that Toshiba was subject to zero
percent (0%) VAT on its export sales, the appellate court
declared that the CIR signed the said pleading through
palpable mistake. This palpable mistake in the stipulation of
facts should not be taken against the CIR, for to do otherwise
would result in suppressing the truth through falsehood. In
addition, the State could not be put in estoppel by the mistakes
or errors of its officials or agents.
Given that Toshiba was a tax-exempt entity under Republic Act
No. 7916, a special law, the Court of Appeals concluded that
the export sales of Toshiba were VAT-exempt transactions
under Section 109(q) of the Tax Code of 1997, formerly
Section 103(q) of the Tax Code of 1977. Therefore, Toshiba
could not claim refund of its input VAT payments on its
domestic purchases of goods and services.
The Court of Appeals decreed at the end of its August 29,
2002 Decision –
WHEREFORE, premises considered, the appealed decision of
the Court of Tax Appeals in CTA Case No. 5762, is hereby
REVERSED and SET ASIDE, and a new one is hereby
rendered finding [Toshiba], being a tax exempt entity under
R.A. No. 7916, not entitled to refund the VAT payments made
in its domestic purchases of goods and services.30
Toshiba filed a Motion for Reconsideration31 of the
aforementioned Decision, anchored on the following
arguments: (a) the CIR never raised as an issue before the
CTA that Toshiba was tax-exempt under Section 24 of
Republic Act No. 7916; (b) Section 24 of Republic Act No.
7916, subjecting the gross income earned by a PEZA-
registered enterprise within the ECOZONE to a preferential
rate of five percent (5%), in lieu of all taxes, did not apply to
Toshiba, which availed itself of the income tax holiday under
Section 23 of the same statute; (c) the conclusion of the CTA
that the export sales of Toshiba were zero-rated was
supported by substantial evidence, other than the admission of
the CIR in the Joint Stipulation of Facts and Issues; and (d) the
judgment of the CTA granting the refund of the input VAT
payments was supported by substantial evidence and should
not have been set aside by the Court of Appeals.
In a Resolution dated February 19, 2003, the Court of Appeals
denied the Motion for Reconsideration of Toshiba since the
arguments presented therein were mere reiterations of those
already passed upon and found to be without merit by the
appellate court in its earlier Decision. The Court of Appeals,
however, mentioned that it was incorrect for Toshiba to say
that the issue of the applicability of Section 24 of Republic Act
No. 7916 was only raised for the first time on appeal before the
appellate court. The said issue was adequately raised by the
CIR in his Motion for Reconsideration before the CTA, and was
even ruled upon by the tax court.
Hence, Toshiba filed the instant Petition for Review with the
following assignment of errors –
5.1 THE HONORABLE COURT OF APPEALS
ERRED WHEN IT RULED THAT [TOSHIBA], BEING
A PEZA-REGISTERED ENTERPRISE, IS EXEMPT
FROM VAT UNDER SECTION 24 OF R.A. 7916,
AND FURTHER HOLDING THAT [TOSHIBA’S]
 EXPORT SALES ARE EXEMPT TRANSACTIONS
UNDER SECTION 109 OF THE TAX CODE.
5.2 THE HONORABLE COURT OF APPEALS
ERRED WHEN IT FAILED TO DISMISS OUTRIGHT
AND GAVE DUE COURSE TO [CIR’S] PETITION
NOTWITHSTANDING [CIR’S] FAILURE TO
ADEQUATELY RAISE IN ISSUE DURING THE
TRIAL IN THE COURT OF TAX APPEALS THE
APPLICABILITY OF SECTION 24 OF R.A. 7916 TO
[TOSHIBA’S] CLAIM FOR REFUND.
5.3 THE HONORABLE COURT OF APPEALS
ERRED WHEN [IT] RULED THAT THE COURT OF
TAX APPEALS’ FINDINGS, WITH REGARD
[TOSHIBA’S] EXPORT SALES BEING ZERO RATED
SALES FOR VAT PURPOSES, WERE BASED
MERELY ON THE ADMISSIONS MADE BY [CIR’S]
COUNSEL AND NOT SUPPORTED BY
SUBSTANTIAL EVIDENCE.
5.4 THE HONORABLE COURT OF APPEALS
ERRED WHEN IT REVERSED THE DECISION OF
THE COURT OF TAX APPEALS GRANTING
[TOSHIBA’S] CLAIM FOR REFUND[;]32
and the following prayer –
WHEREFORE, premises considered, Petitioner TOSHIBA
INFORMATION EQUIPMENT (PHILS.), INC. most respectfully
prays that the decision and resolution of the Honorable Court
of Appeals, reversing the decision of the CTA in CTA Case No.
5762, be set aside and further prays that a new one be
rendered AFFIRMING AND UPHOLDING the Decision of the
CTA promulgated on October 16, 2000 in CTA Case No. 5762.
Other reliefs, which the Honorable Court may deem just and
equitable under the circumstances, are likewise prayed for.33
The Petition is impressed with merit.
The CIR did not timely raise before the CTA the issues on the
VAT-exemptions of Toshiba and its export sales.
Upon the failure of the CIR to timely plead and prove before
the CTA the defenses or objections that Toshiba was VAT-
exempt under Section 24 of Republic Act No. 7916, and that its
export sales were VAT-exempt transactions under Section
103(q) of the Tax Code of 1977, as amended, the CIR is
deemed to have waived the same.
During the pendency of CTA Case No. 5762, the proceedings
before the CTA were governed by the Rules of the Court of
Tax Appeals,34 while the Rules of Court were applied
suppletorily.35
Rule 9, Section 1 of the Rules of Court provides:
SECTION 1. Defenses and objections not pleaded. – Defenses
and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived. However, when it appears
from the pleadings or the evidence on record that the court has
no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause,
or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim.
The CIR did not argue straight away in his Answer in CTA
Case No. 5762 that Toshiba had no right to the credit/refund of
its input VAT payments because the latter was VAT-exempt
and its export sales were VAT-exempt transactions. The Pre-
Trial Brief36 of the CIR was equally bereft of such allegations or
arguments. The CIR passed up the opportunity to prove the
supposed VAT-exemptions of Toshiba and its export sales
when the CIR chose not to present any evidence at all during
the trial before the CTA.37 He missed another opportunity to
42
present the said issues before the CTA when he waived the
submission of a Memorandum.38 The CIR had waited until the
CTA already rendered its Decision dated October 16, 2000 in
CTA Case No. 5762, which granted the claim for credit/refund
of Toshiba, before asserting in his Motion for Reconsideration
that Toshiba was VAT-exempt and its export sales were VAT-
exempt transactions.
The CIR did not offer any explanation as to why he did not
argue the VAT-exemptions of Toshiba and its export sales
before and during the trial held by the CTA, only doing so in his
Motion for Reconsideration of the adverse CTA judgment.
Surely, said defenses or objections were already available to
the CIR when the CIR filed his Answer to the Petition for
Review of Toshiba in CTA Case No. 5762.
It is axiomatic in pleadings and practice that no new issue in a
case can be raised in a pleading which by due diligence could
have been raised in previous pleadings.39 The Court cannot
simply grant the plea of the CIR that the procedural rules be
relaxed based on the general averment of the interest of
substantive justice. It should not be forgotten that the first and
fundamental concern of the rules of procedure is to secure a
just determination of every action.40 Procedural rules are
designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. While
in certain instances, the Court allows a relaxation in the
application of the rules, it never intends to forge a weapon for
erring litigants to violate the rules with impunity. The liberal
interpretation and application of rules apply only in proper
cases of demonstrable merit and under justifiable causes and
circumstances. While it is true that litigation is not a game of
technicalities, it is equally true that every case must be
prosecuted in accordance with the prescribed procedure to
ensure an orderly and speedy administration of justice. Party
litigants and their counsel are well advised to abide by, rather
than flaunt, procedural rules for these rules illumine the path of
the law and rationalize the pursuit of justice.41
The CIR judicially admitted that Toshiba was VAT-registered
and its export sales were subject to VAT at zero percent (0%)
rate.
More importantly, the arguments of the CIR that Toshiba was
VAT-exempt and the latter’s export sales were VAT-exempt
transactions are inconsistent with the explicit admissions of the
CIR in the Joint Stipulation of Facts and Issues (Joint
Stipulation) that Toshiba was a registered VAT entity and that it
was subject to zero percent (0%) VAT on its export sales.
The Joint Stipulation was executed and submitted by Toshiba
and the CIR upon being advised to do so by the CTA at the
end of the pre-trial conference held on June 23, 1999.42 The
approval of the Joint Stipulation by the CTA, in its
Resolution43 dated July 12, 1999, marked the culmination of
the pre-trial process in CTA Case No. 5762.
Pre-trial is an answer to the clarion call for the speedy
disposition of cases. Although it was discretionary under the
1940 Rules of Court, it was made mandatory under the 1964
Rules and the subsequent amendments in 1997. It has been
hailed as "the most important procedural innovation in Anglo-
Saxon justice in the nineteenth century."44
The nature and purpose of a pre-trial have been laid down in
Rule 18, Section 2 of the Rules of Court:
SECTION 2. Nature and purpose. – The pre-trial is mandatory.
The court shall consider:
(a) The possibility of an amicable settlement or of a
submission to alternative modes of dispute resolution;
(b) The simplification of the issues;
(c) The necessity or desirability of amendments to the
pleadings;
 (d) The possibility of obtaining stipulations or
admissions of facts and of documents to avoid
unnecessary proof;
(e) The limitation of the number of witnesses;
(f) The advisability of a preliminary reference of issues
to a commissioner;
(g) The propriety of rendering judgment on the
pleadings, or summary judgment, or of dismissing the
action should a valid ground therefor be found to
exist;
(h) The advisability or necessity of suspending the
proceedings; and
(i) Such other matters as may aid in the prompt
disposition of the action. (Emphasis ours.)
The admission having been made in a stipulation of facts at
pre-trial by the parties, it must be treated as a judicial
admission.45 Under Section 4, Rule 129 of the Rules of Court,
a judicial admission requires no proof. The admission may be
contradicted only by a showing that it was made through
palpable mistake or that no such admission was made. The
Court cannot lightly set aside a judicial admission especially
when the opposing party relied upon the same and accordingly
dispensed with further proof of the fact already admitted. An
admission made by a party in the course of the proceedings
does not require proof.46
In the instant case, among the facts expressly admitted by the
CIR and Toshiba in their CTA-approved Joint Stipulation are
that Toshiba "is a duly registered value-added tax entity in
accordance with Section 107 of the Tax Code, as
amended[,]"47 that "is subject to zero percent (0%) value-added
tax on its export sales in accordance with then Section 100(a)
(2)(A) of the Tax Code, as amended."48 The CIR was bound by
these admissions, which he could not eventually contradict in
his Motion for Reconsideration of the CTA Decision dated
October 16, 2000, by arguing that Toshiba was actually a VAT-
exempt entity and its export sales were VAT-exempt
transactions. Obviously, Toshiba could not have been subject
to VAT and exempt from VAT at the same time. Similarly, the
export sales of Toshiba could not have been subject to zero
percent (0%) VAT and exempt from VAT as well.
The CIR cannot escape the binding effect of his judicial
admissions.
The Court disagrees with the Court of Appeals when it ruled in
its Decision dated August 29, 2002 that the CIR could not be
bound by his admissions in the Joint Stipulation because (1)
the said admissions were "made through palpable
mistake"49 which, if countenanced, "would result in falsehood,
unfairness and injustice";50 and (2) the State could not be put in
estoppel by the mistakes of its officials or agents. This ruling of
the Court of Appeals is rooted in its conclusion that a "palpable
mistake" had been committed by the CIR in the signing of the
Joint Stipulation. However, this Court finds no evidence of the
commission of a mistake, much more, of a palpable one.
The CIR does not deny that his counsel, Atty. Joselito F.
Biazon, Revenue Attorney II of the BIR, signed the Joint
Stipulation, together with the counsel of Toshiba, Atty. Patricia
B. Bisda. Considering the presumption of regularity in the
performance of official duty,51 Atty. Biazon is presumed to have
read, studied, and understood the contents of the Joint
Stipulation before he signed the same. It rests on the CIR to
present evidence to the contrary.
Yet, the Court observes that the CIR himself never alleged in
his Motion for Reconsideration of the CTA Decision dated
October 16, 2000, nor in his Petition for Review before the
Court of Appeals, that Atty. Biazon committed a mistake in
signing the Joint Stipulation. Since the CIR did not make such
43
an allegation, neither did he present any proof in support
thereof. The CIR began to aver the existence of a palpable
mistake only after the Court of Appeals made such a
declaration in its Decision dated August 29, 2002.
Despite the absence of allegation and evidence by the CIR, the
Court of Appeals, on its own, concluded that the admissions of
the CIR in the Joint Stipulation were due to a palpable mistake
based on the following deduction –
Scrutinizing the Answer filed by [the CIR], we rule that the Joint
Stipulation of Facts and Issues signed by [the CIR] was made
through palpable mistake. Quoting paragraph 4 of its Answer,
[the CIR] states:
"4. He ADMITS the allegations contained in paragraph 5 of the
petition only insofar as the cited provisions of Tax Code is
concerned, but SPECIFICALLY DENIES the rest of the
allegations therein for being mere opinions, arguments or
gratuitous assertions on the part of [Toshiba] and/or because
they are mere erroneous conclusions or interpretations of the
quoted law involved, the truth of the matter being those stated
hereunder
x x x x"
And paragraph 5 of the petition for review filed by [Toshiba]
before the CTA states:
"5. Petitioner is subject to zero percent (0%) value-added tax
on its export sales in accordance with then Section 100(a)(2)
(A) of the Tax Code x x x.
x x x x"
As we see it, nothing in said Answer did [the CIR] admit that
the export sales of [Toshiba] were indeed zero-rated
transactions. At the least, what was admitted only by [the CIR]
concerning paragraph 4 of his Answer, is the fact that the
provisions of the Tax Code, as cited by [Toshiba] in its petition
for review filed before the CTA were correct.52
The Court of Appeals provided no explanation as to why the
admissions of the CIR in his Answer in CTA Case No. 5762
deserved more weight and credence than those he made in
the Joint Stipulation. The appellate court failed to appreciate
that the CIR, through counsel, Atty. Biazon, also signed the
Joint Stipulation; and that absent evidence to the contrary,
Atty. Biazon is presumed to have signed the Joint Stipulation
willingly and knowingly, in the regular performance of his
official duties. Additionally, the Joint Stipulation53 of Toshiba
and the CIR was a more recent pleading than the Answer54 of
the CIR. It was submitted by the parties after the pre-trial
conference held by the CTA, and subsequently approved by
the tax court. If there was any discrepancy between the
admissions of the CIR in his Answer and in the Joint
Stipulation, the more logical and reasonable explanation would
be that the CIR changed his mind or conceded some points to
Toshiba during the pre-trial conference which immediately
preceded the execution of the Joint Stipulation. To
automatically construe that the discrepancy was the result of a
palpable mistake is a wide leap which this Court is not
prepared to take without substantial basis.
The judicial admissions of the CIR in the Joint Stipulation are
not intrinsically false, wrong, or illegal, and are consistent with
the ruling on the VAT treatment of PEZA-registered enterprises
in the previous Toshiba case.
There is no basis for believing that to bind the CIR to his
judicial admissions in the Joint Stipulation – that Toshiba was a
VAT-registered entity and its export sales were zero-rated VAT
transactions – would result in "falsehood, unfairness and
injustice." The judicial admissions of the CIR are not
intrinsically false, wrong, or illegal. On the contrary, they are
consistent with the ruling of this Court in a previous case
involving the same parties, Commissioner of Internal Revenue
v. Toshiba Information Equipment (Phils.) Inc.55 (Toshiba
case), explaining the VAT treatment of PEZA-registered
enterprises.
In the Toshiba case, Toshiba sought the refund of its unutilized
input VAT on its purchase of capital goods and services for the
first and second quarters of 1996, based on Section 106(b) of
the Tax Code of 1977, as amended.56 In the Petition at bar,
Toshiba is claiming refund of its unutilized input VAT on its
local purchase of goods and services which are attributable to
its export sales for the first and second quarters of 1997,
pursuant to Section 106(a), in relation to Section 100(a)(1)(A)
(i) of the Tax Code of 1977, as amended, which read –
SEC. 106. Refunds or tax credits of creditable input tax. – (a)
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 100(a)(2)(A)(i),(ii) and (b) and
Section 102(b)(1) and (2), the acceptable foreign currency
exchange proceeds thereof has been duly accounted for in
accordance with the 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 of 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
sales.
SEC. 100. Value-added tax on sale of goods or properties. –
(a) Rate and base of tax. – x x x
xxxx
(2) The following sales by VAT-registered persons
shall be subject to 0%:
(A) Export sales. – The term "export sales" means:
(i) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership
of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipnas (BSP).
Despite the difference in the legal bases for the claims for
credit/refund in the Toshiba case and the case at bar, the CIR
raised the very same defense or objection in both – that
Toshiba and its transactions were VAT-exempt. Hence, the
ruling of the Court in the former case is relevant to the present
case.
At the outset, the Court establishes that there is a basic
distinction in the VAT-exemption of a person and the VAT-
exemption of a transaction –
It would seem that petitioner CIR failed to differentiate between
VAT-exempt transactions from VAT-exempt entities. In the
case of Commissioner of Internal Revenue v. Seagate
Technology (Philippines), this Court already made such
distinction –
An exempt transaction, on the one hand, involves goods or
services which, by their nature, are specifically listed in and
expressly exempted from the VAT under the Tax Code, without
regard to the tax status – VAT-exempt or not – of the party to
the transaction…
44
An exempt party, on the other hand, is a person or entity
granted VAT exemption under the Tax Code, a special law or
an international agreement to which the Philippines is a
signatory, and by virtue of which its taxable transactions
become exempt from VAT x x x.57
In effect, the CIR is opposing the claim for credit/refund of input
VAT of Toshiba on two grounds: (1) that Toshiba was a VAT-
exempt entity; and (2) that its export sales were VAT-exempt
transactions.
It is now a settled rule that based on the Cross Border
Doctrine, PEZA-registered enterprises, such as Toshiba, are
VAT-exempt and no VAT can be passed on to them. The Court
explained in the Toshiba case that –
PEZA-registered enterprise, which would necessarily be
located within ECOZONES, are VAT-exempt entities, not
because of Section 24 of Rep. Act No. 7916, as amended,
which imposes the five percent (5%) preferential tax rate on
gross income of PEZA-registered enterprises, in lieu of all
taxes; but, rather, because of Section 8 of the same statute
which establishes the fiction that ECOZONES are foreign
territory.
xxxx
The Philippine VAT system adheres to the Cross Border
Doctrine, according to which, no VAT shall be imposed to form
part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority. Hence, actual
export of goods and services from the Philippines to a foreign
country must be free of VAT; while, those destined for use or
consumption within the Philippines shall be imposed with ten
percent (10%) VAT.
Applying said doctrine to the sale of goods, properties, and
services to and from the ECOZONES, the BIR issued Revenue
Memorandum Circular (RMC) No. 74-99, on 15 October 1999.
Of particular interest to the present Petition is Section 3
thereof, which reads –
SECTION 3. Tax Treatment of Sales Made by a VAT
Registered Supplier from the Customs Territory, to a PEZA
Registered Enterprise. –
(1) If the Buyer is a PEZA registered enterprise which
is subject to the 5% special tax regime, in lieu of all
taxes, except real property tax, pursuant to R.A. No.
7916, as amended:
(a) Sale of goods (i.e., merchandise). – This
shall be treated as indirect export hence,
considered subject to zero percent (0%)
VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC
and Sec. 23 of R.A. No. 7916, in relation to
ART. 77(2) of the Omnibus Investments
Code.
(b) Sale of service. – This shall be treated
subject to zero percent (0%) VAT under the
"cross border doctrine" of the VAT System,
pursuant to VAT Ruling No. 032-98 dated
Nov. 5, 1998.
(2) If Buyer is a PEZA registered enterprise which is
not embraced by the 5% special tax regime, hence,
subject to taxes under the NIRC, e.g., Service
Establishments which are subject to taxes under the
NIRC rather than the 5% special tax regime:
(a) Sale of goods (i.e., merchandise). – This
shall be treated as indirect export hence,
considered subject to zero percent (0%)
VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC
and Sec. 23 of R.A. No. 7916 in relation to
 ART. 77(2) of the Omnibus Investments
Code.
(b) Sale of Service. – This shall be treated
subject to zero percent (0%) VAT under the
"cross border doctrine" of the VAT System,
pursuant to VAT Ruling No. 032-98 dated
Nov. 5, 1998.
(3) In the final analysis, any sale of goods, property or
services made by a VAT registered supplier from the
Customs Territory to any registered enterprise
operating in the ecozone, regardless of the class or
type of the latter’s PEZA registration, is actually
qualified and thus legally entitled to the zero percent
(0%) VAT. Accordingly, all sales of goods or property
to such enterprise made by a VAT registered supplier
from the Customs Territory shall be treated subject to
0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in
relation to ART. 77(2) of the Omnibus Investments
Code, while all sales of services to the said
enterprises, made by VAT registered suppliers from
the Customs Territory, shall be treated effectively
subject to the 0% VAT, pursuant to Section 108(B)(3),
NIRC, in relation to the provisions of R.A. No. 7916
and the "Cross Border Doctrine" of the VAT system.
This Circular shall serve as a sufficient basis to entitle such
supplier of goods, property or services to the benefit of the
zero percent (0%) VAT for sales made to the aforementioned
ECOZONE enterprises and shall serve as sufficient
compliance to the requirement for prior approval of zero-rating
imposed by Revenue Regulations No. 7-95 effective as of the
date of the issuance of this Circular.
Indubitably, no output VAT may be passed on to an ECOZONE
enterprise since it is a VAT-exempt entity. x x x.58
The Court, nevertheless, noted in the Toshiba case that the
rule which considers any sale by a supplier from the Customs
Territory to a PEZA-registered enterprise as export sale, which
should not be burdened by output VAT, was only clearly
established on October 15, 1999, upon the issuance by the
BIR of RMC No. 74-99. Prior to October 15, 1999, whether a
PEZA-registered enterprise was exempt or subject to VAT
depended on the type of fiscal incentives availed of by the said
enterprise.59 The old rule, then followed by the BIR, and
recognized and affirmed by the CTA, the Court of Appeals, and
this Court, was described as follows –
According to the old rule, Section 23 of Rep. Act No. 7916, as
amended, gives the PEZA-registered enterprise the option to
choose between two sets of fiscal incentives: (a) The five
percent (5%) preferential tax rate on its gross income under
Rep. Act No. 7916, as amended; and (b) the income tax
holiday provided under Executive Order No. 226, otherwise
known as the Omnibus Investment Code of 1987, as amended.
The five percent (5%) preferential tax rate on gross income
under Rep. Act No. 7916, as amended, is in lieu of all taxes.
Except for real property taxes, no other national or local tax
may be imposed on a PEZA-registered enterprise availing of
this particular fiscal incentive, not even an indirect tax like VAT.
Alternatively, Book VI of Exec. Order No. 226, as amended,
grants income tax holiday to registered pioneer and non-
pioneer enterprises for six-year and four-year periods,
respectively. Those availing of this incentive are exempt only
from income tax, but shall be subject to all other taxes,
including the ten percent (10%) VAT.
This old rule clearly did not take into consideration the Cross
Border Doctrine essential to the VAT system or the fiction of
the ECOZONE as a foreign territory. It relied totally on the
choice of fiscal incentives of the PEZA-registered enterprise.
Again, for emphasis, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives: (1) If
45
the PEZA-registered enterprise chose the five percent (5%)
preferential tax on its gross income, in lieu of all taxes, as
provided by Rep. Act No. 7916, as amended, then it would be
VAT-exempt; (2) If the PEZA-registered enterprise availed of
the income tax holiday under Exec. Order No. 226, as
amended, it shall be subject to VAT at ten percent (10%). Such
distinction was abolished by RMC No. 74-99, which
categorically declared that all sales of goods, properties, and
services made by a VAT-registered supplier from the Customs
Territory to an ECOZONE enterprise shall be subject to VAT,
at zero percent (0%) rate, regardless of the latter’s type or
class of PEZA registration; and, thus, affirming the nature of a
PEZA-registered or an ECOZONE enterprise as a VAT-exempt
entity.60
To recall, Toshiba is herein claiming the refund of unutilized
input VAT payments on its local purchases of goods and
services attributable to its export sales for the first and second
quarters of 1997. Such export sales took place before October
15, 1999, when the old rule on the VAT treatment of PEZA-
registered enterprises still applied. Under this old rule, it was
not only possible, but even acceptable, for Toshiba, availing
itself of the income tax holiday option under Section 23 of
Republic Act No. 7916, in relation to Section 39 of the
Omnibus Investments Code of 1987, to be subject to VAT,
both indirectly (as purchaser to whom the seller shifts the VAT
burden) and directly (as seller whose sales were subject to
VAT, either at ten percent [10%] or zero percent [0%]).
A VAT-registered seller of goods and/or services who made
zero-rated sales can claim tax credit or refund of the input VAT
paid on its purchases of goods, properties, or services relative
to such zero-rated sales, in accordance with Section 4.102-2 of
Revenue Regulations No. 7-95, which provides –
Sec. 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.
The BIR, as late as July 15, 2003, when it issued RMC No. 42-
2003, accepted applications for credit/refund of input VAT on
purchases prior to RMC No. 74-99, filed by PEZA-registered
enterprises which availed themselves of the income tax
holiday. The BIR answered Question Q-5(1) of RMC No. 42-
2003 in this wise –
Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99,
purchases by PEZA-registered firms automatically qualify as
zero-rated without seeking prior approval from the BIR
effective October 1999.
1) Will the OSS-DOF Center still accept applications
from PEZA-registered claimants who were allegedly
billed VAT by their suppliers before and during the
effectivity of the RMC by issuing VAT
invoices/receipts?
xxxx
A-5(1): If the PEZA-registered enterprise is
paying the 5% preferential tax in lieu of all
other taxes, the said PEZA-registered
taxpayer cannot claim TCC or refund for the
VAT paid on purchases. However, if the
taxpayer is availing of the income tax
holiday, it can claim VAT credit provided:
a. The taxpayer-claimant is VAT-
registered;
b. Purchases are evidenced by VAT
invoices or receipts, whichever is
applicable, with shifted VAT to the
purchaser prior to the
 implementation of RMC No. 74-99;
and
c. The supplier issues a sworn
statement under penalties of perjury
that it shifted the VAT and declared
the sales to the PEZA-registered
purchaser as taxable sales in its
VAT returns.
For invoices/receipts issued upon the effectivity of RMC No.
74-99, the claims for input VAT by PEZA-registered
companies, regardless of the type or class of PEZA-
registration, should be denied. (Emphases ours.)
Consequently, the CIR cannot herein insist that all PEZA-
registered enterprises are VAT-exempt in every instance. RMC
No. 42-2003 contains an express acknowledgement by the BIR
that prior to RMC No. 74-99, there were PEZA-registered
enterprises liable for VAT and entitled to credit/refund of input
VAT paid under certain conditions.
This Court already rejected in the Toshiba case the argument
that sale transactions of a PEZA-registered enterprise were
VAT-exempt under Section 103(q) of the Tax Code of 1977, as
amended, ratiocinating that –
Section 103(q) of the Tax Code of 1977, as amended, relied
upon by petitioner CIR, relates to VAT-exempt transactions.
These are transactions exempted from VAT by special laws or
international agreements to which the Philippines is a
signatory. Since such transactions are not subject to VAT, the
sellers cannot pass on any output VAT to the purchasers of
goods, properties, or services, and they may not claim tax
credit/refund of the input VAT they had paid thereon.
Section 103(q) of the Tax Code of 1977, as amended, cannot
apply to transactions of respondent Toshiba because although
the said section recognizes that transactions covered by
special laws may be exempt from VAT, the very same section
provides that those falling under Presidential Decree No. 66
are not. Presidential Decree No. 66, creating the Export
Processing Zone Authority (EPZA), is the precursor of Rep. Act
No. 7916, as amended, under which the EPZA evolved into the
PEZA. Consequently, the exception of Presidential Decree No.
66 from Section 103(q) of the Tax Code of 1977, as amended,
extends likewise to Rep. Act No. 7916, as
amended.61 (Emphasis ours.)
In light of the judicial admissions of Toshiba, the CTA correctly
confined itself to the other factual issues submitted for
resolution by the parties.
In accord with the admitted facts – that Toshiba was a VAT-
registered entity and that its export sales were zero-rated
transactions – the stated issues in the Joint Stipulation were
limited to other factual matters, particularly, on the compliance
by Toshiba with the rest of the requirements for credit/refund of
input VAT on zero-rated transactions. Thus, during trial,
Toshiba concentrated on presenting evidence to establish that
it incurred ₱3,875,139.65 of input VAT for the first and second
quarters of 1997 which were directly attributable to its export
sales; that said amount of input VAT were not carried over to
the succeeding quarters; that said amount of input VAT has not
been applied or offset against any output VAT liability; and that
said amount of input VAT was properly substantiated by official
receipts and invoices.
After what truly appears to be an exhaustive review of the
evidence presented by Toshiba, the CTA made the following
findings –
(1) The amended quarterly VAT returns of Toshiba for
1997 showed that it made no other sales, except
zero-rated export sales, for the entire year, in the sum
of ₱2,083,305,000.00 for the first quarter and
₱5,411,372,000.00 for the second quarter. That being
46
the case, all input VAT allegedly incurred by Toshiba
for the first two quarters of 1997, in the amount of
₱3,875,139.65, was directly attributable to its zero-
rated sales for the same period.
(2) Toshiba did carry-over the ₱3,875,139.65 input
VAT it reportedly incurred during the first two quarters
of 1997 to succeeding quarters, until the first quarter
of 1999. Despite the carry-over of the subject input
VAT of ₱3,875,139.65, the claim of Toshiba was not
affected because it later on deducted the said amount
as "VAT Refund/TCC Claimed" from its total available
input VAT of ₱6,841,468.17 for the first quarter of
1999.
(3) Still, the CTA could not allow the credit/refund of
the total input VAT of ₱3,875,139.65 being claimed by
Toshiba because not all of said amount was actually
incurred by the company and duly substantiated by
invoices and official receipts. From the ₱3,875,139.65
claim, the CTA deducted the amounts of (a)
₱189,692.92, which was in excess of the
₱3,685,446.23 input VAT Toshiba originally claimed
in its application for credit/refund filed with the DOF
One-Stop Shop; (b) ₱396,882.58, which SGV & Co.,
the commissioned CPA, disallowed for being
improperly substantiated, i.e., supported only by
provisional acknowledgement receipts, or by
documents other than official receipts, or not
supported by TIN or TIN VAT or by any document at
all; (c) ₱1,887,545.65, which the CTA itself verified as
not being substantiated in accordance with Section
4.104-562 of Revenue Regulations No. 7-95, in
relation to Sections 10863 and 23864 of the Tax Code
of 1977, as amended; and (d) ₱15,736.42, which
Toshiba already applied to its output VAT liability for
the fourth quarter of 1998.
(4) Ultimately, Toshiba was entitled to the
credit/refund of unutilized input VAT payments
attributable to its zero-rated sales in the amounts of
₱1,158,016.82 and ₱227,265.26, for the first and
second quarters of 1997, respectively, or in the total
amount of ₱1,385,282.08.
Since the aforementioned findings of fact of the CTA are borne
by substantial evidence on record, unrefuted by the CIR, and
untouched by the Court of Appeals, they are given utmost
respect by this Court.
The Court will not lightly set aside the conclusions reached by
the CTA which, by the very nature of its functions, is dedicated
exclusively to the resolution of tax problems and has
accordingly developed an expertise on the subject unless there
has been an abuse or improvident exercise of authority.65 In
Barcelon, Roxas Securities, Inc. (now known as UBP
Securities, Inc.) v. Commissioner of Internal Revenue,66 this
Court more explicitly pronounced –
Jurisprudence has consistently shown that this Court accords
the findings of fact by the CTA with the highest respect.
In Sea-Land Service Inc. v. Court of Appeals [G.R. No.
122605, 30 April 2001, 357 SCRA 441, 445-446], this Court
recognizes that the Court of Tax Appeals, which by the very
nature of its function is dedicated exclusively to the
consideration of tax problems, has necessarily developed an
expertise on the subject, and its conclusions will not be
overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on
appeal if they are not 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.
WHEREFORE, the assailed Decision dated August 29, 2002
and the Resolution dated February 19, 2003 of the Court of
Appeals in CA-G.R. SP No. 63047 are REVERSED and SET
ASIDE, and the Decision dated October 16, 2000 of the Court
of Tax Appeals in CTA Case No. 5762 is REINSTATED.
Respondent Commissioner of Internal Revenue is ORDERED
to REFUND or, in the alternative, to ISSUE a TAX CREDIT
CERTIFICATE in favor of petitioner Toshiba Information
Equipment (Phils.), Inc. in the amount of ₱1,385,282.08,
representing the latter’s unutilized input VAT payments for the
first and second quarters of 1997. No pronouncement as to
costs.

SO ORDERED.

47
 [G.R. NO. 151135 : July 2, 2004]
CONTEX CORPORATION, Petitioner, v. HON.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
QUISUMBING, J.:
1
For review is the Decision  dated September 3, 2001, of the
Court of Appeals, in CA-G.R. SP No. 62823, which reversed
and set aside the decision2 dated October 13, 2000, of the
Court of Tax Appeals (CTA) .The CTA had ordered the
Commissioner of Internal Revenue (CIR) to refund the sum
of P683,061.90 to petitioner as erroneously paid input value-
added tax (VAT) or in the alternative, to issue a tax credit
certificate for said amount.Petitioner also assails the appellate
courts Resolution,3 dated December 19, 2001, denying the
motion for reconsideration.
Petitioner is a domestic corporation engaged in the business of
manufacturing hospital textiles and garments and other
hospital supplies for export.Petitioners place of business is at
the Subic Bay Freeport Zone (SBFZ) .It is duly registered with
the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay
Freeport Enterprise, pursuant to the provisions of Republic Act
No. 7227.4 As an SBMA-registered firm, petitioner is exempt
from all local and national internal revenue taxes except for the
preferential tax provided for in Section 12 (c)5 of Rep. Act No.
7227.Petitioner also registered with the Bureau of Internal
Revenue (BIR) as a non-VAT taxpayer under Certificate of
Registration RDO Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner
purchased various supplies and materials necessary in the
conduct of its manufacturing business.The suppliers of these
goods shifted unto petitioner the 10% VAT on the purchased
items, which led the petitioner to pay input taxes in the
amounts of P539,411.88 and P504,057.49 for 1997 and 1998,
respectively.6 ςrνll
Acting on the belief that it was exempt from all national and
local taxes, including VAT, pursuant to Rep. Act No. 7227,
petitioner filed two applications for tax refund or tax credit of
the VAT it paid.Mr. Edilberto Carlos, revenue district officer of
BIR RDO No. 19, denied the first application letter, dated
December 29, 1998.
Unfazed by the denial, petitioner on May 4, 1999, filed another
application for tax refund/credit, this time directly with Atty.
Alberto Pagabao, the regional director of BIR Revenue Region
No. 4.The second letter sought a refund or issuance of a tax
credit certificate in the amount of P1,108,307.72, representing
erroneously paid input VAT for the period January 1, 1997 to
November 30, 1998.
When no response was forthcoming from the BIR Regional
Director, petitioner then elevated the matter to the Court of Tax
Appeals, in a Petition for Review docketed as CTA Case No.
5895.Petitioner stressed that Section 112(A)7 if read in relation
to Section 106(A) (2) (a)8 of the National Internal Revenue
Code, as amended and Section 12(b)9 and (c) of Rep. Act No.
7227 would show that it was not liable in any way for any
value-added tax.
In opposing the claim for tax refund or tax credit, the BIR asked
the CTA to apply the rule that claims for refund are strictly
construed against the taxpayer. Since petitioner failed to
establish both its right to a tax refund or tax credit and its
compliance with the rules on tax refund as provided for in
Sections 20410 and 22911 of the Tax Code, its claim should be
denied, according to the BIR.
On October 13, 2000, the CTA decided CTA Case No. 5895 as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
48
WHEREFORE, in view of the foregoing, the Petition for Review
is hereby PARTIALLY GRANTED.Respondent is hereby
ORDERED to REFUND or in the alternative to ISSUE A TAX
CREDIT CERTIFICATE in favor of Petitioner the sum
of P683,061.90, representing erroneously paid input VAT.
SO ORDERED.12 ςrνll
In granting a partial refund, the CTA ruled that petitioner
misread Sections 106(A) (2) (a) and 112(A) of the Tax
Code.The tax court stressed that these provisions apply only to
those entities registered as VAT taxpayers whose sales are
zero-rated.Petitioner does not fall under this category, since it
is a non-VAT taxpayer as evidenced by the Certificate of
Registration RDO Control No. 95-180-000133 issued by RDO
Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay
Freeport Zone and thus it is exempt from VAT, pursuant to
Rep. Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt from
the imposition of input VAT on its purchases of supplies and
materials. It pointed out that under Section 12(c) of Rep. Act
No. 7227 and the Implementing Rules and Regulations of the
Bases Conversion and Development Act of 1992, all that
petitioner is required to pay as a SBFZ-registered enterprise is
a 5% preferential tax.
The CTA also disallowed all refunds of input VAT paid by the
petitioner prior to June 29, 1997 for being barred by the two-
year prescriptive period under Section 229 of the Tax
Code.The tax court also limited the refund only to the input
VAT paid by the petitioner on the supplies and materials
directly used by the petitioner in the manufacture of its goods.It
struck down all claims for input VAT paid on maintenance,
office supplies, freight charges, and all materials and supplies
shipped or delivered to the petitioners Makati and Pasay City
offices.
Respondent CIR then filed a petition, docketed as CA-G.R. SP
No. 62823, for review of the CTA decision by the Court of
Appeals.Respondent maintained that the exemption of Contex
Corp. under Rep. Act No. 7227 was limited only to direct taxes
and not to indirect taxes such as the input component of the
VAT.The Commissioner pointed out that from its very nature,
the value-added tax is a burden passed on by a VAT
registered person to the end users; hence, the direct liability for
the tax lies with the suppliers and not Contex.
Finding merit in the CIRs arguments, the appellate court
decided CA-G.R. SP No. 62823 in his favor,
thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, premises considered, the appealed decision is
hereby REVERSED AND SET ASIDE.Contexs claim for refund
of erroneously paid taxes is DENIED accordingly.
SO ORDERED.13 ςrνll
In reversing the CTA, the Court of Appeals held that the
exemption from duties and taxes on the importation of raw
materials, capital, and equipment of SBFZ-registered
enterprises under Rep. Act No. 7227 and its implementing
rules covers only the VAT imposable under Section 107 of the
[Tax Code], which is a direct liability of the importer, and in no
way includes the value-added tax of the seller-exporter the
burden of which was passed on to the importer as an
additional costs of the goods.14 This was because the
exemption granted by Rep. Act No. 7227 relates to the act of
importation and Section 10715 of the Tax Code specifically
imposes the VAT on importations.The appellate court applied
the principle that tax exemptions are strictly construed against
the taxpayer. The Court of Appeals pointed out that under the
implementing rules of Rep. Act No. 7227, the exemption of
SBFZ-registered enterprises from internal revenue taxes is
qualified as pertaining only to those for which they may be
directly liable.It then stated that apparently, the legislative
intent behind Rep. Act No. 7227 was to grant exemptions only
to direct taxes, which SBFZ-registered enterprise may be liable
for and only in connection with their importation of raw
materials, capital, and equipment as well as the sale of their
goods and services.
Petitioner timely moved for reconsideration of the Court of
Appeals decision, but the motion was denied.
Hence, the instant petition raising as issues for our resolution
the following:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
A.WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL
AND NATIONAL INTERNAL REVENUE TAXES PROVIDED
IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED
TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT
ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND
MATERIALS.
B.WHETHER OR NOT THE COURT OF TAX APPEALS
CORRECTLY HELD THAT PETITIONER IS ENTITLED TO A
TAX CREDIT OR REFUND OF THE VAT PAID ON ITS
PURCHASES OF SUPPLIES AND RAW MATERIALS FOR
THE YEARS 1997 AND 1998.16 ςrνll
Simply stated, we shall resolve now the issues concerning:(1)
the correctness of the finding of the Court of Appeals that the
VAT exemption embodied in Rep. Act No. 7227 does not apply
to petitioner as a purchaser; and (2) the entitlement of the
petitioner to a tax refund on its purchases of supplies and raw
materials for 1997 and 1998.
On the first issue, petitioner argues that the appellate courts
restrictive interpretation of petitioners VAT exemption as
limited to those covered by Section 107 of the Tax Code is
erroneous and devoid of legal basis.It contends that the
provisions of Rep. Act No. 7227 clearly and unambiguously
mandate that no local and national taxes shall be imposed
upon SBFZ-registered firms and hence, said law should govern
the case.Petitioner calls our attention to regulations issued by
both the SBMA and BIR clearly and categorically providing that
the tax exemption provided for by Rep. Act No. 7227 includes
exemption from the imposition of VAT on purchases of
supplies and materials.
The respondent takes the diametrically opposite view that
while Rep. Act No. 7227 does grant tax exemptions, such grant
is not all-encompassing but is limited only to those taxes for
which a SBFZ-registered business may be directly
liable.Hence, SBFZ locators are not relieved from the indirect
taxes that may be shifted to them by a VAT-registered seller.
At this juncture, it must be stressed that the VAT is an indirect
tax.As such, the amount of tax paid on the goods, properties or
services bought, transferred, or leased may be shifted or
passed on by the seller, transferor, or lessor to the buyer,
transferee or lessee.17 Unlike a direct tax, such as the income
tax, which primarily taxes an individuals ability to pay based on
his income or net wealth, an indirect tax, such as the VAT, is a
tax on consumption of goods, services, or certain transactions
involving the same.The VAT, thus, forms a substantial portion
of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish
between the liability for the tax and the burden of the tax.As
earlier pointed out, the amount of tax paid may be shifted or
passed on by the seller to the buyer. What is transferred in
such instances is not the liability for the tax, but the tax
burden.In adding or including the VAT due to the selling price,
the seller remains the person primarily and legally liable for the
payment of the tax.What is shifted only to the intermediate
buyer and ultimately to the final purchaser is the burden of the
tax.18 Stated differently, a seller who is directly and legally
liable for payment of an indirect tax, such as the VAT on goods
or services is not necessarily the person who ultimately bears
the burden of the same tax.It is the final purchaser or
consumer of such goods or services who, although not directly
49
and legally liable for the payment thereof, ultimately bears the
burden of the tax.19 ςrνll
Exemptions from VAT are granted by express provision of the
Tax Code or special laws.Under VAT, the transaction can have
preferential treatment in the following
ways:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(a) VAT Exemption.An exemption means that the sale of goods
or properties and/or services and the use or lease of properties
is not subject to VAT (output tax) and the seller is not allowed
any tax credit on VAT (input tax) previously paid.20 This is a
case wherein the VAT is removed at the exempt stage (i.e., at
the point of the sale, barter or exchange of the goods or
properties).
The person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers because
the said transaction is not subject to VAT.On the other hand, a
VAT-registered purchaser of VAT-exempt goods/properties or
services which are exempt from VAT is not entitled to any input
tax on such purchase despite the issuance of a VAT invoice or
receipt.21 ςrνll
(b) Zero-rated Sales.These are sales by VAT-registered
persons which are subject to 0% rate, meaning the tax burden
is not passed on to the purchaser. A zero-rated sale by a VAT-
registered person, which is a taxable transaction for VAT
purposes, shall not result 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.22 ςrνll
Under Zero-rating, all VAT is removed from the zero-rated
goods, activity or firm.In contrast, exemption only removes the
VAT at the exempt stage, and it will actually increase, rather
than reduce the total taxes paid by the exempt firms business
or non-retail customers.It is for this reason that a sharp
distinction must be made between zero-rating and exemption
in designating a value-added tax.23 ςrνll
Apropos, the petitioners claim to VAT exemption in the instant
case for its purchases of supplies and raw materials is founded
mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which
basically exempts them from all national and local internal
revenue taxes, including VAT and Section 4 (A) (a) of BIR
Revenue Regulations No. 1-95.24 ςrνll
On this point, petitioner rightly claims that it is indeed VAT-
Exempt and this fact is not controverted by the respondent.In
fact, petitioner is registered as a NON-VAT taxpayer per
Certificate of Registration25 issued by the BIR.As such, it is
exempt from VAT on all its sales and importations of goods
and services.
Petitioners claim, however, for exemption from VAT for its
purchases of supplies and raw materials is incongruous with its
claim that it is VAT-Exempt, for only VAT-Registered entities
can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner
may claim a refund on the Input VAT erroneously passed on to
it by its suppliers.
While it is true that the petitioner should not have been liable
for the VAT inadvertently passed on to it by its supplier since
such is a zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such VAT refund.
Section 4.100-2 of BIRs Revenue Regulations 7-95, as
amended, or the Consolidated Value-Added Tax
Regulations provide:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Sec. 4.100-2.Zero-rated Sales.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.

The following sales by VAT-registered persons shall be subject

to 0%:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

(a) Export Sales

Export Sales shall mean

.. .

(5) Those considered export sales under Articles 23 and 77 of

Executive Order No. 226, otherwise known as the Omnibus
Investments Code of 1987, and other special laws, e.g.
Republic Act No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992.

.. .

(c) Sales to persons or entities whose exemption under special

laws, e.g. R.A. No. 7227 duly registered and accredited
enterprises with Subic Bay Metropolitan Authority (SBMA) and
Clark Development Authority (CDA), R. A. No. 7916, Philippine
Economic Zone Authority (PEZA), or international agreements,
e.g. Asian Development Bank (ADB), International Rice
Research Institute (IRRI), etc. to which the Philippines is a
signatory effectively subject such sales to zero-rate.

Since the transaction is deemed a zero-rated sale, petitioners

supplier may claim an Input VAT credit with no corresponding
Output VAT liability. Congruently, no Output VAT may be
passed on to the petitioner.

On the second issue, it may not be amiss to re-emphasize that

the petitioner is registered as a NON-VAT taxpayer and thus, is
exempt from VAT.As an exempt VAT taxpayer, it is not allowed
any tax credit on VAT (input tax) previously paid.In fine, even if
we are to assume that exemption from the burden of VAT on
petitioners purchases did exist, petitioner is still not entitled to
any tax credit or refund on the input tax previously paid as
petitioner is an exempt VAT taxpayer.

Rather, it is the petitioners suppliers who are the proper parties

to claim the tax credit and accordingly refund the petitioner of
the VAT erroneously passed on to the latter.

Accordingly, we find that the Court of Appeals did not commit

any reversible error of law in holding that petitioners VAT
exemption under Rep. Act No. 7227 is limited to the VAT on
which it is directly liable as a seller and hence, it cannot claim
any refund or exemption for any input VAT it paid, if any, on its
purchases of raw materials and supplies.

WHEREFORE, the petition is DENIEDfor lack of merit.The

Decision dated September 3, 2001, of the Court of Appeals in
CA-G.R. SP No. 62823, as well as its Resolution of December
19, 2001 are AFFIRMED.No pronouncement as to costs.

SO ORDERED.

50
G.R. NO. 177127               October 11, 2010
J.R.A. PHILIPPINES, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
DEL CASTILLO, J.:
Stare decisis et non quieta movere.
Courts are bound by prior decisions. Thus, once a case has
been decided one way, courts have no choice but to resolve
subsequent cases involving the same issue in the same
manner.1 We ruled then, as we rule now, that failure to print the
word "zero-rated" in the invoices/receipts is fatal to a claim for
credit/refund of input value-added tax (VAT) on zero-rated
sales.
This Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeks to set aside the January 15, 2007
Decision2 and the March 16, 2007
Resolution3 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Petitioner J.R.A. Philippines, Inc., a domestic corporation, is
engaged in the manufacture and wholesale export of jackets,
pants, trousers, overalls, shirts, polo shirts, ladies’ wear,
dresses and other wearing apparel.4 It is registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer5 and as
an Ecozone Export Enterprise with the Philippine Economic
Zone Authority (PEZA).6
On separate dates, petitioner filed with the Revenue District
Office (RDO) No. 54 of the BIR, Trece Martires City,
applications for tax credit/refund of unutilized input VAT on its
zero-rated sales for the taxable quarters of 2000 in the total
amount of ₱8,228,276.34, broken down as follows:
1st quarter ₱ 2,369,060.97
2nd quarter 2,528,126.02
3rd quarter 1,918,015.38
4th quarter 1,413,073.977
The claim for credit/refund, however, remained unacted by the
respondent. Hence, petitioner was constrained to file a petition
before the CTA.
Proceedings before the Second Division of the Court of
Tax Appeals
On April 16, 2002, petitioner filed a Petition for Review8 with
the CTA for the refund/credit of the same input VAT which was
docketed as CTA Case No.
6454 and raffled to the Second Division of the CTA.
In his Answer,9 respondent interposed the following special
and affirmative defenses, to wit:
4. Petitioner’s alleged claim for refund is subject to
administrative routinary investigation/examination by
the Bureau;
5. Being allegedly registered with the Philippine
Economic Zone Authority as an export enterprise,
51
petitioner’s business is not subject to VAT pursuant to
Section 24 of R.A. No. 7916 in relation to Section 109
(q) of the Tax Code. Hence, it is not entitled to tax
credit of input taxes pursuant to Section 4.103-1 of
Revenue Regulations No. 7-95;
6. The amount of ₱8,228,276.34 being claimed by
petitioner as alleged unutilized VAT input taxes for the
year 2000 was not properly documented;
7. In an action for refund, the burden of proof is on the
taxpayer to establish its right to refund, and failure to
[do so] is fatal to the claim for refund/ credit;
8. Petitioner must show that it has complied with the
provisions of Section 204 (c) and 229 of the Tax Code
on the prescriptive period for claiming tax
refund/credit;
9. Claims for refund are construed strictly against the
claimant for the same partake the nature of exemption
from taxation.10
After trial, the Second Division of the CTA rendered a
Decision11 denying petitioner’s claim for refund/credit of input
VAT attributable to its zero-rated sales due to the failure of
petitioner to indicate its Taxpayer’s Identification Number-VAT
(TIN-V) and the word "zero-rated" on its invoices.12 Thus, the
fallo reads:
WHEREFORE, premises considered, the instant petition is
hereby DENIED DUE COURSE, and,
accordingly, DISMISSED for lack of merit.
SO ORDERED.13
Aggrieved by the Decision, petitioner filed a Motion for
Reconsideration14 to which respondent filed an
Opposition.15 Petitioner, in turn, tendered a Reply.16
The Second Division of the CTA, however, stood firm on its
Decision and denied petitioner’s Motion for lack of merit in a
Resolution17 dated October 5, 2005. This prompted petitioner
to elevate the matter to the CTA En Banc.18
Ruling of the CTA En Banc
On January 15, 2007, the CTA En Banc denied the petition,
reiterating that failure to comply with invoicing requirements
results in the denial of a claim for refund.19 Hence, it disposed
of the petition as follows:
WHEREFORE, the petition for review is DENIED for lack of
merit. ACCORDINGLY, the Decision dated June 30, 2005 and
Resolution dated October 5, 2005 of Second Division of the
Court of Tax Appeals in C.T.A Case No. 6454 are
hereby AFFIRMED.
SO ORDERED.20
Presiding Justice Ernesto D. Acosta (Presiding Justice Acosta)
concurred with the findings of the majority that there was
failure on the part of petitioner to comply with the invoicing
requirements;21 he dissented, however, to the outright denial of
petitioner’s claim since there are other pieces of evidence
proving petitioner’s transactions and VAT status.22
Petitioner sought reconsideration23 of the Decision but the
CTA En Banc
denied the same in a Resolution24 dated March 16, 2007.
Presiding Justice Acosta maintained his dissent.
 Issue
Hence, the instant Petition with the solitary issue of whether
the failure to print the word "zero-rated" on the
invoices/receipts is fatal to a claim for credit/ refund of input
VAT on zero-rated sales.
Petitioner’s Arguments
Petitioner submits that:
THE COURT OF TAX APPEALS ERRED BY DECIDING
QUESTIONS OF SUBSTANCE IN A MANNER THAT IS NOT
IN ACCORD WITH LAW AND JURISPRUDENCE, IN THAT:
A. THE INVOICING REQUIREMENTS UNDER THE
1997 TAX CODE DO NOT REQUIRE THAT
INVOICES AND/OR RECEIPTS ISSUED BY A VAT-
REGISTERED TAXPAYER, SUCH AS THE
PETITIONER, SHOULD BE IMPRINTED WITH THE
WORD "ZERO-RATED."
B. THE INVOICING REQUIREMENTS PRESCRIBED
BY THE 1997 TAX CODE AND THE REQUIREMENT
THAT THE WORDS "ZERO-RATED" BE IMPRINTED
ON THE SALES INVOICES/OFFICIAL RECEIPTS
UNDER REVENUE REGULATIONS NO. 7-95 ARE
NOT EVIDENTIARY RULES AND THE ABSENCE
THEREOF IS NOT FATAL TO A TAXPAYER’S
CLAIM FOR REFUND.
C. RESPONDENT’S REGULATIONS ARE INVALID
BECAUSE THEY DO NOT IMPLEMENT THE 1997
TAX CODE BUT INSTEAD, [EXCEED] THE
LIMITATIONS OF THE LAW.
D. PETITIONER PRESENTED SUBSTANTIAL
EVIDENCE THAT UNEQUIVOCALLY PROVED
PETITIONER’S ZERO-RATED TRANSACTIONS
FOR THE YEAR 2000.
E. NO PREJUDICE CAN RESULT TO THE
GOVERNMENT BY REASON OF THE FAILURE OF
PETITIONER TO IMPRINT THE WORD "ZERO-
RATED" ON ITS INVOICES. PETITIONER’S
CLIENTS FOR ITS ZERO-RATED TRANSACTIONS
CANNOT UNDULY BENEFIT FROM ITS
"OMISSION" CONSIDERING THAT THEY ARE
NON-RESIDENT FOREIGN CORPORATIONS [that]
ARE NOT COVERED BY THE PHILIPPINE VAT
SYSTEM.
F. IN CIVIL CASE[S], SUCH AS CLAIMS FOR
REFUND, STRICT COMPLIANCE WITH
TECHNICAL RULES OF EVIDENCE IS NOT
REQUIRED. MOREOVER, A MERE
PREPONDERANCE OF EVIDENCE WILL SUFFICE
TO JUSTIFY THE GRANT OF A CLAIM.25
Respondent’s Arguments
Emphasizing that tax refunds are in the nature of tax
exemptions which are strictly construed against the claimant,
respondent seeks the affirmance of the assailed Decision and
Resolution of the CTA En Banc. 26 He insists that the denial of
petitioner’s claim for tax credit/refund is justified because it
failed to comply with the invoicing requirements under Section
4.108-127 of Revenue Regulations No. 7-95.
Our Ruling
The petition is bereft of merit.
The absence of the word "zero-rated" on the invoices/receipts
is fatal to a claim for credit/refund of input VAT
52
The question of whether the absence of the word "zero-rated"
on the invoices/receipts is fatal to a claim for credit/refund of
input VAT is not novel. This has been squarely resolved
in Panasonic Communications Imaging Corporation of the
Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of Internal
Revenue.28 In that case, we sustained the denial of petitioner’s
claim for tax credit/refund for non-compliance with Section
4.108-1 of Revenue Regulations No. 7-95, which requires the
word "zero rated" to be printed on the invoices/receipts
covering zero-rated sales. We explained that:
Zero-rated transactions generally refer to the export sale of
goods and services. The tax rate in this case is set at zero.
When applied to the tax base or the selling price of the goods
or services sold, such zero rate results in no tax chargeable
against the foreign buyer or customer. But, although the seller
in such transactions charges no output tax, he can claim a
refund of the VAT that his suppliers charged him. The seller
thus enjoys automatic zero rating, which allows him to recover
the input taxes he paid relating to the export sales, making him
internationally competitive.
For the effective zero rating of such transactions, however, the
taxpayer has to be VAT-registered and must comply with
invoicing requirements. x x x
xxxx
Petitioner Panasonic points out, however, that in requiring the
printing on its sales invoices of the word "zero-rated," the
Secretary of Finance unduly expanded, amended, and
modified by a mere regulation (Section 4.108-1 of RR 7-95) the
letter and spirit of Sections 113 and 237 of the 1997 NIRC,
prior to their amendment by R.A. 9337. Panasonic argues that
the 1997 NIRC, which applied to its payments – specifically
Sections 113 and 237 – required the VAT-registered taxpayer’s
receipts or invoices to indicate only the following information:
(1) A statement that the seller is a VAT-registered
person, followed by his taxpayer’s identification
number (TIN);
(2) The total amount which the purchaser [paid] or is
obligated to pay to the seller with the indication that
such amount includes the value-added tax;
(3) The date of transaction, quantity, unit cost and
description of the goods or properties or nature of the
service; and
(4) The name, business style, if any, address and
taxpayer's identification number (TIN) of the
purchaser, customer or client.
Petitioner Panasonic points out that Sections 113 and 237 did
not require the inclusion of the word "zero-rated" for zero-rated
sales covered by its receipts or invoices. The BIR incorporated
this requirement only after the enactment of R.A. 9337 on
November 1, 2005, a law that did not yet exist at the time it
issued its invoices.
But when petitioner Panasonic made the export sales subject
of this case, i.e., from April 1998 to March 1999, the rule that
applied was Section 4.108-1 of RR 7-95, otherwise known as
the Consolidated Value-Added Tax Regulations, which the
Secretary of Finance issued on December 9, 1995 and [which]
took effect on January 1, 1996.1avvphil It already required the
printing of the word "zero-rated" on the invoices covering zero-
rated sales. When R.A. 9337 amended the 1997 NIRC on
November 1, 2005, it made this particular revenue regulation a
part of the tax code. This conversion from regulation to law did
not diminish the binding force of such regulation with respect to
acts committed prior to the enactment of that law.
Section 4.108-1 of RR 7-95 proceeds from the rule-making
authority granted to the Secretary of Finance under Section
245 of the 1977 NIRC (Presidential Decree 1158) for the
efficient enforcement of the tax code and of course its
amendments. The requirement is reasonable and is in accord
with the efficient collection of VAT from the covered sales of
goods and services. As aptly explained by the CTA’s First
Division, the appearance of the word "zero-rated" on the face
of invoices covering zero-rated sales prevents buyers from
falsely claiming input VAT from their purchases when no VAT
was actually paid. If, absent such word, a successful claim for
input VAT is made, the government would be refunding money
it did not collect.

Further, the printing of the word "zero-rated" on the invoice

helps segregate sales that are subject to 10% (now 12%) VAT
from those sales that are zero-rated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to
substantiate its claim for refund.29

Consistent with the foregoing jurisprudence, petitioner’s claim

for credit/ refund of input VAT for the taxable quarters of 2000
must be denied. Failure to print the word "zero-rated" on the
invoices/receipts is fatal to a claim for credit/ refund of input
VAT on zero-rated sales.

WHEREFORE, the petition is hereby DENIED. The assailed

Decision dated January 15, 2007 and the Resolution dated
March 16, 2007 of the Court of Tax Appeals En Banc  are
hereby AFFIRMED.

SO ORDERED.

53
G.R. No. 187485               February 12, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SAN ROQUE POWER CORPORATION, Respondent.
X----------------------------X
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x----------------------------x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the
Decision2 promulgated on 25 March 2009 as well as the
Resolution3 promulgated on 24 April 2009 by the Court of Tax
Appeals En Banc  (CTA EB) in CTA EB No. 408. The CTA EB
affirmed the 29 November 2007 Amended Decision4 as well as
the 11 July 2008 Resolution5 of the Second Division of the
Court of Tax Appeals (CTA Second Division) in CTA Case No.
6647. The CTA Second Division ordered the Commissioner of
Internal Revenue (Commissioner) to refund or issue a tax
credit for P483,797,599.65 to San Roque Power Corporation
(San Roque) for unutilized input value-added tax (VAT) on
purchases of capital goods and services for the taxable year
2001.
G.R. No. 196113 is a petition for review6 assailing the
Decision7 promulgated on 8 December 2010 as well as the
Resolution8 promulgated on 14 March 2011 by the CTA EB in
CTA EB No. 624. In its Decision, the CTA EB reversed the 8
January 2010 Decision9 as well as the 7 April 2010
Resolution10of the CTA Second Division and granted the CIR’s
petition for review in CTA Case No. 7574. The CTA EB
dismissed, for having been prematurely filed, Taganito Mining
Corporation’s (Taganito) judicial claim for P8,365,664.38 tax
refund or credit.
G.R. No. 197156 is a petition for review11 assailing the
Decision12promulgated on 3 December 2010 as well as the
Resolution13 promulgated on 17 May 2011 by the CTA EB in
CTA EB No. 569. The CTA EB affirmed the 20 July 2009
Decision as well as the 10 November 2009 Resolution of the
CTA Second Division in CTA Case No. 7687. The CTA Second
Division denied, due to prescription, Philex Mining
Corporation’s (Philex) judicial claim for P23,956,732.44 tax
refund or credit.
On 3 August 2011, the Second Division of this Court
resolved14 to consolidate G.R. No. 197156 with G.R. No.
196113, which were pending in the same Division, and with
G.R. No. 187485, which was assigned to the Court En Banc.
The Second Division also resolved to refer G.R. Nos. 197156
and 196113 to the Court En Banc, where G.R. No. 187485, the
lower-numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
54
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue,
empowered, among others, to act upon and approve claims for
refund or tax credit, with office at the Bureau of Internal
Revenue ("BIR") National Office Building, Diliman, Quezon
City.
[San Roque] is a domestic corporation duly organized and
existing under and by virtue of the laws of the Philippines with
principal office at Barangay San Roque, San Manuel,
Pangasinan. It was incorporated in October 1997 to design,
construct, erect, assemble, own, commission and operate
power-generating plants and related facilities pursuant to and
under contract with the Government of the Republic of the
Philippines, or any subdivision, instrumentality or agency
thereof, or any governmentowned or controlled corporation, or
other entity engaged in the development, supply, or distribution
of energy.
As a seller of services, [San Roque] is duly registered with the
BIR with TIN/VAT No. 005-017-501. It is likewise registered
with the Board of Investments ("BOI") on a preferred pioneer
status, to engage in the design, construction, erection,
assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was
issued Certificate of Registration No. 97-356 on February 11,
1998.
On October 11, 1997, [San Roque] entered into a Power
Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower
Agno River and generate additional power and energy for the
Luzon Power Grid, by building the San Roque Multi-Purpose
Project located in San Manuel, Pangasinan. The PPA
provides, among others, that [San Roque] shall be responsible
for the design, construction, installation, completion, testing
and commissioning of the Power Station and shall operate and
maintain the same, subject to NPC instructions. During the
cooperation period of twenty-five (25) years commencing from
the completion date of the Power Station, NPC will take and
pay for all electricity available from the Power Station.
On the construction and development of the San Roque Multi-
Purpose Project which comprises of the dam, spillway and
power plant, [San Roque] allegedly incurred, excess input VAT
in the amount of ₱559,709,337.54 for taxable year 2001 which
it declared in its Quarterly VAT Returns filed for the same year.
[San Roque] duly filed with the BIR separate claims for refund,
in the total amount of ₱559,709,337.54, representing unutilized
input taxes as declared in its VAT returns for taxable year
2001.
However, on March 28, 2003, [San Roque] filed amended
Quarterly VAT Returns for the year 2001 since it increased its
unutilized input VAT to the amount of ₱560,200,283.14.
Consequently, [San Roque] filed with the BIR on even date,
separate amended claims for refund in the aggregate amount
of ₱560,200,283.14.
[CIR’s] inaction on the subject claims led to the filing by [San
Roque] of the Petition for Review with the Court [of Tax
Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was
submitted for decision.15
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division initially denied San Roque’s claim.
In its Decision16 dated 8 March 2006, it cited the following as
bases for the denial of San Roque’s claim: lack of recorded
zero-rated or effectively zero-rated sales; failure to submit
documents specifically identifying the purchased
goods/services related to the claimed input VAT which were
included in its Property, Plant and Equipment account; and
failure to prove that the related construction costs were
capitalized in its books of account and subjected to
depreciation.
The CTA Second Division required San Roque to show that it
complied with the following requirements of Section 112(B) of
Republic Act No. 8424 (RA 8424)17 to be entitled to a tax
refund or credit of input VAT attributable to capital goods
imported or locally purchased: (1) it is a VAT-registered entity;
(2) its input taxes claimed were paid on capital goods duly
supported by VAT invoices and/or official receipts; (3) it did not
offset or apply the claimed input VAT payments on capital
goods against any output VAT liability; and (4) its claim for
refund was filed within the two-year prescriptive period both in
the administrative and judicial levels.
The CTA Second Division found that San Roque complied with
the first, third, and fourth requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted
(par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p.
157). It was also established that the instant claim of
₱560,200,823.14 is already net of the ₱11,509.09 output tax
declared by [San Roque] in its amended VAT return for the first
quarter of 2001. Moreover, the entire amount of
₱560,200,823.14 was deducted by [San Roque] from the total
available input tax reflected in its amended VAT returns for the
last two quarters of 2001 and first two quarters of 2002
(Exhibits M-6, O-6, OO-1 & QQ-1). This means that the
claimed input taxes of ₱560,200,823.14 did not form part of the
excess input taxes of ₱83,692,257.83, as of the second
quarter of 2002 that was to be carried-over to the succeeding
quarters. Further, [San Roque’s] claim for refund/tax credit
certificate of excess input VAT was filed within the two-year
prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San
Roque] filed its VAT returns on April 25, 2001, July 25, 2001,
October 23, 2001 and January 24, 2002, respectively (Exhibits
"H, J, L, and N"). These returns were all subsequently
amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the
other hand, [San Roque] originally filed its separate claims for
refund on July 10, 2001, October 10, 2001, February 21, 2002,
and May 9, 2002 for the first, second, third, and fourth quarters
of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and
subsequently filed amended claims for all quarters on March
28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition
for Review was filed on April 10, 2003. Counting from the
respective dates when [San Roque] originally filed its VAT
returns for the first, second, third and fourth quarters of 2001,
the administrative claims for refund (original and amended)
and the Petition for Review fall within the two-year prescriptive
period.18
San Roque filed a Motion for New Trial and/or Reconsideration
on 7 April 2006. In its 29 November 2007 Amended
Decision,19 the CTA Second Division found legal basis to
partially grant San Roque’s claim. The CTA Second Division
ordered the Commissioner to refund or issue a tax credit in
favor of San Roque in the amount of ₱483,797,599.65, which
represents San Roque’s unutilized input VAT on its purchases
of capital goods and services for the taxable year 2001. The
CTA based the adjustment in the amount on the findings of the
independent certified public accountant. The following reasons
were cited for the disallowed claims: erroneous computation;
failure to ascertain whether the related purchases are in the
nature of capital goods; and the purchases pertain to capital
goods. Moreover, the reduction of claims was based on the
following: the difference between San Roque’s claim and that
appearing on its books; the official receipts covering the
claimed input VAT on purchases of local services are not
within the period of the claim; and the amount of VAT cannot
be determined from the submitted official receipts and invoices.
The CTA Second Division denied San Roque’s claim for refund
or tax credit of its unutilized input VAT attributable to its zero-
55
rated or effectively zero-rated sales because San Roque had
no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Division’s 29
November 2007 Amended Decision reads:
WHEREFORE, [San Roque’s] "Motion for New Trial and/or
Reconsideration" is hereby PARTIALLY GRANTED and this
Court’s Decision promulgated on March 8, 2006 in the instant
case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in
the alternative, to ISSUE A TAX CREDIT CERTIFICATE in
favor of [San Roque] in the reduced amount of Four Hundred
Eighty Three Million Seven Hundred Ninety Seven Thousand
Five Hundred Ninety Nine Pesos and Sixty Five Centavos
(₱483,797,599.65) representing unutilized input VAT on
purchases of capital goods and services for the taxable year
2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration
on 20 December 2007. The CTA Second Division issued a
Resolution dated 11 July 2008 which denied the CIR’s motion
for lack of merit.
The Court of Tax Appeals’ Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA
EB praying for the denial of San Roque’s claim for refund or
tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008
Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIR’s petition for review and
affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v.
Toledo Power, Inc.21 and Revenue Memorandum Circular No.
49-03,22 as its bases for ruling that San Roque’s judicial claim
was not prematurely filed. The pertinent portions of the
Decision state:
More importantly, the Court En Banc has squarely and
exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned
provision applies to the present case. However, what the
petitioner failed to consider is Section 112(A) of the same
provision. The respondent is also covered by the two (2) year
prescriptive period. We have repeatedly held that the claim for
refund with the BIR and the subsequent appeal to the Court of
Tax Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas
Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue  that the two-year
prescriptive period for filing a claim for input tax is reckoned
from the date of the filing of the quarterly VAT return and
payment of the tax due. If the said period is about to expire
but the BIR has not yet acted on the application for refund,
the taxpayer may interpose a petition for review with this
Court within the two year period.
In the case of Gibbs vs. Collector,  the Supreme Court held that
if, however, the Collector (now Commissioner) takes time in
deciding the claim, and the period of two years is about to end,
the suit or proceeding must be started in the Court of Tax
Appeals before the end of the two-year period without awaiting
the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and
Commissioner of Internal Revenue vs. The Honorable Court of
Tax Appeals and Planters Products, Inc., the Supreme Court
held that the taxpayer need not wait indefinitely for a
decision or ruling which may or may not be forthcoming
and which he has no legal right to expect. It is disheartening
enough to a taxpayer to keep him waiting for an indefinite
period of time for a ruling or decision of the Collector (now
Commissioner) of Internal Revenue on his claim for refund. It
would make matters more exasperating for the taxpayer if we
were to close the doors of the courts of justice for such a relief
until after the Collector (now Commissioner) of Internal
Revenue, would have, at his personal convenience, given his
go signal.
This Court ruled in several cases that once the petition is filed,
the Court has already acquired jurisdiction over the claims and
the Court is not bound to wait indefinitely for no reason for
whatever action respondent (herein petitioner) may take. At
stake are claims for refund and unlike disputed
assessments, no decision of respondent (herein
petitioner) is required before one can go to this
Court. (Emphasis supplied and citations omitted)
Lastly, it is apparent from the following provisions of Revenue
Memorandum Circular No. 49-03 dated August 18, 2003, that
[the CIR] knows that claims for VAT refund or tax credit filed
with the Court [of Tax Appeals] can proceed simultaneously
with the ones filed with the BIR and that taxpayers need not
wait for the lapse of the subject 120-day period, to wit:
In response to [the] request of selected taxpayers for adoption
of procedures in handling refund cases that are aligned to the
statutory requirements that refund cases should be elevated to
the Court of Tax Appeals before the lapse of the period
prescribed by law, certain provisions of RMC No. 42-2003 are
hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being
introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is
hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for
Review" with the Court of Tax Appeals involving a claim
for refund/TCC that is pending at the administrative
agency (Bureau of Internal Revenue or OSS-DOF), the
administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court
and at the same time is still under process by the
administrative agency, the litigation lawyer of the BIR, upon
receipt of the summons from the tax court, shall request from
the head of the investigating/processing office for the docket
containing certified true copies of all the documents pertinent
to the claim. The docket shall be presented to the court as
evidence for the BIR in its defense on the tax credit/refund
case filed by the taxpayer. In the meantime, the
investigating/processing office of the administrative agency
shall continue processing the refund/TCC case until such time
that a final decision has been reached by either the CTA or the
administrative agency.
If the CTA is able to release its decision ahead of the
evaluation of the administrative agency, the latter shall
cease from processing the claim. On the other hand, if the
administrative agency is able to process the claim of the
taxpayer ahead of the CTA and the taxpayer is amenable to
the findings thereof, the concerned taxpayer must file a motion
to withdraw the claim with the CTA.23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Division’s narration of the pertinent facts is
as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly
organized and existing under and by virtue of the laws of the
56
Philippines, with principal office at 4th Floor, Solid Mills
Building, De La Rosa St., Lega[s]pi Village, Makati City. It is
duly registered with the Securities and Exchange Commission
with Certificate of Registration No. 138682 issued on March 4,
1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining
lode and/or placer mining, developing, exploiting, extracting,
milling, concentrating, converting, smelting, treating, refining,
preparing for market, manufacturing, buying, selling,
exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper,
lead, zinc, brass, iron, steel, limestone, and all kinds of ores,
metals and their by-products and which by-products thereof of
every kind and description and by whatsoever process the
same can be or may hereafter be produced, and generally and
without limit as to amount, to buy, sell, locate, exchange, lease,
acquire and deal in lands, mines, and mineral rights and claims
and to conduct all business appertaining thereto, to purchase,
locate, lease or otherwise acquire, mining claims and rights,
timber rights, water rights, concessions and mines, buildings,
dwellings, plants machinery, spare parts, tools and other
properties whatsoever which this corporation may from time to
time find to be to its advantage to mine lands, and to explore,
work, exercise, develop or turn to account the same, and to
acquire, develop and utilize water rights in such manner as
may be authorized or permitted by law; to purchase, hire,
make, construct or otherwise, acquire, provide, maintain,
equip, alter, erect, improve, repair, manage, work and operate
private roads, barges, vessels, aircraft and vehicles, private
telegraph and telephone lines, and other communication
media, as may be needed by the corporation for its own
purpose, and to purchase, import, construct, machine,
fabricate, or otherwise acquire, and maintain and operate
bridges, piers, wharves, wells, reservoirs, plumes,
watercourses, waterworks, aqueducts, shafts, tunnels,
furnaces, cook ovens, crushing works, gasworks, electric lights
and power plants and compressed air plants, chemical works
of all kinds, concentrators, smelters, smelting plants, and
refineries, matting plants, warehouses, workshops, factories,
dwelling houses, stores, hotels or other buildings, engines,
machinery, spare parts, tools, implements and other works,
conveniences and properties of any description in connection
with or which may be directly or indirectly conducive to any of
the objects of the corporation, and to contribute to, subsidize or
otherwise aid or take part in any operations;
and is a VAT-registered entity, with Certificate of Registration
(BIR Form No. 2303) No. OCN 8RC0000017494. Likewise,
[Taganito] is registered with the Board of Investments (BOI) as
an exporter of beneficiated nickel silicate and chromite ores,
with BOI Certificate of Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed
Commissioner of Internal Revenue vested with authority to
exercise the functions of the said office, including inter alia, the
power to decide refunds of internal revenue taxes, fees and
other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code
(NIRC) or other laws administered by Bureau of Internal
Revenue (BIR) under Section 4 of the NIRC. He holds office at
the BIR National Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly
Vat Returns for the period January 1, 2005 to December 31,
2005. For easy reference, a summary of the filing dates of the
original and amended Quarterly VAT Returns for taxable year
2005 of [Taganito] is as follows:
Exhibit(s Quarte Nature Mode of Filing Date
) r of filing
the
Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amende Electronic July 20, 2005
d
N to N-4 Amende Electronic October 18, As the statutory period within which to file a claim for refund for
d 2006 said input VAT is about to lapse without action on the part of
the [CIR], [Taganito] filed the instant Petition for Review on
Q to Q-3 2nd Original Electronic July 20, 2005 February 17, 2007.

R to R-4 Amende Electronic October 18,

In his Answer filed on March 28, 2007, [the CIR] interposes the
d 2006
following defenses:
U to U-4 3rd Original Electronic October 19,
2005 4. [Taganito’s] alleged claim for refund is subject to
administrative investigation/examination by the
V to V-4 Amende Electronic October 18,
Bureau of Internal Revenue (BIR);
d 2006
Y to Y-4 4th Original Electronic January 20, 5. The amount of ₱8,365,664.38 being claimed by
2006 [Taganito] as alleged unutilized input VAT on
domestic purchases of goods and services and on
Z to Z-4 Amende Electronic October 18, importation of capital goods for the period January 1,
d 2006 2005 to December 31, 2005 is not properly
documented;
As can be gleaned from its amended Quarterly VAT Returns,
[Taganito] reported zero-rated sales amounting to 6. [Taganito] must prove that it has complied with the
provisions of Sections 112 (A) and (D) and 229 of the
P1,446,854,034.68; input VAT on its domestic purchases and
National Internal Revenue Code of 1997 (1997 Tax
importations of goods (other than capital goods) and services Code) on the prescriptive period for claiming tax
amounting to P2,314,730.43; and input VAT on its domestic refund/credit;
purchases and importations of capital goods amounting to
P6,050,933.95, the details of which are summarized as 7. Proof of compliance with the prescribed checklist of
follows: requirements to be submitted involving claim for VAT
refund pursuant to Revenue Memorandum Order No.
53-98, otherwise there would be no sufficient
Perio Zero-Rated Input VAT Input VAT Total compliance with the filing of administrative claim
d Sales on on Input VAT for refund, the administrative claim thereof being
Cover Domestic Domestic mere proforma, which is a condition sine qua non
ed Purchase Purchase prior to the filing of judicial claim in accordance
s and s and with the provision of Section 229 of the 1997 Tax
Importati Importati Code. Further, Section 112 (D) of the Tax Code, as
ons ons amended, requires the submission of complete
of Goods of Capital documents in support of the application filed with
and Goods the BIR before the 120-day audit period shall apply,
Services and before the taxpayer could avail of judicial
remedies as provided for in the law. Hence,
01/01/ P551,179,871 P1,491,88 P239,803. P1,731,68
[Taganito’s] failure to submit proof of compliance with
05 - .58 0.56 22 3.78
the above-stated requirements warrants immediate
03/31/
dismissal of the petition for review.
05
04/01/ 64,677,530.7 204,364.1 5,811,130. 6,015,494. 8. [Taganito] must prove that it has complied with the
05 - 8 7 73 90 invoicing requirements mentioned in Sections 110
06/30/ and 113 of the 1997 Tax Code, as amended, in
05 relation to provisions of Revenue Regulations No. 7-
95.
07/01/ 480,784,287. 144,887.6 - 144,887.6
05 - 30 7 7
09/30/ 9. In an action for refund/credit, the burden of proof is
05 on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for
10/01/ 350,212,345. 473,598.0 - 473,598.0 refund/credit (Asiatic Petroleum Co. vs. Llanes, 49
05 - 02 3 3 Phil. 466 cited in Collector of Internal Revenue vs.
12/31/ Manila Jockey Club, Inc., 98 Phil. 670);
05
TOTA P1,446,854,0 P2,314,73 P6,050,93 P8,365,66 10. Claims for refund are construed strictly against the
L 34.68 0.43 3.95 4.38 claimant for the same partake the nature of exemption
from taxation (Commissioner of Internal Revenue
vs. Ledesma, 31 SCRA 95) and as such, they are
On November 14, 2006, [Taganito] filed with [the CIR], through looked upon with disfavor (Western Minolco Corp.
BIR’s Large Taxpayers Audit and Investigation Division II vs. Commissioner of Internal Revenue, 124 SCRA
(LTAID II), a letter dated November 13, 2006 claiming a tax 1211).
credit/refund of its supposed input VAT amounting to
₱8,365,664.38 for the period covering January 1, 2004 to SPECIAL AND AFFIRMATIVE DEFENSES
December 31, 2004. On the same date, [Taganito] likewise
filed an Application for Tax Credits/Refunds for the period
covering January 1, 2005 to December 31, 2005 for the same 11. The Court of Tax Appeals has no jurisdiction to entertain
amount. the instant petition for review for failure on the part of
[Taganito] to comply with the provision of Section 112 (D) of
the 1997 Tax Code which provides, thus:
On November 29, 2006, [Taganito] sent again another letter
dated November 29, 2004 to [the CIR], to correct the period of
the above claim for tax credit/refund in the said amount of Section 112. Refunds or Tax Credits of Input Tax. –
₱8,365,664.38 as actually referring to the period covering
January 1, 2005 to December 31, 2005. x x x           x x x          x x x

57
(D) Period within which refund or Tax Credit of Input Taxes
shall be Made. – In proper cases, the Commissioner shall
grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred (120) days from the date of
submission of complete documents in support of the
application filed in accordance with Subsections (A) and
(B) hereof.
In cases of full or partial denial for tax refund or tax credit, or
the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the
one hundred twenty dayperiod, appeal the decision or the
unacted claim with the Court of Tax Appeals. (Emphasis
supplied.)
12. As stated, [Taganito] filed the administrative claim for
refund with the Bureau of Internal Revenue on November 14,
2006. Subsequently on February 14, 2007, the instant petition
was filed. Obviously the 120 days given to the Commissioner
to decide on the claim has not yet lapsed when the petition
was filed. The petition was prematurely filed, hence it must be
dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary
evidence primarily aimed at proving its supposed entitlement to
the refund in the amount of ₱8,365,664.38, representing input
taxes for the period covering January 1, 2005 to December 31,
2005. [The CIR], on the other hand, opted not to present
evidence. Thus, in the Resolution promulgated on January 22,
2009, this case was submitted for decision as of such date,
considering [Taganito’s] "Memorandum" filed on January 19,
2009 and [the CIR’s] "Memorandum" filed on December 19,
2008.24
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division partially granted Taganito’s claim. In
its Decision25 dated 8 January 2010, the CTA Second Division
found that Taganito complied with the requirements of Section
112(A) of RA 8424, as amended, to be entitled to a tax refund
or credit of input VAT attributable to zero-rated or effectively
zero-rated sales.26
The pertinent portions of the CTA Second Division’s Decision
read:
Finally, records show that [Taganito’s] administrative claim filed
on November 14, 2006, which was amended on November 29,
2006, and the Petition for Review filed with this Court on
February 14, 2007 are well within the two-year prescriptive
period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively,
the close of each taxable quarter covering the period January
1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax
credit certificate in the amount of ₱8,249,883.33 representing
unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for
Review is hereby PARTIALLY GRANTED. Accordingly, [the
CIR] is hereby ORDERED to REFUND to [Taganito] the
amount of EIGHT MILLION TWO HUNDRED FORTY NINE
THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND
THIRTY THREE CENTAVOS (P8,249,883.33) representing its
unutilized input taxes attributable to zero-rated sales from
January 1, 2005 to December 31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration
on 29 January 2010. Taganito, in turn, filed a
Comment/Opposition on the Motion for Partial Reconsideration
on 15 February 2010.
58
In a Resolution28 dated 7 April 2010, the CTA Second Division
denied the CIR’s motion. The CTA Second Division ruled that
the legislature did not intend that Section 112 (Refunds or Tax
Credits of Input Tax) should be read in isolation from Section
229 (Recovery of Tax Erroneously or Illegally Collected) or vice
versa. The CTA Second Division applied the mandatory statute
of limitations in seeking judicial recourse prescribed under
Section 229 to claims for refund or tax credit under Section
112.
The Court of Tax Appeals’ Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review
before the CTA EB assailing the 8 January 2010 Decision and
the 7 April 2010 Resolution in CTA Case No. 7574 and praying
that Taganito’s entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the
CIR’s petition for review and reversed and set aside the
challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997
Tax Code both set forth the reckoning of the two-year
prescriptive period for filing a claim for tax refund or credit over
input VAT to be the close of the taxable quarter when the sales
were made. The CTA EB also relied on this Court’s rulings in
the cases of Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc. (Aichi)30 and Commisioner of
Internal Revenue v. Mirant Pagbilao Corporation
(Mirant).31 Both Aichi  and Mirant  ruled that the two-year
prescriptive period to file a refund for input VAT arising from
zero-rated sales should be reckoned from the close of the
taxable quarter when the sales were made. Aichi further
emphasized that the failure to await the decision of the
Commissioner or the lapse of 120-day period prescribed in
Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim
on 14 November 2006, which was well within the period
prescribed under Section 112(A) and (B) of the 1997 Tax
Code. However, the CTA EB found that Taganito’s judicial
claim was prematurely filed. Taganito filed its Petition for
Review before the CTA Second Division on 14 February 2007.
The judicial claim was filed after the lapse of only 92 days from
the filing of its administrative claim before the CIR, in violation
of the 120-day period prescribed in Section 112(D) of the 1997
Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby
GRANTED. The assailed Decision dated January 8, 2010 and
Resolution dated April 7, 2010 of the Special Second Division
of this Court are hereby REVERSED and SET ASIDE. Another
one is hereby entered DISMISSING the Petition for Review
filed in CTA Case No. 7574 for having been prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted
that Taganito timely filed its claim before the CTA. Justice
Bautista read Section 112(C) of the 1997 Tax Code (Period
within which Refund or Tax Credit of Input Taxes shall be
Made) in conjunction with Section 229 (Recovery of Tax
Erroneously or Illegally Collected). Justice Bautista also relied
on this Court’s ruling in Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal
Revenue (Atlas),34 which stated that refundable or creditable
input VAT and illegally or erroneously collected national
internal revenue tax are the same, insofar as both are
monetary amounts which are currently in the hands of the
government but must rightfully be returned to the taxpayer.
Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of
seeking judicial redress for refund or tax credit of excess or
unutilized input tax with this Court, either within 30 days from
receipt of the denial of its claim, or after the lapse of the 120-
day period in the event of inaction by the Commissioner,
provided that both administrative and judicial remedies must be
undertaken within the 2-year period.35
Taganito filed its Motion for Reconsideration on 29 December
2010. The Commissioner filed an Opposition on 26 January
2011. The CTA EB denied for lack of merit Taganito’s motion
in a Resolution36 dated 14 March 2011. The CTA EB did not
see any justifiable reason to depart from this Court’s rulings
in Aichi  and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the
laws of the Republic of the Philippines, which is principally
engaged in the mining business, which includes the exploration
and operation of mine properties and commercial production
and marketing of mine products, with office address at 27
Philex Building, Fairlaine St., Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of
Internal Revenue ("BIR"), the government entity tasked with
the duties/functions of assessing and collecting all national
internal revenue taxes, fees, and charges, and enforcement of
all forfeitures, penalties and fines connected therewith,
including the execution of judgments in all cases decided in its
favor by [the Court of Tax Appeals] and the ordinary courts,
where she can be served with court processes at the BIR Head
Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for
the third quarter of taxable year 2005 and Amended VAT
Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit
of the amount of ₱23,956,732.44 with the One Stop Shop
Center of the Department of Finance. However, due to [the
CIR’s] failure to act on such claim, on October 17, 2007,
pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as
C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special
and affirmative defenses:
4. Claims for refund are strictly construed against the
taxpayer as the same partake the nature of an
exemption;
5. The taxpayer has the burden to show that the taxes
were erroneously or illegally paid. Failure on the part
of [Philex] to prove the same is fatal to its cause of
action;
6. [Philex] should prove its legal basis for claiming for
the amount being refunded.37
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division, in its Decision dated 20 July 2009,
denied Philex’s claim due to prescription. The CTA Second
Division ruled that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended, applies not only to
the filing of the administrative claim with the BIR, but also to
the filing of the judicial claim with the CTA. Since Philex’s claim
covered the 3rd quarter of 2005, its administrative claim filed
on 20 March 2006 was timely filed, while its judicial claim filed
on 17 October 2007 was filed late and therefore barred by
prescription.
59
On 10 November 2009, the CTA Second Division denied
Philex’s Motion for Reconsideration.
The Court of Tax Appeals’ Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for
a reversal of the 20 July 2009 Decision and the 10 November
2009 Resolution of the CTA Second Division in CTA Case No.
7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied
Philex’s petition and affirmed the CTA Second Division’s
Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philex’s]
administrative claim for refund was filed within the two-year
prescriptive period; however, as to its judicial claim for
refund/credit, records show that on March 20, 2006, [Philex]
applied the administrative claim for refund of unutilized input
VAT in the amount of ₱23,956,732.44 with the One Stop Shop
Center of the Department of Finance, per Application No.
52490. From March 20, 2006, which is also presumably the
date [Philex] submitted supporting documents, together with
the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30
days from the lapse of the 120-day period, or from July 19,
2006 until August 17, 2006, [Philex] should have elevated its
claim for refund to the CTA. However, [Philex] filed its Petition
for Review only on October 17, 2007, which is 426 days way
beyond the 30- day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was
filed 426 days late. Thus, the Petition for Review in CTA Case
No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day
prescribed period; thus, no jurisdiction was acquired by the
CTA in Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for
Review is hereby DENIED DUE COURSE, and accordingly,
DISMISSED. The assailed Decision dated July 20, 2009,
dismissing the Petition for Review in CTA Case No. 7687 due
to prescription, and Resolution dated November 10, 2009
denying [Philex’s] Motion for Reconsideration are hereby
AFFIRMED, with modification that the dismissal is based on
the ground that the Petition for Review in CTA Case No. 7687
was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition
for Review:
I. The Court of Tax Appeals En Banc erred in holding
that [San Roque’s] claim for refund was not
prematurely filed.
II. The Court of Tax Appeals En Banc erred in
affirming the amended decision of the Court of Tax
Appeals (Second Division) granting [San Roque’s]
claim for refund of alleged unutilized input VAT on its
purchases of capital goods and services for the
taxable year 2001 in the amount of
P483,797,599.65. 40
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
 I. The Court of Tax Appeals En Banc committed
serious error and acted with grave abuse of discretion
tantamount to lack or excess of jurisdiction in
erroneously applying the Aichi  doctrine in violation of
[Taganito’s] right to due process.
II. The Court of Tax Appeals committed serious error
and acted with grave abuse of discretion amounting to
lack or excess of jurisdiction in erroneously
interpreting the provisions of Section 112 (D).41
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:
I. The CTA En Banc erred in denying the petition due
to alleged prescription. The fact is that the petition
was filed with the CTA within the period set by
prevailing court rulings at the time it was filed.
II. The CTA En Banc erred in retroactively applying
the Aichi ruling in denying the petition in this instant
case.42
The Court’s Ruling
For ready reference, the following are the provisions of the Tax
Code applicable to the present cases:
Section 105:
Persons Liable. — Any person who, in the course of trade
or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports
goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of Republic
Act No. 7716.
xxxx
Section 110(B):
Sec. 110. Tax Credits. —
(B) Excess Output or Input Tax. — If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters: [Provided, That the
input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT:]43 Provided,
however, That any input tax attributable to zero-rated sales
by a VAT-registered person may at his option be refunded
or credited against other internal revenue taxes, subject to
the provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales.
— Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within
two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance
of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales,
60
except transitional input tax, to the extent that such
input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated
sales under Section 106(A)(2) (a)(1), (2) and (B) and
Section 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged
in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due
or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
(B) Capital Goods.- A VAT — registered person may
apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported
or locally purchased, to the extent that such input
taxes have not been applied against output taxes.
The application may be made only within two (2)
years after the close of the taxable quarter when the
importation or purchase was made.
(C) Cancellation of VAT Registration. —  A person
whose registration has been cancelled due to
retirement from or cessation of business, or due to
changes in or cessation of status under Section
106(C) of this Code may, within two (2) years from the
date of cancellation, apply for the issuance of a tax
credit certificate for any unused input tax which may
be used in payment of his other internal revenue
taxes
(D) Period within which Refund or Tax Credit of Input
Taxes shall be Made. — In proper cases, the
Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of
submission of complete documents in support of
the application filed in accordance with Subsection (A)
and (B) hereof.
In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the
period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax
Appeals.
(E) Manner of Giving Refund. — Refunds shall be
made upon warrants drawn by the Commissioner or
by his duly authorized representative without the
necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary
notwithstanding: Provided, that refunds under this
paragraph shall be subject to post audit by the
Commission on Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. — No suit
or proceeding shall be maintained in any court for the recovery
of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the
tax or penalty regardless of any supervening cause that may
arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to
have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a.  G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended
administrative claim with the Commissioner on 28 March 2003,
San Roque filed a Petition for Review with the CTA docketed
as CTA Case No. 6647. From this we gather two crucial
facts: first, San Roque did not wait for the 120-day period to
lapse before filing its judicial claim; second, San Roque filed its
judicial claim more than four (4)
years before the Atlas45 doctrine, which was promulgated by
the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting
period, the time expressly given by law to the Commissioner to
decide whether to grant or deny San Roque’s application for
tax refund or credit. It is indisputable that compliance with the
120-day waiting period is mandatory and jurisdictional. The
waiting period, originally fixed at 60 days only, was part of the
provisions of the first VAT law, Executive Order No. 273, which
took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424
or the Tax Reform Act of 1997. Thus, the waiting period has
been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect
that the CTA does not acquire jurisdiction over the taxpayer’s
petition. Philippine jurisprudence is replete with cases
upholding and reiterating these doctrinal principles.46
The charter of the CTA expressly provides that its jurisdiction is
to review on appeal "decisions of the Commissioner of
Internal Revenue in cases involving x x x refunds of internal
revenue taxes."47 When a taxpayer prematurely files a judicial
claim for tax refund or credit with the CTA without waiting for
the decision of the Commissioner, there is no "decision" of the
Commissioner to review and thus the CTA as a court of special
jurisdiction has no jurisdiction over the appeal. The charter of
the CTA also expressly provides that if the Commissioner fails
to decide within "a specific period" required by law, such
"inaction shall be deemed a denial"48 of the application for
tax refund or credit. It is the Commissioner’s decision, or
inaction "deemed a denial," that the taxpayer can take to the
CTA for review. Without a decision or an "inaction x x x
deemed a denial" of the Commissioner, the CTA has no
jurisdiction over a petition for review.49
San Roque’s failure to comply with the 120-
day mandatory period renders its petition for review with the
CTA void. Article 5 of the Civil Code provides, "Acts executed
against provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity." San
Roque’s void petition for review cannot be legitimized by the
CTA or this Court because Article 5 of the Civil Code states
that such void petition cannot be legitimized "except when the
law itself authorizes [its] validity." There is no law authorizing
the petition’s validity.
It is hornbook doctrine that a person committing a void act
contrary to a mandatory provision of law cannot claim or
acquire any right from his void act. A right cannot spring in
61
favor of a person from his own void or illegal act. This doctrine
is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which
are against the law or which infringe upon the rights of
others."50 For violating a mandatory provision of law in filing its
petition with the CTA, San Roque cannot claim any right
arising from such void petition. Thus, San Roque’s petition with
the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the
mandatory and jurisdictional nature of the 120-day period just
because the Commissioner merely asserts that the case was
prematurely filed with the CTA and does not question the
entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was
admittedly illegally, erroneously or excessively collected from
him, does not entitle him as a matter of right to a tax refund or
credit. Strict compliance with the mandatory and jurisdictional
conditions prescribed by law to claim such tax refund or credit
is essential and necessary for such claim to prosper. Well-
settled is the rule that tax refunds or credits, just like tax
exemptions, are strictly construed against the
taxpayer.51 The burden is on the taxpayer to show that he has
strictly complied with the conditions for the grant of the tax
refund or credit.
This Court cannot disregard mandatory and jurisdictional
conditions mandated by law simply because the Commissioner
chose not to contest the numerical correctness of the claim for
tax refund or credit of the taxpayer. Non-compliance with
mandatory periods, non-observance of prescriptive periods,
and non-adherence to exhaustion of administrative
remedies bar a taxpayer’s claim for tax refund or credit,
whether or not the Commissioner questions the numerical
correctness of the claim of the taxpayer. This Court should not
establish the precedent that non-compliance with mandatory
and jurisdictional conditions can be excused if the claim is
otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every
tax refund case will have to be decided on the numerical
correctness of the amounts claimed, regardless of non-
compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or
confused by the Atlas doctrine because San Roque filed its
petition for review with the CTA more than four years
before Atlas  was promulgated. The Atlas  doctrine did not
exist at the time San Roque failed to comply with the 120- day
period. Thus, San Roque cannot invoke the Atlas  doctrine as
an excuse for its failure to wait for the 120-day period to lapse.
In any event, the Atlas doctrine merely stated that the two-year
prescriptive period should be counted from the date of
payment of the output VAT, not from the close of the taxable
quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or
impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as
amended, which was the law cited by the Court in Atlas as the
applicable provision of the law did not yet provide for the 30-
day period for the taxpayer to appeal to the CTA from the
decision or inaction of the Commissioner.53 Thus,
the Atlas  doctrine cannot be invoked by anyone to
disregard compliance with the 30-day mandatory and
jurisdictional period. Also, the difference between
the Atlas  doctrine on one hand, and the Mirant54 doctrine on
the other hand, is a mere 20 days. The Atlas doctrine counts
the two-year prescriptive period from the date of payment of
the output VAT, which means within 20 days after the close of
the taxable quarter. The output VAT at that time must be paid
at the time of filing of the quarterly tax returns, which were to
be filed "within 20 days following the end of each quarter."
Thus, in Atlas, the three tax refund claims listed below were
deemed timely filed because the administrative claims filed
with the Commissioner, and the petitions for review filed with
the CTA, were all filed within two years from the date of
payment of the output VAT, following Section 229:
 Date of Filing Date of the decision or the unacted claim with the Court of Tax
Date of Filing Appeals. (Emphasis supplied)
Period Return Filing
Administrative
Covered & Payment of Petition
Claim
Tax With CTA This law is clear, plain, and unequivocal. Following the well-
settled verba legis  doctrine, this law should be applied exactly
2nd Quarter, 20 July 1990 21 August 20 July as worded since it is clear, plain, and unequivocal. As this law
1990 1990 1992 states, the taxpayer may, if he wishes, appeal the decision of
Close of the Commissioner to the CTA within 30 days from receipt of
Quarter the Commissioner’s decision, or if the Commissioner does not
30 June 1990 act on the taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the
3rd Quarter, 18 October 21 November 9 October
expiration of the 120-day period.
1990 1990 1990 1992
Close of
Quarter b.  G.R. No. 196113 - Taganito Mining Corporation v. CIR
30
September Like San Roque, Taganito also filed its petition for review with
1990 the CTA without waiting for the 120-day period to lapse. Also,
like San Roque, Taganito filed its judicial claim before the
4th Quarter, 20 January 19 February 14 January
promulgation of the Atlas  doctrine. Taganito filed a Petition for
1990 1991 1991 1993
Review on 14 February 2007 with the CTA. This is almost four
Close of
months before the adoption of the Atlas doctrine on 8 June
Quarter
2007. Taganito is similarly situated as San Roque - both
31 December
cannot claim being misled, misguided, or confused by
1990
the Atlas  doctrine.

Atlas paid the output VAT at the time it filed the quarterly tax
returns on the 20th, 18th, and 20th day after the close of the
taxable quarter. Had the twoyear prescriptive period been
counted from the "close of the taxable quarter" as expressly
stated in the law, the tax refund claims of Atlas would have
already prescribed. In contrast, the Mirant doctrine counts the
two-year prescriptive period from the "close of the taxable
quarter when the sales were made" as expressly stated in the
law, which means the last day of the taxable quarter. The 20-
day difference55 between the Atlas  doctrine and the
later Mirant  doctrine is not material to San Roque’s claim
for tax refund.
However, Taganito can invoke BIR Ruling No. DA-489-
0357 dated 10 December 2003, which expressly ruled that the
"taxpayer-claimant need not wait for the lapse of the 120-
day period before it could seek judicial relief with the CTA
by way of Petition for Review." Taganito filed its judicial
claim after  the issuance of BIR Ruling No. DA-489-03 but
before the adoption of the Aichi doctrine. Thus, as will be
explained later, Taganito is deemed to have filed its judicial
claim with the CTA on time.
c.  G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for
Whether the Atlas doctrine or the Mirant doctrine is applied to
the third quarter of taxable year 2005; (2) filed on 20 March
San Roque is immaterial because what is at issue in the
2006 its administrative claim for refund or credit; (3) filed on 17
present case is San Roque’s non-compliance with the 120-day
October 2007 its Petition for Review with the CTA. The close of
mandatory and jurisdictional period, which is counted from the
the third taxable quarter in 2005 is 30 September 2005, which
date it filed its administrative claim with the Commissioner. The
is the reckoning date in computing the two-year prescriptive
120-day period may extend beyond the two-year prescriptive
period under Section 112(A).
period, as long as the administrative claim is filed within the
two-year prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the Commissioner to decide Philex timely filed its administrative claim on 20 March 2006,
within the 120-day period, a mandatory period whether within the two-year prescriptive period. Even if the two-year
the Atlas  or the Mirant  doctrine is applied. prescriptive period is computed from the date of payment of
the output VAT under Section 229, Philex still filed its
administrative claim on time. Thus, the Atlas  doctrine is
At the time San Roque filed its petition for review with the CTA,
immaterial in this case. The Commissioner had until 17 July
the 120+30 day mandatory periods were already in the law.
2006, the last day of the 120-day period, to decide Philex’s
Section 112(C)56 expressly grants the Commissioner 120 days
claim. Since the Commissioner did not act on Philex’s claim on
within which to decide the taxpayer’s claim. The law is clear,
or before 17 July 2006, Philex had until 17 August 2006, the
plain, and unequivocal: "x x x the Commissioner shall grant a
last day of the 30-day period, to file its judicial claim. The CTA
refund or issue the tax credit certificate for creditable input
EB held that 17 August 2006 was indeed the last day for
taxes within one hundred twenty (120) days from the date of
Philex to file its judicial claim. However, Philex filed its
submission of complete documents." Following the verba
Petition for Review with the CTA only on 17 October 2007, or
legis  doctrine, this law must be applied exactly as worded
four hundred twenty-six (426) days after the last day of filing. In
since it is clear, plain, and unequivocal. The taxpayer cannot
short, Philex was late by one year and 61 days in filing its
simply file a petition with the CTA without waiting for the
judicial claim. As the CTA EB correctly found:
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 Evidently, the Petition for Review in C.T.A. Case No. 7687
Commissioner for the CTA to review. In San Roque’s case, it was filed 426 days late. Thus, the Petition for Review in
filed its petition with the CTA a mere 13 days after it filed its C.T.A. Case No. 7687 should have been dismissed on the
administrative claim with the Commissioner. Indisputably, San ground that the Petition for Review was filed way beyond the
Roque knowingly violated the mandatory 120-day period, and it 30-day prescribed period; thus, no jurisdiction was acquired by
cannot blame anyone but itself. the CTA Division; x x x58 (Emphasis supplied)

Section 112(C) also expressly grants the taxpayer a 30-day
period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal
Unlike San Roque and Taganito, Philex’s case is not one of
premature filing but of late filing. Philex did not file any petition
with the CTA within the 120-day period. Philex did not also file
any petition with the CTA within 30 days after the expiration of
the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the
lapse of the 120-day period. In any event, whether governed
by jurisprudence before, during, or after the Atlas  case,

62
Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted
from the date of payment of the output VAT following
the Atlas  doctrine, or from the close of the taxable quarter
when the sales attributable to the input VAT were made
following the Mirant and Aichi doctrines, Philex’s judicial claim
was indisputably filed late.
The Atlas  doctrine cannot save Philex from the late filing of its
judicial claim. The inaction of the Commissioner on Philex’s
claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from
the expiration of the 120-day period to file its judicial claim with
the CTA. Philex’s failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable.
The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such
statutory privilege requires strict compliance with the conditions
attached by the statute for its exercise.59 Philex failed to
comply with the statutory conditions and must thus bear the
consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period
need not necessarily fall within the two-year prescriptive
period, as long as the administrative claim is filed within the
two-year prescriptive period.
First, Section 112(A) clearly, plainly, and
unequivocally provides that the taxpayer "may, within
two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance
of a tax credit certificate or refund of the creditable
input tax due or paid to such sales." In short, the law
states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2)
years," which means at anytime within two years.
Thus, the application for refund or credit may be filed
by the taxpayer with the Commissioner on the last
day of the two-year prescriptive period and it will still
strictly comply with the law. The twoyear prescriptive
period is a grace period in favor of the taxpayer and
he can avail of the full period before his right to apply
for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the
Commissioner shall decide the application for refund
or credit "within one hundred twenty (120) days from
the date of submission of complete documents in
support of the application filed in accordance with
Subsection (A)." The reference in Section 112(C) of
the submission of documents "in support of the
application filed in accordance with Subsection A"
means that the application in Section 112(A) is the
administrative claim that the Commissioner must
decide within the 120-day period. In short, the two-
year prescriptive period in Section 112(A) refers to the
period within which the taxpayer can file an
administrative claim for tax refund or credit. Stated
otherwise, the two-year prescriptive period does
not refer to the filing of the judicial claim with the
CTA but to the filing of the administrative claim
with the Commissioner. As held in Aichi, the
"phrase ‘within two years x x x apply for the issuance
of a tax credit or refund’ refers to applications for
refund/credit with the CIR and not to appeals
made to the CTA."
Third, if the 30-day period, or any part of it, is required
to fall within the two-year prescriptive period
(equivalent to 730 days60), then the taxpayer must file
his administrative claim for refund or credit within the
first 610 days of the two-year prescriptive
period. Otherwise, the filing of the administrative
claim beyond the first 610 days will result in the
appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his
63
administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until
the 731st day to decide the claim. If the
Commissioner decides only on the 731st day, or does
not decide at all, the taxpayer can no longer file his
judicial claim with the CTA because the two-year
prescriptive period (equivalent to 730 days) has
lapsed. The 30-day period granted by law to the
taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with the
law by filing his administrative claim within the two-
year prescriptive period.
The theory that the 30-day period must fall within the two-year
prescriptive period adds a condition that is not found in the law.
It results in truncating 120 days from the 730 days that the law
grants the taxpayer for filing his administrative claim with the
Commissioner. This Court cannot interpret a law to defeat,
wholly or even partly, a remedy that the law expressly grants in
clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its
clear, plain, and unequivocal language. The taxpayer can file
his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last
day of the two-year prescriptive period, his claim is still filed on
time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the
120th day, or does not decide it on that day, the taxpayer still
has 30 days to file his judicial claim with the CTA. This is not
only the plain meaning but also the only logical interpretation of
Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood
under Section 229 because at the time the input VAT is
collected the amount paid is correct and proper. The input
VAT is a tax liability of, and legally paid by, a VAT-registered
seller61 of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods,
properties, or services. This tax liability is true even if the seller
passes on the input VAT to the buyer as part of the purchase
price. The second VAT-registered person, who is not legally
liable for the input VAT, is the one who applies the input VAT
as credit for his own output VAT.62 If the input VAT is in fact
"excessively" collected as understood under Section 229, then
it is the first VAT-registered person - the taxpayer who is
legally liable and who is deemed to have legally paid for the
input VAT - who can ask for a tax refund or credit under
Section 229 as an ordinary refund or credit outside of the VAT
System. In such event, the second VAT-registered taxpayer
will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under
Section 110(B) and Section 112(A), the input VAT is not
"excessively" collected as understood under Section 229. At
the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is no
claim or issue that the input VAT is "excessively" collected, that
is, that the input VAT paid is more than what is legally due. The
person legally liable for the input VAT cannot claim that he
overpaid the input VAT by the mere existence of an "excess"
input VAT. The term "excess" input VAT simply means that the
input VAT available as credit exceeds the output VAT, not that
the input VAT is excessively collected because it is more than
what is legally due. Thus, the taxpayer who legally paid the
input VAT cannot claim for refund or credit of the input VAT as
"excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial
claim for refund is two years from the date of payment of the
tax "erroneously, x x x illegally, x x x excessively or in any
manner wrongfully collected." The prescriptive period is
reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected,
that is, the person liable for the tax actually pays more than
what is legally due, the taxpayer must file a judicial claim for
refund within two years from his date of payment. Only the
person legally liable to pay the tax can file the judicial
claim for refund. The person to whom the tax is passed on
as part of the purchase price has no personality to file the
judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive
period for filing a judicial claim for "excess" input VAT is two
years from the close of the taxable quarter when the sale was
made by the person legally liable to pay the output  VAT. This
prescriptive period has no relation to the date of payment of
the "excess" input  VAT. The "excess" input VAT may have
been paid for more than two years but this does not bar the
filing of a judicial claim for "excess" VAT under Section 112(A),
which has a different reckoning period from Section 229.
Moreover, the person claiming the refund or credit of the input
VAT is not the person who legally paid the input VAT. Such
person seeking the VAT refund or credit does not claim that
the input VAT was "excessively" collected from him, or that he
paid an input VAT that is more than what is legally due. He is
not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on
the value added by the taxpayer in the chain of transactions.
For simplicity and efficiency in tax collection, the VAT is
imposed not just on the value added by the taxpayer, but on
the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT
previously paid by those who sold him the inputs for his goods,
properties, or services. The net effect is that the taxpayer pays
the VAT only on the value that he adds to the goods,
properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only
against his output VAT. The only exception is when the
taxpayer is expressly "zero-rated or effectively zero-rated"
under the law, like companies generating power through
renewable sources of energy.64 Thus, a non zero-rated VAT-
registered taxpayer who has no output VAT because he has no
sales cannot claim a tax refund or credit of his unused input
VAT under the VAT System. Even if the taxpayer has sales but
his input VAT exceeds his output VAT, he cannot seek a tax
refund or credit of his "excess" input VAT under the VAT
System. He can only carry-over and apply his "excess"
input VAT against his future output VAT. If such "excess"
input VAT is an "excessively" collected tax, the taxpayer
should be able to seek a refund or credit for such "excess"
input VAT whether or not he has output VAT. The VAT System
does not allow such refund or credit. Such "excess" input VAT
is not an "excessively" collected tax under Section 229. The
"excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the
output VAT because the VAT is a tax imposed only on the
value added by the taxpayer. If the input VAT is in fact
"excessively" collected under Section 229, then it is the person
legally liable to pay the input VAT, not the person to whom the
tax was passed on as part of the purchase price and claiming
credit for the input VAT under the VAT System, who can file
the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT
System is an "excessively" collected tax under Section 229
may lead taxpayers to file a claim for refund or credit for such
"excess" input VAT under Section 229 as an ordinary tax
refund or credit outside of the VAT System. Under Section 229,
mere payment of a tax beyond what is legally due can be
claimed as a refund or credit. There is no requirement under
Section 229 for an output VAT or subsequent sale of goods,
properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be
refunded or credited is a tax that is "erroneously, x x x illegally,
x x x excessively or in any manner wrongfully collected." In
short, there must be a wrongful payment because what is
paid, or part of it, is not legally due. As the Court held in Mirant,
Section 229 should "apply only to instances of erroneous
payment or illegal collection of internal revenue taxes."
Erroneous or wrongful payment includes excessive payment
because they all refer to payment of taxes not legally due.
Under the VAT System, there is no claim or issue that the
64
"excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively"
collected tax under Section 229, then the taxpayer claiming to
apply such "excessively" collected input VAT to offset his
output VAT may have no legal basis to make such offsetting.
The person legally liable to pay the input VAT can claim a
refund or credit for such "excessively" collected tax, and thus
there will no longer be any "excess" input VAT. This will upend
the present VAT System as we know it.
IV. Effectivity and Scope of
the Atlas  , Mirant and Aichi  Doctrines
The Atlas  doctrine, which held that claims for refund or credit
of input VAT must comply with the two-year prescriptive period
under Section 229, should be effective only from its
promulgation on 8 June 2007 until its abandonment on 12
September 2008 in Mirant. The Atlas doctrine was limited to
the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlas doctrine, the
two-year prescriptive period for claiming refund or credit of
input VAT should be governed by Section 112(A) following
the verba legis rule. The Mirant ruling, which abandoned
the Atlas  doctrine, adopted the verba legis  rule, thus applying
Section 112(A) in computing the two-year prescriptive period in
claiming refund or credit of input VAT.
The Atlas  doctrine has no relevance to the 120+30 day periods
under Section 112(C) because the application of the 120+30
day periods was not in issue in Atlas. The application of the
120+30 day periods was first raised in Aichi, which adopted
the verba legis rule in holding that the 120+30 day periods are
mandatory and jurisdictional. The language of Section 112(C)
is plain, clear, and unambiguous. When Section 112(C) states
that "the Commissioner shall grant a refund or issue the tax
credit within one hundred twenty (120) days from the date of
submission of complete documents," the law clearly gives the
Commissioner 120 days within which to decide the taxpayer’s
claim. Resort to the courts prior to the expiration of the 120-day
period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial
suit due to prematurity. Philippine jurisprudence is awash with
cases affirming and reiterating the doctrine of exhaustion of
administrative remedies.65 Such doctrine is basic and
elementary.
When Section 112(C) states that "the taxpayer affected may,
within thirty (30) days from receipt of the decision denying the
claim or after the expiration of the one hundred twenty-day
period, appeal the decision or the unacted claim with the Court
of Tax Appeals," the law does not make the 120+30 day
periods optional just because the law uses the word "may."
The word "may" simply means that the taxpayer may or may
not appeal the decision of the Commissioner within 30 days
from receipt of the decision, or within 30 days from the
expiration of the 120-day period. Certainly, by no stretch of the
imagination can the word "may" be construed as making the
120+30 day periods optional, allowing the taxpayer to file a
judicial claim one day after filing the administrative claim with
the Commissioner.
The old rule66 that the taxpayer may file the judicial claim,
without waiting for the Commissioner’s decision if the two-year
prescriptive period is about to expire, cannot apply because
that rule was adopted before the enactment of the 30-day
period. The 30-day period was adopted precisely to do
away with the old rule, so that under the VAT System the
taxpayer will always have 30 days to file the judicial claim
even if the Commissioner acts only on the 120th day, or
does not act at all during the 120-day period. With the 30-
day period always available to the taxpayer, the taxpayer can
no longer file a judicial claim for refund or credit of input VAT
without waiting for the Commissioner to decide until the
expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax
exemption, is construed strictly against the taxpayer. One of
the conditions for a judicial claim of refund or credit under the
VAT System is compliance with the 120+30 day mandatory
and jurisdictional periods. Thus, strict compliance with the
120+30 day periods is necessary for such a claim to prosper,
whether before, during, or after the effectivity of
the Atlas  doctrine, except for the period from the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October
2010 when the Aichi  doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and
jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03)
dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or
impliedly, that the taxpayer need not wait for the 120-day
period to expire before filing a judicial claim with the CTA. RMC
49-03 merely authorizes the BIR to continue processing the
administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim
before the expiration of the 120-day period. RMC 49-03 states:
"In cases where the taxpayer has filed a ‘Petition for Review’
with the Court of Tax Appeals involving a claim for refund/TCC
that is pending at the administrative agency (either the Bureau
of Internal Revenue or the One- Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center of the Department of
Finance), the administrative agency and the court may act on
the case separately." Thus, if the taxpayer files its judicial claim
before the expiration of the 120-day period, the BIR will
nevertheless continue to act on the administrative claim
because such premature filing cannot divest the Commissioner
of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after
the 120- day period, the Commissioner can still continue to
evaluate the administrative claim. There is nothing new in this
because even after the expiration of the 120-day period, the
Commissioner should still evaluate internally the administrative
claim for purposes of opposing the taxpayer’s judicial claim, or
even for purposes of determining if the BIR should actually
concede to the taxpayer’s judicial claim. The internal
administrative evaluation of the taxpayer’s claim
must necessarily continue to enable the BIR to oppose
intelligently the judicial claim or, if the facts and the law warrant
otherwise, for the BIR to concede to the judicial claim, resulting
in the termination of the judicial proceedings.
What is important, as far as the present cases are
concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the
120-day period cannot operate to divest the Commissioner
of his jurisdiction to decide an administrative claim within
the 120-day mandatory period, unless the Commissioner
has clearly given cause for equitable estoppel to apply as
expressly recognized in Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for
equitable estoppel under Section 246 of the Tax Code. BIR
Ruling No. DA-489-03 expressly states that the "taxpayer-
claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of
Petition for Review." Prior to this ruling, the BIR held, as
shown by its position in the Court of Appeals,68 that the
expiration of the 120-day period is mandatory and jurisdictional
before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and
jurisdictional, and that the CTA does not acquire jurisdiction
over a judicial claim that is filed before the expiration of the
120-day period. There are, however, two exceptions to this
rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely
file a judicial claim with the CTA. Such specific ruling is
applicable only to such particular taxpayer. The second
exception is where the Commissioner, through a general
interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims
65
with the CTA. In these cases, the Commissioner cannot be
allowed to later on question the CTA’s assumption of
jurisdiction over such claim since equitable estoppel has set in
as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new  provision introduced by RA
8424, expressly grants to the Commissioner the power to
interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and
To Decide Tax Cases. — The power to interpret the provisions
of this Code and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original
jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general
interpretative rules of the Commissioner interpreting tax laws,
should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section
246 of the Tax Code expressly provides that a reversal of a
BIR regulation or ruling cannot adversely prejudice a taxpayer
who in good faith relied on the BIR regulation or ruling prior to
its reversal. Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. — Any revocation,
modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial
to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis
supplied)
Thus, a general interpretative rule issued by the Commissioner
may be relied upon by taxpayers from the time the rule is
issued up to its reversal by the Commissioner or this Court.
Section 246 is not limited to a reversal only by the
Commissioner because this Section expressly states,
"Any  revocation, modification or reversal" without specifying
who made the revocation, modification or reversal. Hence, a
reversal by this Court is covered under Section 246.
Taxpayers should not be prejudiced by an erroneous
interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas  doctrine
by Mirant  and Aichi69 is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a
difficult question of law. The abandonment of the Atlas  doctrine
did not result in Atlas, or other taxpayers similarly situated,
being made to return the tax refund or credit they received or
could have received under Atlas  prior to its abandonment. This
Court is applying Mirant and Aichi prospectively. Absent fraud,
bad faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like the
reversal of a specific BIR ruling under Section 246, should also
apply prospectively. As held by this Court in CIR v. Philippine
Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this
Court held that under Section 246 of the 1997 Tax Code, the
Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken
where injustice would result to the taxpayer. Hence, where
an assessment for deficiency withholding income taxes was
made, three years after a new BIR Circular reversed a
previous one upon which the taxpayer had relied upon, such
an assessment was prejudicial to the taxpayer. To rule
otherwise, opined the Court, would be contrary to the tenets of
good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN
Broadcasting Corp.1âwphi1 in the later cases
of Commissioner of Internal Revenue v. Borroughs,
Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg.
Corp., Commissioner of Internal Revenue v. Telefunken
Semiconductor (Phils.) Inc., and Commissioner of Internal
Revenue v. Court of Appeals. The rule is that the BIR rulings
have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer, as in this
case.
More recently, in Commissioner of Internal Revenue v.
Benguet Corporation, wherein the taxpayer was entitled to tax
refunds or credits based on the BIR’s own issuances but later
was suddenly saddled with deficiency taxes due to its
subsequent ruling changing the category of the taxpayer’s
transactions for the purpose of paying its VAT, this Court ruled
that applying such ruling retroactively would be prejudicial to
the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a
general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule
because it was a response to a query made, not by a particular
taxpayer, but by a government agency tasked with processing
tax refunds and credits, that is, the One Stop Shop Inter-
Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-
489-03. Thus, while this government agency mentions in its
query to the Commissioner the administrative claim of Lazi Bay
Resources Development, Inc., the agency was in fact asking
the Commissioner what to do in cases like the tax claim of Lazi
Bay Resources Development, Inc., where the taxpayer did not
wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative
rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03
from the time of its issuance on 10 December 2003 up to its
reversal by this Court in Aichi on 6 October 2010, where this
Court held that the 120+30 day periods are mandatory and
jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given
retroactive effect for four reasons: first, it is admittedly an
erroneous interpretation of the law; second, prior to its
issuance, the BIR held that the 120-day period was mandatory
and jurisdictional, which is the correct interpretation of the
law; third, prior to its issuance, no taxpayer can claim that it
was misled by the BIR into filing a judicial claim prematurely;
and fourth, a claim for tax refund or credit, like a claim for tax
exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-
489-03 because it filed its judicial claim prematurely on 10 April
2003, before the issuance of BIR Ruling No. DA-489-03 on 10
December 2003. To repeat, San Roque cannot claim that it
was misled by the BIR into filing its judicial claim prematurely
because BIR Ruling No. DA-489-03 was issued only after San
Roque filed its judicial claim. At the time San Roque filed its
judicial claim, the law as applied and administered by the BIR
was that the Commissioner had 120 days to act on
administrative claims. This was in fact the position of the BIR
prior to the issuance of BIR Ruling No. DA-489-03. Indeed,
66
San Roque never claimed the benefit of BIR Ruling No.
DA-489-03 or RMC 49-03, whether in this Court, the CTA,
or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14
February 2007, after the issuance of BIR Ruling No. DA-489-
03 on 10 December 2003. Truly, Taganito can claim that in
filing its judicial claim prematurely without waiting for the 120-
day period to expire, it was misled by BIR Ruling No. DA-489-
03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-
489-03, which shields the filing of its judicial claim from the vice
of prematurity.
Philex’s situation is not a case of premature filing of its judicial
claim but of late filing, indeed very  late filing. BIR Ruling No.
DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot
claim the benefit of BIR Ruling No. DA-489-03 because Philex
did not file its judicial claim prematurely but filed it long after
the lapse of the 30-day period following the expiration of the
120-day period. In fact, Philex filed its judicial claim 426 days
after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this
Court had already made a ruling that the filing dates of the
administrative and judicial claims are inconsequential, as long
as they are within the two-year prescriptive period. The effect
of the claim of the dissenting opinions is that San Roque’s
failure to wait for the 120-day mandatory period to lapse is
inconsequential, thus allowing San Roque to claim the tax
refund or credit. However, the five cases cited by the
dissenting opinions do not support even remotely the claim that
this Court had already made such a ruling. None of these five
cases mention, cite, discuss, rule or even hint that
compliance with the 120-day mandatory period is
inconsequential as long as the administrative and judicial
claims are filed within the two-year prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the
issue was whether any output VAT was actually passed on to
Toshiba that it could claim as input VAT subject to tax credit or
refund. The Commissioner argued that "although Toshiba may
be a VAT-registered taxpayer, it is not engaged in a VAT-
taxable business." The Commissioner cited Section 4.106-1 of
Revenue Regulations No. 75 that "refund of input taxes on
capital goods shall be allowed only to the extent that such
capital goods are used in VAT-taxable business." In the words
of the Court, "Ultimately, however, the issue still to be resolved
herein shall be whether respondent Toshiba is entitled to the
tax credit/refund of its input VAT on its purchases of capital
goods and services, to which this Court answers in the
affirmative." Nowhere in this case did the Court discuss, state,
or rule that the filing dates of the administrative and judicial
claims are inconsequential, as long as they are within the two-
year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated:
"The issues to be resolved in the instant case are (1) whether
the absence of the BIR authority to print or the absence of the
TIN-V in petitioner’s export sales invoices operates to forfeit its
entitlement to a tax refund/credit of its unutilized input VAT
attributable to its zero-rated sales; and (2) whether petitioner’s
failure to indicate "TIN-V" in its sales invoices automatically
invalidates its claim for a tax credit certification." Again,
nowhere in this case did the Court discuss, state, or rule that
the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year
prescriptive period.
In AT&T Communications Services Philippines, Inc. v.
CIR,73 the Court stated: "x x x the CTA First Division,
conceding that petitioner’s transactions fall under the
classification of zero-rated sales, nevertheless denied
petitioner’s claim ‘for lack of substantiation,’ x x x." The
Court quoted the ruling of the First Division that "valid VAT
official receipts, and not mere sale invoices, should have
been submitted" by petitioner to substantiate its claim. The
Court further stated: "x x x the CTA En Banc, x x x affirmed x x
x the CTA First Division," and "petitioner’s motion for
reconsideration having been denied x x x, the present petition
for review was filed." Clearly, the sole issue in this case is
whether petitioner complied with the substantiation
requirements in claiming for tax refund or credit. Again,
nowhere in this case did the Court discuss, state, or rule that
the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year
prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the
Court put the issue in this manner: "Simply put, the sole issue
the petition raises is whether or not the CTA erred in granting
respondent Ironcon’s application for refund of
its excess creditable VAT withheld." The Commissioner
argued that "since the NIRC does not specifically grant
taxpayers the option to refund excess creditable VAT withheld,
it follows that such refund cannot be allowed." Thus, this case
is solely about whether the taxpayer has the right under the
NIRC to ask for a cash refund of excess creditable VAT
withheld. Again, nowhere in this case did the Court discuss,
state, or rule that the filing dates of the administrative and
judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether
Cebu Toyo was exempt or subject to VAT. Compliance with
the 120-day period was never an issue in Cebu Toyo. As the
Court explained:
Both the Commissioner of Internal Revenue and the Office of
the Solicitor General argue that respondent Cebu Toyo
Corporation, as a PEZA-registered enterprise, is exempt from
national and local taxes, including VAT, under Section 24 of
Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they
contend that respondent Cebu Toyo Corporation is not entitled
to any refund or credit on input taxes it previously paid as
provided under Section 4.103-1 of Revenue Regulations No. 7-
95, notwithstanding its registration as a VAT taxpayer. For
petitioner claims that said registration was erroneous and did
not confer upon the respondent any right to claim recognition
of the input tax credit.
The respondent counters that it availed of the income tax
holiday under E.O. No. 226 for four years from August 7, 1995
making it exempt from income tax but not from other taxes
such as VAT. Hence, according to respondent, its export
sales are not exempt from VAT, contrary to petitioner’s
claim, but its export sales is subject to 0% VAT. Moreover,
it argues that it was able to establish through a report certified
by an independent Certified Public Accountant that the input
taxes it incurred from April 1, 1996 to December 31, 1997 were
directly attributable to its export sales. Since it did not have any
output tax against which said input taxes may be offset, it had
the option to file a claim for refund/tax credit of its unutilized
input taxes.
Considering the submission of the parties and the evidence on
record, we find the petition bereft of merit.
Petitioner’s contention that respondent is not entitled to
refund for being exempt from VAT is untenable. This
argument turns a blind eye to the fiscal incentives granted to
PEZA-registered enterprises under Section 23 of Rep. Act No.
7916. Note that under said statute, the respondent had two
options with respect to its tax burden. It could avail of an
income tax holiday pursuant to provisions of E.O. No. 226, thus
exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of
the tax exemptions on all taxes, including VAT under P.D. No.
66 and pay only the preferential tax rate of 5% under Rep. Act
No. 7916. Both the Court of Appeals and the Court of Tax
Appeals found that respondent availed of the income tax
holiday for four (4) years starting from August 7, 1995, as
clearly reflected in its 1996 and 1997 Annual Corporate Income
Tax Returns, where respondent specified that it was availing of
67
the tax relief under E.O. No. 226. Hence, respondent is not
exempt from VAT and it correctly registered itself as a VAT
taxpayer. In fine, it is engaged in taxable rather than
exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer
was exempt from VAT or subject to VAT at 0% tax rate. If
subject to 0% VAT rate, the taxpayer could claim a refund or
credit of its input VAT. Again, nowhere in this case did the
Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long
as they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu
Toyo  that the taxpayer "did not bother to wait for the
Resolution of its (administrative) claim by the CIR" before filing
its judicial claim with the CTA, this issue was not raised before
the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day
period to lapse.
Any issue, whether raised or not by the parties, but not
passed upon by the Court, does not have any value as
precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was
answered and resolved against the contention of the appellant
in the case of Bautista vs. Fajardo  (38 Phil. 624). In that case
no question was raised nor was it even suggested that said
section 216 did not apply to a public officer. That question was
not discussed nor referred to by any of the parties interested in
that case. It has been frequently decided that the fact that a
statute has been accepted as valid, and invoked and applied
for many years in cases where its validity was not raised or
passed on, does not prevent a court from later passing on its
validity, where that question is squarely and properly raised
and presented. Where a question passes the Court sub
silentio, the case in which the question was so passed is
not binding on the Court (McGirr vs. Hamilton and Abreu,
30 Phil. 563), nor should it be considered as a precedent.
(U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio,
31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs.
Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For
the reasons given in the case of McGirr vs. Hamilton and
Abreu, supra, the decision in the case of Bautista vs. Fajardo,
supra, can have no binding force in the interpretation of the
question presented here.76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is
mandatory or optional, was not even raised as an issue by any
of the parties. The Court never passed upon this issue.
Thus, Cebu Toyo does not constitute binding precedent on the
nature of the 120-day period.
There is also the claim that there are numerous CTA decisions
allegedly supporting the argument that the filing dates of the
administrative and judicial claims are inconsequential, as long
as they are within the two-year prescriptive period. Suffice it to
state that CTA decisions do not constitute precedents, and do
not bind this Court or the public. That is why CTA decisions are
appealable to this Court, which may affirm, reverse or modify
the CTA decisions as the facts and the law may warrant. Only
decisions of this Court constitute binding precedents, forming
part of the Philippine legal system.77 As held by this Court
in The Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court
"applying or interpreting the laws or the Constitution . . . form
part of the legal system of the Philippines," and, as it were,
"laws" by their own right because they interpret what the laws
say or mean. Unlike rulings of the lower courts, which bind
the parties to specific cases alone, our judgments are
universal in their scope and application, and equally
mandatory in character. Let it be warned that to defy our
decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De
Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere  is
entrenched in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or
the Constitution shall form a part of the legal system of the
Philippines.
It enjoins adherence to judicial precedents. It requires our
courts to follow a rule already established in a final
decision of the Supreme Court. That decision becomes a
judicial precedent to be followed in subsequent cases by all
courts in the land. The doctrine of stare decisis  is based on the
principle that once a question of law has been examined and
decided, it should be deemed settled and closed to further
argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January
1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its
own express terms, applies only if the taxpayer files the judicial
claim "after" the lapse of the 60-day period, a period with
which San Roque failed to comply. Under Section 4.106-2(c),
the 60-day period is still mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative
regulation can never  prevail over a later contrary law, more so
in this case where the later law was enacted precisely to
amend the prior administrative regulation and the law it
implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716
(1994)
Sec. 106. Refunds or tax credits of creditable input tax. —
(a) x x x x
(d) Period within which refund or tax credit of input tax
shall be made - In proper cases, the Commissioner
shall grant a refund or issue the tax credit for
creditable input taxes within sixty (60) days from the
date of submission of complete documents in support
of the application filed in accordance with
subparagraphs (a) and (b) hereof. In case of full or
partial denial of the claim for tax refund or tax credit,
or the failure on the part of the Commissioner to
act on the application within the period prescribed
above, the taxpayer affected may, within thirty
(30) days from receipt of the decision denying the
claim or after the expiration of the sixty-day
period, appeal the decision or the unacted claim
with the Court of Tax Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits
of input tax — (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall
be made. — In proper cases, the Commissioner shall grant a
tax credit/refund for creditable input taxes within sixty (60) days
from the date of submission of complete documents in support
of the application filed in accordance with subparagraphs (a)
and (b) above.
In case of full or partial denial of the claim for tax credit/refund
as decided by the Commissioner of Internal Revenue, the
taxpayer may appeal to the Court of Tax Appeals within thirty
(30) days from the receipt of said denial, otherwise the
decision will become final. However, if no action on the claim
68
for tax credit/refund has been taken by the Commissioner
of Internal Revenue after the sixty (60) day period from the
date of submission of the application but before the lapse
of the two (2) year period from the date of filing of the VAT
return for the taxable quarter, the taxpayer may appeal to
the Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax —
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes
shall be made. — In proper cases, the Commissioner shall
grant the refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or
tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above,
the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the
expiration of the hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax
Appeals.
There can be no dispute that under Section 106(d) of the 1977
Tax Code, as amended by RA 7716, the Commissioner has a
60-day period to act on the administrative claim. This 60-day
period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95
change this, so that the 60-day period is no longer mandatory
and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the
sixty (60) day period," the Commissioner fails to act on the
administrative claim, the taxpayer may file the judicial claim
even "before the lapse of the two (2) year period." Thus,
under Section 4.106-2(c) the 60-day period is still
mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended
by RA 7716, but merely implemented it, for two
reasons. First, Section 4.106-2(c) still expressly requires
compliance with the 60-day period. This cannot be
disputed.1âwphi1
Second, under the novel amendment introduced by RA 7716,
mere inaction by the Commissioner during the 60-day period
is deemed a denial of the claim. Thus, Section 4.106-2(c)
states that "if no action on the claim for tax refund/credit has
been taken by the Commissioner after the sixty (60) day
period," the taxpayer "may" already file the judicial claim even
long before the lapse of the two-year prescriptive period. Prior
to the amendment by RA 7716, the taxpayer had to wait until
the two-year prescriptive period was about to expire if the
Commissioner did not act on the claim.80 With the amendment
by RA 7716, the taxpayer need not wait until the two-year
prescriptive period is about to expire before filing the judicial
claim because mere inaction by the Commissioner during the
60-day period is deemed a denial of the claim. This is the
meaning of the phrase "but before the lapse of the two (2)
year period" in Section 4.106-2(c). As Section 4.106- 2(c)
reiterates that the judicial claim can be filed only "after the
sixty (60) day period," this period remains mandatory and
jurisdictional. Clearly, Section 4.106-2(c) did not amend
Section 106(d) but merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-
2(c) of Revenue Regulations No. 7-95, an administrative
issuance, amended Section 106(d) of the Tax Code to make
the period given to the Commissioner non-mandatory, still the
1997 Tax Code, a much later law, reinstated the original intent
and provision of Section 106(d) by extending the 60-day period
to 120 days and re-adopting the original wordings of
Section 106(d). Thus, Section 4.106-2(c), a mere
administrative issuance, becomes inconsistent with Section
112(D), a later law. Obviously, the later law prevails over a
prior inconsistent administrative issuance.

Section 112(D) of the 1997 Tax Code is clear, unequivocal,

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

There can be no dispute that upon effectivity of the 1997 Tax

Code on 1 January 1998, or more than five years before  San
Roque filed its administrative claim on 28 March 2003, the
law has been clear: the 120- day period is mandatory and
jurisdictional. San Roque’s claim, having been filed
administratively on 28 March 2003, is governed by the 1997
Tax Code, not the 1977 Tax Code. Since San Roque filed its
judicial claim before the expiration of the 120-day mandatory
and jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which

expressly provides that the taxpayer can only file the judicial
claim "after" the lapse of the 60-day period from the filing of
the administrative claim. San Roque filed its judicial claim
just 13 days after filing its administrative claim. To recall,
San Roque filed its judicial claim on 10 April 2003, a mere 13
days after it filed its administrative claim.

Even if, contrary to all principles of statutory construction as

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

A final word. Taxes are the lifeblood of the nation. The

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

WHEREFORE, the Court hereby (1) GRANTS the petition of

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

SO ORDERED.

69
G.R. No. 193301               March 11, 2013
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 194637
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CARPIO, J.:
G.R. No. 193301 is a petition for review1 assailing the
Decision2 promulgated on 10 March 2010 as well as the
Resolution3 promulgated on 28 July 2010 by the Court of Tax
Appeals En Banc (CTA En Banc) in CTA EB No. 513. The CTA
En Banc affirmed the 22 September 2008 Decision4 as well as
the 26 June 2009 Amended Decision5 of the First Division of
the Court of Tax Appeals (CTA First Division) in CTA Case
Nos. 7227, 7287, and 7317. The CTA First Division denied
Mindanao II Geothermal Partnership’s (Mindanao II) claims for
refund or tax credit for the first and second quarters of taxable
year 2003 for being filed out of time (CTA Case Nos. 7227 and
7287). The CTA First Division, however, ordered the
Commissioner of Internal Revenue (CIR) to refund or credit to
Mindanao II unutilized input value-added tax (VAT) for the third
and fourth quarters of taxable year 2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing the
Decision7 promulgated on 31 May 2010 as well as the
Amended Decision8 promulgated on 24 November 2010 by the
CTA En Banc in CTA EB Nos. 476 and 483. In its Amended
Decision, the CTA En Banc reversed its 31 May 2010 Decision
and granted the CIR’s petition for review in CTA Case No. 476.
The CTA En Banc denied Mindanao I Geothermal
Partnership’s (Mindanao I) claims for refund or tax credit for
the first (CTA Case No. 7228), second (CTA Case No. 7286),
third, and fourth quarters (CTA Case No. 7318) of 2003.
Both Mindanao I and II are partnerships registered with the
Securities and Exchange Commission, value added taxpayers
registered with the Bureau of Internal Revenue (BIR), and
Block Power Production Facilities accredited by the
Department of Energy. Republic Act No. 9136, or the Electric
Power Industry Reform Act of 2000 (EPIRA), effectively
amended Republic Act No. 8424, or the Tax Reform Act of
1997 (1997 Tax Code),9 when it decreed that sales of power by
generation companies shall be subjected to a zero rate of
VAT.10 Pursuant to EPIRA, Mindanao I and II filed with the CIR
claims for refund or tax credit of accumulated unutilized and/or
excess input taxes due to VAT zero-rated sales in 2003.
Mindanao I and II filed their claims in 2005.
G.R. No. 193301
Mindanao II v. CIR
The Facts
G.R. No. 193301 covers three CTA First Division cases, CTA
Case Nos. 7227, 7287, and 7317, which were consolidated as
CTA EB No. 513. CTA Case Nos. 7227, 7287, and 7317 claim
a tax refund or credit of Mindanao II’s alleged excess or
unutilized input taxes due to VAT zero-rated sales. In CTA
Case No. 7227, Mindanao II claims a tax refund or credit of
₱3,160,984.69 for the first quarter of 2003. In CTA Case No.
7287, Mindanao II claims a tax refund or credit of
₱1,562,085.33 for the second quarter of 2003. In CTA Case
70
No. 7317, Mindanao II claims a tax refund or credit of
₱3,521,129.50 for the third and fourth quarters of 2003.
The CTA First Division’s narration of the pertinent facts is as
follows:
xxxx
On March 11, 1997, [Mindanao II] allegedly entered into a Built
(sic)-Operate-Transfer (BOT) contract with the Philippine
National Oil Corporation – Energy Development Company
(PNOC-EDC) for finance, engineering, supply, installation,
testing, commissioning, operation, and maintenance of a 48.25
megawatt geothermal power plant, provided that PNOC-EDC
shall supply and deliver steam to Mindanao II at no cost. In
turn, Mindanao II shall convert the steam into electric capacity
and energy for PNOC-EDC and shall deliver the same to the
National Power Corporation (NPC) for and in behalf of PNOC-
EDC. Mindanao II alleges that its sale of generated power and
delivery of electric capacity and energy of Mindanao II to NPC
for and in behalf of PNOC-EDC is its only revenue-generating
activity which is in the ambit of VAT zero-rated sales under the
EPIRA Law, x x x.
xxxx
Hence, the amendment of the NIRC of 1997 modified the VAT
rate applicable to sales of generated power by generation
companies from ten (10%) percent to zero (0%) percent.
In the course of its operation, Mindanao II makes domestic
purchases of goods and services and accumulates therefrom
creditable input taxes. Pursuant to the provisions of the
National Internal Revenue Code (NIRC), Mindanao II alleges
that it can use its accumulated input tax credits to offset its
output tax liability. Considering, however that its only revenue-
generating activity is VAT zero-rated under RA No. 9136,
Mindanao II’s input tax credits remain unutilized.
Thus, on the belief that its sales qualify for VAT zero-rating,
Mindanao II adopted the VAT zero-rating of the EPIRA in
computing for its VAT payable when it filed its Quarterly VAT
Returns on the following dates:
CTA Case Period Date of Filing
No. Covered
(2003) Original Amended
Return Return
7227 1st Quarter April 23, July 3, 2002
2003 (sic),
April 1, 2004 &
October 22,
2004
7287 2nd Quarter July 22, April 1, 2004
2003
7317 3rd Quarter Oct. 27, April 1, 2004
2003
7317 4th Quarter Jan. 26, April 1, 2204
2004
Considering that it has accumulated unutilized creditable input
taxes from its only income-generating activity, Mindanao II filed
an application for refund and/or issuance of tax credit
certificate with the BIR’s Revenue District Office at Kidapawan
City on April 13, 2005 for the four quarters of 2003.
To date (September 22, 2008), the application for refund by
Mindanao II remains unacted upon by the CIR. Hence, these
three petitions filed on April 22, 2005 covering the 1st quarter
of 2003; July 7, 2005 for the 2nd quarter of 2003; and
September 9, 2005 for the 3rd and 4th quarters of 2003. At the
instance of Mindanao II, these petitions were consolidated on
March 15, 2006 as they involve the same parties and the same
subject matter. The only difference lies with the taxable periods
involved in each petition.11
The Court of Tax Appeals’ Ruling: Division
In its 22 September 2008 Decision,12 the CTA First Division
found that Mindanao II satisfied the twin requirements for VAT
zero rating under EPIRA: (1) it is a generation company, and
(2) it derived sales from power generation. The CTA First
Division also stated that Mindanao II complied with five
requirements to be entitled to a refund:
The dispositive portion of the CTA First Division’s 22
September 2008 Decision reads:
WHEREFORE, the Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, the CIR is hereby ORDERED to
REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the
modified amount of SEVEN MILLION SEVEN HUNDRED
THREE THOUSAND NINE HUNDRED FIFTY SEVEN AND
79/100 PESOS (₱7,703,957.79) representing its unutilized
input VAT for the four (4) quarters of the taxable year 2003.
SO ORDERED.17

1. There must be zero-rated or effectively zero-rated Mindanao II filed a motion for partial reconsideration.18 It stated
sales; that the sale of the fully depreciated Nissan Patrol is a one-
time transaction and is not incidental to its VAT zero-rated
2. That input taxes were incurred or paid; operations. Moreover, the disallowed input taxes substantially
complied with the requirements for refund or tax credit.
3. That such input VAT payments are directly
attributable to zero-rated sales or effectively zero- The CIR also filed a motion for partial reconsideration. It
rated sales; argued that the judicial claims for the first and second quarters
of 2003 were filed beyond the period allowed by law, as stated
in Section 112(A) of the 1997 Tax Code. The CIR further
4. That the input VAT payments were not applied stated that Section 229 is a general provision, and governs
against any output VAT liability; and cases not covered by Section 112(A). The CIR countered the
CTA First Division’s 22 September 2008 decision by citing this
5. That the claim for refund was filed within the two- Court’s ruling in Commisioner of Internal Revenue v. Mirant
year prescriptive period.13 Pagbilao Corporation (Mirant),19 which stated that unutilized
input VAT payments must be claimed within two years
With respect to the fifth requirement, the CTA First Division reckoned from the close of the taxable quarter when the
tabulated the dates of filing of Mindanao II’s return as well as relevant sales were made regardless of whether said tax was
its administrative and judicial claims, and concluded that paid.
Mindanao II’s administrative and judicial claims were timely
filed in compliance with this Court’s ruling in Atlas Consolidated The CTA First Division denied Mindanao II’s motion for partial
Mining and Development Corporation v. Commissioner of reconsideration, found the CIR’s motion for partial
Internal Revenue (Atlas).14 The CTA First Division declared reconsideration partly meritorious, and rendered an Amended
that the two-year prescriptive period for filing a VAT refund Decision20 on 26 June 2009. The CTA First Division stated that
claim should not be counted from the close of the quarter but the claim for refund or credit with the BIR and the subsequent
from the date of the filing of the VAT return. As ruled in Atlas, appeal to the CTA must be filed within the two-year period
VAT liability or entitlement to a refund can only be determined prescribed under Section 229. The two-year prescriptive period
upon the filing of the quarterly VAT return. in Section 229 was denominated as a mandatory statute of
limitations. Therefore, Mindanao II’s claims for refund for the
first and second quarters of 2003 had already prescribed.
CTA Period Date Filing
Cas Covere
e d Origina Amende Administrativ Judicial The CTA First Division found that the records of Mindanao II’s
No. (2003) l d e Claim case are bereft of evidence that the sale of the Nissan Patrol is
Return Return Return not incidental to Mindanao II’s VAT zero-rated operations.
Moreover, Mindanao II’s submitted documents failed to
7227 1st 23 1 April 13 April 2005 22 April substantiate the requisites for the refund or credit claims.
Quarter April 2004 2005
2003
The CTA First Division modified its 22 September 2008
7287 2nd 22 July 1 April 13 April 2005 7 July Decision to read as follows:
Quarter 2003 2004 2005
WHEREFORE, the Petition for Review is hereby PARTIALLY
7317 3rd 25 Oct. 1 April 13 April 2005 9 Sept. GRANTED. Accordingly, the CIR is hereby ORDERED to
Quarter 2003 2004 2005 REFUND or to ISSUE A TAX CREDIT CERTIFICATE to
7317 4th 26 Jan. 1 April 13 April 2005 9 Sept. Mindanao II Geothermal Partnership in the modified amount of
Quarter 2004 2004 200515 TWO MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT
HUNDRED EIGHTY SEVEN AND 77/100 PESOS
(₱2,980,887.77) representing its unutilized input VAT for the
Thus, counting from 23 April 2003, 22 July 2003, 25 October third and fourth quarters of the taxable year 2003.
2003, and 26 January 2004, when Mindanao II filed its VAT
returns, its administrative claim filed on 13 April 2005 and SO ORDERED.21
judicial claims filed on 22 April 2005, 7 July 2005, and 9
September 2005 were timely filed in accordance with Atlas.
Mindanao II filed a Petition for Review,22 docketed as CTA EB
No. 513, before the CTA En Banc.
The CTA First Division found that Mindanao II is entitled to a
refund in the modified amount of ₱7,703,957.79, after
disallowing ₱522,059.91 from input VAT16 and deducting The Court of Tax Appeals’ Ruling: En Banc
₱18,181.82 from Mindanao II’s sale of a fully depreciated
₱200,000.00 Nissan Patrol. The input taxes amounting to On 10 March 2010, the CTA En Banc rendered its Decision23 in
₱522,059.91 were disallowed for failure to meet invoicing CTA EB No. 513 and denied Mindanao II’s petition. The CTA
requirements, while the input VAT on the sale of the Nissan En Banc ruled that (1) Section 112(A) clearly provides that the
Patrol was reduced by ₱18,181.82 because the output VAT for reckoning of the two-year prescriptive period for filing the
the sale was not included in the VAT declarations. application for refund or credit of input VAT attributable to zero-
rated sales or effectively zero-rated sales shall be counted
from the close of the taxable quarter when the sales were

71
made; (2) the Atlas and Mirant cases applied different tax
codes: Atlas applied the 1977 Tax Code while Mirant applied
the 1997 Tax Code; (3) the sale of the fully-depreciated Nissan
Patrol is incidental to Mindanao II’s VAT zero-rated
transactions pursuant to Section 105; (4) Mindanao II failed to
comply with the substantiation requirements provided under
Section 113(A) in relation to Section 237 of the 1997 Tax Code
as implemented by Section 4.104-1, 4.104-5, and 4.108-1 of
Revenue Regulation No. 7-95; and (5) the doctrine of
strictissimi juris on tax exemptions cannot be relaxed in the
present case.
The dispositive portion of the CTA En Banc’s 10 March 2010
Decision reads:
WHEREFORE, on the basis of the foregoing considerations,
the Petition for Review en banc is DISMISSED for lack of
merit. Accordingly, the Decision dated September 22, 2008
and the Amended Decision dated June 26, 2009 issued by the
First Division are AFFIRMED.
SO ORDERED.24
The CTA En Banc issued a Resolution25 on 28 July 2010
denying for lack of merit Mindanao II’s Motion for
Reconsideration.26 The CTA En Banc highlighted the following
bases of their previous ruling:
1. The Supreme Court has long decided that the claim
for refund of unutilized input VAT must be filed within
two (2) years after the close of the taxable quarter
when such sales were made.
2. The Supreme Court is the ultimate arbiter whose
decisions all other courts should take bearings.
3. The words of the law are clear, plain, and free from
ambiguity; hence, it must be given its literal meaning
and applied without any interpretation.27
G.R. No. 194637
Mindanao I v. CIR
The Facts
G.R. No. 194637 covers two cases consolidated by the CTA
EB: CTA EB Case Nos. 476 and 483. Both CTA EB cases
consolidate three cases from the CTA Second Division: CTA
Case Nos. 7228, 7286, and 7318. CTA Case Nos. 7228, 7286,
and 7318 claim a tax refund or credit of Mindanao I’s
accumulated unutilized and/or excess input taxes due to VAT
zero-rated sales. In CTA Case No. 7228, Mindanao I claims a
tax refund or credit of ₱3,893,566.14 for the first quarter of
2003. In CTA Case No. 7286, Mindanao I claims a tax refund
or credit of ₱2,351,000.83 for the second quarter of 2003. In
CTA Case No. 7318, Mindanao I claims a tax refund or credit
of ₱7,940,727.83 for the third and fourth quarters of 2003.
Mindanao I is similarly situated as Mindanao II. The CTA
Second Division’s narration of the pertinent facts is as follows:
xxxx
In December 1994, Mindanao I entered into a contract of Build-
Operate-Transfer (BOT) with the Philippine National Oil
Corporation – Energy Development Corporation (PNOC-EDC)
for the finance, design, construction, testing, commissioning,
operation, maintenance and repair of a 47-megawatt
geothermal power plant. Under the said BOT contract, PNOC-
EDC shall supply and deliver steam to Mindanao I at no cost.
In turn, Mindanao I will convert the steam into electric capacity
and energy for PNOC-EDC and shall subsequently supply and
deliver the same to the National Power Corporation (NPC), for
and in behalf of PNOC-EDC.
72
Mindanao I’s 47-megawatt geothermal power plant project has
been accredited by the Department of Energy (DOE) as a
Private Sector Generation Facility, pursuant to the provision of
Executive Order No. 215, wherein Certificate of Accreditation
No. 95-037 was issued.
On June 26, 2001, Republic Act (R.A.) No. 9136 took effect,
and the relevant provisions of the National Internal Revenue
Code (NIRC) of 1997 were deemed modified. R.A. No. 9136,
also known as the "Electric Power Industry Reform Act of 2001
(EPIRA), was enacted by Congress to ordain reforms in the
electric power industry, highlighting, among others, the
importance of ensuring the reliability, security and affordability
of the supply of electric power to end users. Under the
provisions of this Republic Act and its implementing rules and
regulations, the delivery and supply of electric energy by
generation companies became VAT zero-rated, which
previously were subject to ten percent (10%) VAT.
xxxx
The amendment of the NIRC of 1997 modified the VAT rate
applicable to sales of generated power by generation
companies from ten (10%) percent to zero percent (0%). Thus,
Mindanao I adopted the VAT zero-rating of the EPIRA in
computing for its VAT payable when it filed its VAT Returns, on
the belief that its sales qualify for VAT zero-rating.
Mindanao I reported its unutilized or excess creditable input
taxes in its Quarterly VAT Returns for the first, second, third,
and fourth quarters of taxable year 2003, which were
subsequently amended and filed with the BIR.
On April 4, 2005, Mindanao I filed with the BIR separate
administrative claims for the issuance of tax credit certificate
on its alleged unutilized or excess input taxes for taxable year
2003, in the accumulated amount of ₱14,185, 294.80.
Alleging inaction on the part of CIR, Mindanao I elevated its
claims before this Court on April 22, 2005, July 7, 2005, and
September 9, 2005 docketed as CTA Case Nos. 7228, 7286,
and 7318, respectively. However, on October 10, 2005,
Mindanao I received a copy of the letter dated September 30,
2003 (sic) of the BIR denying its application for tax
credit/refund.28
The Court of Tax Appeals’ Ruling: Division
On 24 October 2008, the CTA Second Division rendered its
Decision29 in CTA Case Nos. 7228, 7286, and 7318. The CTA
Second Division found that (1) pursuant to Section 112(A),
Mindanao I can only claim 90.27% of the amount of
substantiated excess input VAT because a portion was not
reported in its quarterly VAT returns; (2) out of the
₱14,185,294.80 excess input VAT applied for refund, only
₱11,657,447.14 can be considered substantiated excess input
VAT due to disallowances by the Independent Certified Public
Accountant, adjustment on the disallowances per the CTA
Second Division’s further verification, and additional
disallowances per the CTA Second Division’s further
verification;
(3) Mindanao I’s accumulated excess input VAT for the second
quarter of 2003 that was carried over to the third quarter of
2003 is net of the claimed input VAT for the first quarter of
2003, and the same procedure was done for the second, third,
and fourth quarters of 2003; and (4) Mindanao I’s
administrative claims were filed within the two-year prescriptive
period reckoned from the respective dates of filing of the
quarterly VAT returns.
The dispositive portion of the CTA Second Division’s 24
October 2008 Decision reads:
WHEREFORE, premises considered, the consolidated
Petitions for Review are hereby PARTIALLY GRANTED.
Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX
CREDIT CERTIFICATE in favor of Mindanao I in the reduced
amount of TEN MILLION FIVE HUNDRED TWENTY THREE
THOUSAND ONE HUNDRED SEVENTY SEVEN PESOS
AND 53/100 (₱10,523,177.53) representing Mindanao I’s
unutilized input VAT for the four quarters of the taxable year
2003.
SO ORDERED.30
Mindanao I filed a motion for partial reconsideration with
motion for Clarification31 on 11 November 2008. It claimed that
the CTA Second Division should not have allocated
proportionately Mindanao I’s unutilized creditable input taxes
for the taxable year 2003, because the proportionate allocation
of the amount of creditable taxes in Section 112(A) applies
only when the creditable input taxes due cannot be directly and
entirely attributed to any of the zero-rated or effectively zero-
rated sales. Mindanao I claims that its unreported collection is
directly attributable to its VAT zero-rated sales. The CTA
Second Division denied Mindanao I’s motion and maintained
the proportionate allocation because there was a portion of the
gross receipts that was undeclared in Mindanao I’s gross
receipts.
The CIR also filed a motion for partial reconsideration32 on 11
November 2008. It claimed that Mindanao I failed to exhaust
administrative remedies before it filed its petition for review.
The CTA Second Division denied the CIR’s motion, and cited
Atlas33 as the basis for ruling that it is more practical and
reasonable to count the two-year prescriptive period for filing a
claim for refund or credit of input VAT on zero-rated sales from
the date of filing of the return and payment of the tax due.
The dispositive portion of the CTA Second Division’s 10 March
2009 Resolution reads:
WHEREFORE, premises considered, the CIR’s Motion for
Partial Reconsideration and Mindanao I’s Motion for Partial
Reconsideration with Motion for Clarification are hereby
DENIED for lack of merit.
SO ORDERED.34
The Ruling of the Court of Tax Appeals: En Banc
On 31 May 2010, the CTA En Banc rendered its Decision35 in
CTA EB Case Nos. 476 and 483 and denied the petitions filed
by the CIR and Mindanao I. The CTA En Banc found no new
matters which have not yet been considered and passed upon
by the CTA Second Division in its assailed decision and
resolution.
The dispositive portion of the CTA En Banc’s 31 May 2010
Decision reads:
WHEREFORE, premises considered, the Petitions for Review
are hereby DISMISSED for lack of merit. Accordingly, the
October 24, 2008 Decision and March 10, 2009 Resolution of
the CTA Former Second Division in CTA Case Nos. 7228,
7286, and 7318, entitled "Mindanao I Geothermal Partnership
vs. Commissioner of Internal Revenue" are hereby AFFIRMED
in toto.
SO ORDERED.36
Both the CIR and Mindanao I filed Motions for Reconsideration
of the CTA En Banc’s 31 May 2010 Decision. In an Amended
Decision promulgated on 24 November 2010, the CTA En
Banc agreed with the CIR’s claim that Section 229 of the NIRC
of 1997 is inapplicable in light of this Court’s ruling in Mirant.
The CTA En Banc also ruled that the procedure prescribed
under Section 112(D) now 112(C)37 of the 1997 Tax Code
should be followed first before the CTA En Banc can act on
Mindanao I’s claim. The CTA En Banc reconsidered its 31 May
2010 Decision in light of this Court’s ruling in Commissioner of
73
Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi).38
The pertinent portions of the CTA En Banc’s 24 November
2010 Amended Decision read:
C.T.A. Case No. 7228:
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the First Quarter of
2003. Pursuant to Section 112(A) of the NIRC of
1997, as amended, Mindanao I has two years from
March 31, 2003 or until March 31, 2005 within which
to file its administrative claim for refund;
(2) On April 4, 2005, Mindanao I applied for an
administrative claim for refund of unutilized input VAT
for the first quarter of taxable year 2003 with the BIR,
which is beyond the two-year prescriptive period
mentioned above.
C.T.A. Case No. 7286:
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the second quarter
of 2003. Pursuant to
Section 112(A) of the NIRC of 1997, as amended,
Mindanao I has two years from June 30, 2003, within
which to file its administrative claim for refund for the
second quarter of 2003, or until June 30, 2005;
(2) On April 4, 2005, Mindanao I applied an
administrative claim for refund of unutilized input VAT
for the second quarter of taxable year 2003 with the
BIR, which is within the two-year prescriptive period,
provided under Section 112 (A) of the NIRC of 1997,
as amended;
(3) The CIR has 120 days from April 4, 2005
(presumably the date Mindanao I submitted the
supporting documents together with the application
for refund) or until August 2, 2005, to decide the
administrative claim for refund;
(4) Within 30 days from the lapse of the 120-day
period or from August 3, 2005 to September 1, 2005,
Mindanao I should have elevated its claim for refund
to the CTA in Division;
(5) However, on July 7, 2005, Mindanao I filed its
Petition for Review with this Court, docketed as CTA
Case No. 7286, even before the 120-day period for
the CIR to decide the claim for refund had lapsed on
August 2, 2005. The Petition for Review was,
therefore, prematurely filed and there was failure to
exhaust administrative remedies;
xxxx
C.T.A. Case No. 7318:
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the third and fourth
quarters of 2003. Pursuant to Section 112(A) of the
NIRC of 1997, as amended, Mindanao I therefore,
has two years from September 30, 2003 and
December 31, 2003, or until September 30, 2005 and
December 31, 2005, respectively, within which to file
its administrative claim for the third and fourth
quarters of 2003;
(2) On April 4, 2005, Mindanao I applied an
administrative claim for refund of unutilized input VAT
for the third and fourth quarters of taxable year 2003
 with the BIR, which is well within the two-year
prescriptive period, provided under Section 112(A) of
the NIRC of 1997, as amended;
(3) From April 4, 2005, which is also presumably the
date Mindanao I submitted supporting documents,
together with the aforesaid application for refund, the
CIR has 120 days or until August 2, 2005, to decide
the claim;
(4) Within thirty (30) days from the lapse of the 120-
day period or from August 3, 2005 until September 1,
2005 Mindanao I should have elevated its claim for
refund to the CTA;
(5) However, Mindanao I filed its Petition for Review
with the CTA in Division only on September 9, 2005,
which is 8 days beyond the 30-day period to appeal to
the CTA.
Evidently, the Petition for Review was filed way beyond the 30-
day prescribed period. Thus, the Petition for Review should
have been dismissed for being filed late.
In recapitulation:
(1) C.T.A. Case No. 7228
Claim for the first quarter of 2003 had already
prescribed for having been filed beyond the two-year
prescriptive period;
(2) C.T.A. Case No. 7286
Claim for the second quarter of 2003 should be
dismissed for Mindanao I’s failure to comply with a
condition precedent when it failed to exhaust
administrative remedies by filing its Petition for
Review even before the lapse of the 120-day period
for the CIR to decide the administrative claim;
(3) C.T.A. Case No. 7318
Petition for Review was filed beyond the 30-day
prescribed period to appeal to the CTA.
xxxx
IN VIEW OF THE FOREGOING, the Commissioner of Internal
Revenue’s Motion for Reconsideration is hereby GRANTED;
Mindanao I’s Motion for Partial Reconsideration is hereby
DENIED for lack of merit.
The May 31, 2010 Decision of this Court En Banc is hereby
REVERSED.
Accordingly, the Petition for Review of the Commissioner of
Internal Revenue in CTA EB No. 476 is hereby GRANTED and
the entire claim of Mindanao I Geothermal Partnership for the
first, second, third and fourth quarters of 2003 is hereby
DENIED.
SO ORDERED.39
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition for
Review:
I. The Honorable Court of Tax Appeals erred in
holding that the claim of Mindanao II for the 1st and
74
2nd quarters of year 2003 has already prescribed
pursuant to the Mirant case.
A. The Atlas case and Mirant case have
conflicting interpretations of the law as to the
reckoning date of the two year prescriptive
period for filing claims for VAT refund.
B. The Atlas case was not and cannot be
superseded by the Mirant case in light of
Section 4(3), Article VIII of the 1987
Constitution.
C. The ruling of the Mirant case, which uses
the close of the taxable quarter when the
sales were made as the reckoning date in
counting the two-year prescriptive period
cannot be applied retroactively in the case of
Mindanao II.
II. The Honorable Court of Tax Appeals erred in
interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated
Nissan Patrol is a one-time transaction and is not
incidental to the VAT zero-rated operation of
Mindanao II.
III. The Honorable Court of Tax Appeals erred in
denying the amount disallowed by the Independent
Certified Public Accountant as Mindanao II
substantially complied with the requisites of the 1997
Tax Code, as amended, for refund/tax credit.
A. The amount of ₱2,090.16 was brought
about by the timing difference in the
recording of the foreign currency deposit
transaction.
B. The amount of ₱2,752.00 arose from the
out-of-pocket expenses reimbursed to SGV
& Company which is substantially
suppoerted [sic] by an official receipt.
C. The amount of ₱487,355.93 was
unapplied and/or was not included in
Mindanao II’s claim for refund or tax credit
for the year 2004 subject matter of CTA
Case No. 7507.
IV. The doctrine of strictissimi juris on tax exemptions
should be relaxed in the present case.40
G.R. No. 194637
Mindanao I v. CIR
Mindanao I raised the following grounds in its Petition for
Review:
I. The administrative claim and judicial claim in CTA
Case No. 7228 were timely filed pursuant to the case
of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue,
which was then the controlling ruling at the time of
filing.
A. The recent ruling in the Commissioner of
Internal Revenue vs. Mirant Pagbilao
Corporation, which uses the end of the
taxable quarter when the sales were made
as the reckoning date in counting the two-
year prescriptive period, cannot be applied
retroactively in the case of Mindanao I.
B. The Atlas case promulgated by the Third
Division of this Honorable Court on June 8,
2007 was not and cannot be superseded by
 the Mirant Pagbilao case promulgated by the x x x x 43 (Underscoring supplied)
Second Division of this Honorable Court on
September 12, 2008 in light of the explicit The relevant dates for G.R. No. 193301 (Mindanao II) are:
provision of Section 4(3), Article VIII of the
1987 Constitution.
CT Period Close Last Actual Last Actual
II. Likewise, the recent ruling of this Honorable Court A covered of day date of day for Date
in Commissioner of Internal Revenue vs. Aichi Ca by quarte for filing filing of
Forging Company of Asia, Inc., cannot be applied se VAT r filing applicati case filing
retroactively to Mindanao I in the present case.41 No Sales in when applic on for with case
. 2003 and sales ation tax CTA45 with
amount were of tax refund/ CTA
In a Resolution dated 14 December 2011,42 this Court resolved made refund credit (judici
to consolidate G.R. Nos. 193301 and 194637 to avoid /tax with the al
conflicting rulings in related cases. credit CIR claim)
certific (administ
The Court’s Ruling ate rative
with claim)44
Determination of Prescriptive Period the
CIR
G.R. Nos. 193301 and 194637 both raise the question of the 72 1st 31 31 13 April 12 22
determination of the prescriptive period, or the interpretation of 27 Quarter, March March 2005 Septe April
Section 112 of the 1997 Tax Code, in light of our rulings in ₱3,160,9 2003 2005 mber 2005
Atlas and Mirant. 84.69 2005
72 2nd 30 30 13 April 12 7 July
Mindanao II’s unutilized input VAT tax credit for the first and 87 Quarter, June June 2005 Septe 2005
second quarters of 2003, in the amounts of ₱3,160,984.69 and ₱1,562,0 2003 2005 mber
₱1,562,085.33, respectively, are covered by G.R. No. 193301, 85.33 2005
while Mindanao I’s unutilized input VAT tax credit for the first,
second, third, and fourth quarters of 2003, in the amounts of 73 3rd and 30 30 13 April 12 9
₱3,893,566.14, ₱2,351,000.83, and ₱7,940,727.83, 17 4th Septe Septe 2005 Septe Septe
respectively, are covered by G.R. No. 194637. Quarters, mber mber mber mber
₱3,521,1 2003 2005 2005 2005
Section 112 of the 1997 Tax Code 29.50
31 2
Dece Januar
The pertinent sections of the 1997 Tax Code, the law mber y
applicable at the time of Mindanao II’s and Mindanao I’s 2003 2006
administrative and judicial claims, provide: (31
Dece
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero-rated mber
or Effectively Zero-rated Sales. - Any VAT-registered person, 2005
whose sales are zero-rated or effectively zero-rated may, being
within two (2) years after the close of the taxable quarter when a
the sales were made, apply for the issuance of a tax credit Saturd
certificate or refund of creditable input tax due or paid ay)
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output
The relevant dates for G.R. No. 194637 (Minadanao I) are:
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 CT Period Close Last Actual Last Actual
proceeds thereof had been duly accounted for in accordance A covered of day date of day for Date
with the rules and regulations of the Bangko Sentral ng Ca by quarte for filing filing of
Pilipinas (BSP): Provided, further, That where the taxpayer is se VAT r filing applicati case filing
engaged in zero-rated or effectively zero-rated sale and also in No Sales in when applic on for with case
taxable or exempt sale of goods or properties or services, and . 2003 and sales ation tax CTA47 with
the amount of creditable input tax due or paid cannot be amount were of tax refund/ CTA
directly and entirely attributed to any one of the transactions, it made refund credit (judici
shall be allocated proportionately on the basis of the volume of /tax with the al
sales. credit CIR claim)
certific (administ
xxxx ate rative
with claim)46
the
(D) Period within which Refund or Tax Credit of Input Taxes
CIR
shall be Made. - In proper cases, the Commissioner shall grant
a refund or issue the tax credit certificate for creditable input 72 1st 31 31 4 April 1 22
taxes within one hundred twenty (120) days from the date of 27 Quarter, March March 2005 Septe April
submission of complete documents in support of the ₱3,893,5 2003 2005 mber 2005
application filed in accordance with Subsections (A) and (B) 66.14 2005
hereof.
72 2nd 30 30 4 April 1 7 July
In case of full or partial denial of the claim for tax refund or tax 87 Quarter, June June 2005 Septe 2005
credit, or the failure on the part of the Commissioner to act on ₱2,351,0 2003 2005 mber
the application within the period prescribed above, the 00.83 2005
taxpayer affected may, within thirty (30) days from the receipt 73 3rd 30 30 4 April 1 9
of the decision denying the claim or after the expiration of the 17 and 4th Septe Septe 2005 Septe Septe
one hundred twenty day-period, appeal the decision or the Quarters, mber mber mber mber
unacted claim with the Court of Tax Appeals. ₱7,940,7 2003 2005 2005 2005
75
 27.83 31 2 favor of a person from his own void or illegal act. This doctrine
Dece Januar
mber y vested or acquired right can arise from acts or omissions which
2003 2006
(31
Dece
mber
2005
being
a This Court cannot brush aside the grave issue of the
Saturd
ay)
When Mindanao II and Mindanao I filed their respective
administrative and judicial claims in 2005, neither Atlas nor
Mirant has been promulgated. Atlas was promulgated on 8
June 2007, while Mirant was promulgated on 12 September
2008. It is therefore misleading to state that Atlas was the
controlling doctrine at the time of filing of the claims. The 1997
Tax Code, which took effect on 1 January 1998, was the
applicable law at the time of filing of the claims in issue. As this
Court explained in the recent consolidated cases of
Commissioner of Internal Revenue v. San Roque Power
Corporation, Taganito Mining Corporation v. Commissioner of
Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue (San Roque):48
Clearly, San Roque failed to comply with the 120-day waiting
period, the time expressly given by law to the Commissioner to
decide whether to grant or deny San Roque’s application for
tax refund or credit. It is indisputable that compliance with the
120-day waiting period is mandatory and jurisdictional. The
waiting period, originally fixed at 60 days only, was part of the
provisions of the first VAT law, Executive Order No. 273, which
took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424
or the Tax Reform Act of 1997. Thus, the waiting period has
been in our statute books for more than fifteen (15) years
before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect
that the CTA does not acquire jurisdiction over the taxpayer’s
petition. Philippine jurisprudence is replete with cases
upholding and reiterating these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is
to review on appeal "decisions of the Commissioner of Internal
Revenue in cases involving x x x refunds of internal revenue
taxes." When a taxpayer prematurely files a judicial claim for
tax refund or credit with the CTA without waiting for the
decision of the Commissioner, there is no "decision" of the
Commissioner to review and thus the CTA as a court of special
jurisdiction has no jurisdiction over the appeal. The charter of
the CTA also expressly provides that if the Commissioner fails
to decide within "a specific period" required by law, such
"inaction shall be deemed a denial" of the application for tax
refund or credit. It is the Commissioner’s decision, or inaction
"deemed a denial," that the taxpayer can take to the CTA for
review. Without a decision or an "inaction x x x deemed a
denial" of the Commissioner, the CTA has no jurisdiction over
a petition for review.
San Roque’s failure to comply with the 120-day mandatory
period renders its petition for review with the CTA void. Article
5 of the Civil Code provides, "Acts executed against provisions
of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity." San Roque’s void petition for
review cannot be legitimized by the CTA or this Court because
Article 5 of the Civil Code states that such void petition cannot
be legitimized "except when the law itself authorizes its
validity." There is no law authorizing the petition’s validity.
It is hornbook doctrine that a person committing a void act
contrary to a mandatory provision of law cannot claim or
acquire any right from his void act. A right cannot spring in
76
is repeated in Article 2254 of the Civil Code, which states, "No
are against the law or which infringe upon the rights of others."
For violating a mandatory provision of law in filing its petition
with the CTA, San Roque cannot claim any right arising from
such void petition. Thus, San Roque’s petition with the CTA is
a mere scrap of paper.
mandatory and jurisdictional nature of the 120-day period just
because the Commissioner merely asserts that the case was
prematurely filed with the CTA and does not question the
entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was
admittedly illegally, erroneously or excessively collected from
him, does not entitle him as a matter of right to a tax refund or
credit. Strict compliance with the mandatory and jurisdictional
conditions prescribed by law to claim such tax refund or credit
is essential and necessary for such claim to prosper. Well-
settled is the rule that tax refunds or credits, just like tax
exemptions, are strictly construed against the taxpayer.
The burden is on the taxpayer to show that he has strictly
complied with the conditions for the grant of the tax refund or
credit.
This Court cannot disregard mandatory and jurisdictional
conditions mandated by law simply because the Commissioner
chose not to contest the numerical correctness of the claim for
tax refund or credit of the taxpayer. Non-compliance with
mandatory periods, non-observance of prescriptive periods,
and non-adherence to exhaustion of administrative remedies
bar a taxpayer’s claim for tax refund or credit, whether or not
the Commissioner questions the numerical correctness of the
claim of the taxpayer. This Court should not establish the
precedent that non-compliance with mandatory and
jurisdictional conditions can be excused if the claim is
otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every
tax refund case will have to be decided on the numerical
correctness of the amounts claimed, regardless of non-
compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or
confused by the Atlas doctrine because San Roque filed its
petition for review with the CTA more than four years before
Atlas was promulgated. The Atlas doctrine did not exist at the
time San Roque failed to comply with the 120-day period.
Thus, San Roque cannot invoke the Atlas doctrine as an
excuse for its failure to wait for the 120-day period to lapse. In
any event, the Atlas doctrine merely stated that the two-year
prescriptive period should be counted from the date of
payment of the output VAT, not from the close of the taxable
quarter when the sales involving the input VAT were made.
The Atlas doctrine does not interpret, expressly or impliedly,
the 120+30 day periods.49 (Emphases in the original; citations
omitted)
Prescriptive Period for
the Filing of Administrative Claims
In determining whether the administrative claims of Mindanao I
and Mindanao II for 2003 have prescribed, we see no need to
rely on either Atlas or Mirant. Section 112(A) of the 1997 Tax
Code is clear: "Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years
after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales x x
x."
We rule on Mindanao I and II’s administrative claims for the
first, second, third, and fourth quarters of 2003 as follows:
(1) The last day for filing an application for tax refund
or credit with the CIR for the first quarter of 2003 was
 on 31 March 2005. Mindanao II filed its administrative
claim before the CIR on 13 April 2005, while
Mindanao I filed its administrative claim before the
CIR on 4 April 2005. Both claims have prescribed,
pursuant to Section 112(A) of the 1997 Tax Code.
(2) The last day for filing an application for tax refund
or credit with the CIR for the second quarter of 2003
was on 30 June 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005,
while Mindanao I filed its administrative claim before
the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax
Code.
(3) The last day for filing an application for tax refund
or credit with the CIR for the third quarter of 2003 was
on 30 September 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005,
while Mindanao I filed its administrative claim before
the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax
Code.
(4) The last day for filing an application for tax refund
or credit with the CIR for the fourth quarter of 2003
was on 2 January 2006. Mindanao II filed its
administrative claim before the CIR on 13 April 2005,
while Mindanao I filed its administrative claim before
the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax
Code.
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims for the second, third and
fourth quarters of 2003 have been properly appealed, we still
see no need to refer to either Atlas or Mirant, or even to
Section 229 of the 1997 Tax Code. The second paragraph of
Section 112(C) of the 1997 Tax Code is clear: "In case of full or
partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals."
The mandatory and jurisdictional nature of the 120+30 day
periods was explained in San Roque:
At the time San Roque filed its petition for review with the CTA,
the 120+30 day mandatory periods were already in the law.
Section 112(C) expressly grants the Commissioner 120 days
within which to decide the taxpayer’s claim. The law is clear,
plain, and unequivocal: "x x x the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of
submission of complete documents." Following the verba legis
doctrine, this law must be applied exactly as worded since it is
clear, plain, and unequivocal. The taxpayer cannot simply file a
petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional
period. The CTA will have no jurisdiction because there will be
no "decision" or "deemed a denial" decision of the
Commissioner for the CTA to review. In San Roque’s case, it
filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San
Roque knowingly violated the mandatory 120-day period, and it
cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day
period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
77
x x x the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis
supplied)
This law is clear, plain, and unequivocal. Following the well-
settled verba legis doctrine, this law should be applied exactly
as worded since it is clear, plain, and unequivocal. As this law
states, the taxpayer may, if he wishes, appeal the decision of
the Commissioner to the CTA within 30 days from receipt of
the Commissioner’s decision, or if the Commissioner does not
act on the taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the
expiration of the 120-day period.
xxxx
There are three compelling reasons why the 30-day period
need not necessarily fall within the two-year prescriptive
period, as long as the administrative claim is filed within the
two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally
provides that the taxpayer "may, within two (2) years after the
close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of the
creditable input tax due or paid to such sales." In short, the law
states that the taxpayer may apply with the Commissioner for a
refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may
be filed by the taxpayer with the Commissioner on the last day
of the two-year prescriptive period and it will still strictly comply
with the law. The two-year prescriptive period is a grace period
in favor of the taxpayer and he can avail of the full period
before his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112(C) provides that the Commissioner shall
decide the application for refund or credit "within one hundred
twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance
with Subsection (A)." The reference in Section 112(C) of the
submission of documents "in support of the application filed in
accordance with Subsection A" means that the application in
Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day period. In short,
the two-year prescriptive period in Section 112(A) refers to the
period within which the taxpayer can file an administrative
claim for tax refund or credit. Stated otherwise, the two-year
prescriptive period does not refer to the filing of the judicial
claim with the CTA but to the filing of the administrative claim
with the Commissioner. As held in Aichi, the "phrase ‘within
two years x x x apply for the issuance of a tax credit or refund’
refers to applications for refund/credit with the CIR and not to
appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall
within the two-year prescriptive period (equivalent to 730
days), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the administrative
claim beyond the first 610 days will result in the appeal to the
CTA being filed beyond the two-year prescriptive period. Thus,
if the taxpayer files his administrative claim on the 611th day,
the Commissioner, with his 120-day period, will have until the
731st day to decide the claim. If the Commissioner decides
only on the 731st day, or does not decide at all, the taxpayer
can no longer file his judicial claim with the CTA because the
two-year prescriptive period (equivalent to 730 days) has
lapsed. The 30-day period granted by law to the taxpayer to file
an appeal before the CTA becomes utterly useless, even if the
taxpayer complied with the law by filing his administrative claim
within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year
prescriptive period adds a condition that is not found in the law.
It results in truncating 120 days from the 730 days that the law
grants the taxpayer for filing his administrative claim with the
Commissioner. This Court cannot interpret a law to defeat,
wholly or even partly, a remedy that the law expressly grants in
clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its
clear, plain, and unequivocal language. The taxpayer can file
his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last
day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will
have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his
judicial claim with the CTA. This is not only the plain meaning
but also the only logical interpretation of Section 112(A) and
(C).50 (Emphases in the original; citations omitted)
In San Roque, this Court ruled that "all taxpayers can rely on
BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are
mandatory and jurisdictional."51 We shall discuss later the
effect of San Roque’s recognition of BIR Ruling No. DA-489-03
on claims filed between 10 December 2003 and 6 October
2010. Mindanao I and II filed their claims within this period.
We rule on Mindanao I and II’s judicial claims for the second,
third, and fourth quarters of 2003 as follows:
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative claims for the second, third,
and fourth quarters of 2003 on 13 April 2005. Counting 120
days after filing of the administrative claim with the CIR (11
August 2005) and 30 days after the CIR’s denial by inaction,
the last day for filing a judicial claim with the CTA for the
second, third, and fourth quarters of 2003 was on 12
September 2005. However, the judicial claim cannot be filed
earlier than 11 August 2005, which is the expiration of the 120-
day period for the Commissioner to act on the claim.
(1) Mindanao II filed its judicial claim for the second
quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period. Pursuant
to Section 112(C) of the 1997 Tax Code, Mindanao
II’s judicial claim for the second quarter of 2003 was
prematurely filed.
However, pursuant to San Roque’s recognition of the
effect of BIR Ruling No. DA-489-03, we rule that
Mindanao II’s judicial claim for the second quarter of
2003 qualifies under the exception to the strict
application of the 120+30 day periods.
(2) Mindanao II filed its judicial claim for the third
quarter of 2003 before the CTA on 9 September
2005. Mindanao II’s judicial claim for the third quarter
of 2003 was thus filed on time, pursuant to Section
112(C) of the 1997 Tax Code.
(3) Mindanao II filed its judicial claim for the fourth
quarter of 2003 before the CTA on 9 September
2005. Mindanao II’s judicial claim for the fourth
quarter of 2003 was thus filed on time, pursuant to
Section 112(C) of the 1997 Tax Code.
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative claims for the second, third,
and fourth quarters of 2003 on 4 April 2005. Counting 120 days
after filing of the administrative claim with the CIR (2 August
2005) and 30 days after the CIR’s denial by inaction,52 the last
78
day for filing a judicial claim with the CTA for the second, third,
and fourth quarters of 2003 was on 1 September 2005.
However, the judicial claim cannot be filed earlier than 2
August 2005, which is the expiration of the 120-day period for
the Commissioner to act on the claim.
(1) Mindanao I filed its judicial claim for the second
quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period. Pursuant
to Section 112(C) of the 1997 Tax Code, Mindanao I’s
judicial claim for the second quarter of 2003 was
prematurely filed. However, pursuant to San Roque’s
recognition of the effect of BIR Ruling No. DA-489-03,
we rule that Mindanao I’s judicial claim for the second
quarter of 2003 qualifies under the exception to the
strict application of the 120+30 day periods.
(2) Mindanao I filed its judicial claim for the third
quarter of 2003 before the CTA on 9 September
2005. Mindanao I’s judicial claim for the third quarter
of 2003 was thus filed after the prescriptive period,
pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao I filed its judicial claim for the fourth
quarter of 2003 before the CTA on 9 September
2005. Mindanao I’s judicial claim for the fourth quarter
of 2003 was thus filed after the prescriptive period,
pursuant to Section 112(C) of the 1997 Tax Code.
San Roque: Recognition of BIR Ruling No. DA-489-03
In the consolidated cases of San Roque, the Court En
Banc53 examined and ruled on the different claims for tax
refund or credit of three different companies. In San Roque, we
reiterated that "following the verba legis doctrine, Section
112(C) must be applied exactly as worded since it is clear,
plain, and unequivocal. The taxpayer cannot simply file a
petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional
period. The CTA will have no jurisdiction because there will be
no ‘decision’ or ‘deemed a denial decision’ of the
Commissioner for the CTA to review."
Notwithstanding a strict construction of any claim for tax
exemption or refund, the Court in San Roque recognized that
BIR Ruling No. DA-489-03 constitutes equitable estoppel54 in
favor of taxpayers. BIR Ruling No. DA-489-03 expressly states
that the "taxpayer-claimant need not wait for the lapse of the
120-day period before it could seek judicial relief with the CTA
by way of Petition for Review." This Court discussed BIR
Ruling No. DA-489-03 and its effect on taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous
interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by
Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in
Atlas, or other taxpayers similarly situated, being made to
return the tax refund or credit they received or could have
received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith
or misrepresentation, the reversal by this Court of a general
interpretative rule issued by the Commissioner, like the
reversal of a specific BIR ruling under Section 246, should also
apply prospectively. x x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a
general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule
because it was a response to a query made, not by a particular
taxpayer, but by a government agency tasked with processing
tax refunds and credits, that is, the One Stop Shop Inter-
 Agency Tax Credit and Drawback Center of the Department of
Finance. This government agency is also the addressee, or the
entity responded to, in BIR Ruling No. DA-489-03. Thus, while
this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi
Bay Resources Development, Inc., where the taxpayer did not
wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative
rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03
from the time of its issuance on 10 December 2003 up to its
reversal by this Court in Aichi on 6 October 2010, where this
Court held that the 120+30 day periods are mandatory and
jurisdictional.
xxxx
Taganito, however, filed its judicial claim with the CTA on 14
February 2007, after the issuance of BIR Ruling No. DA-489-
03 on 10 December 2003. Truly, Taganito can claim that in
filing its judicial claim prematurely without waiting for the 120-
day period to expire, it was misled by BIR Ruling No. DA-489-
03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-
489-03, which shields the filing of its judicial claim from the vice
of prematurity. (Emphasis in the original)
Summary of Rules on Prescriptive Periods Involving VAT
We summarize the rules on the determination of the
prescriptive period for filing a tax refund or credit of unutilized
input VAT as provided in Section 112 of the 1997 Tax Code, as
follows:
(1) An administrative claim must be filed with the CIR
within two years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales
were made.
(2) The CIR has 120 days from the date of
submission of complete documents in support of the
administrative claim within which to decide whether to
grant a refund or issue a tax credit certificate. The
120-day period may extend beyond the two-year
period from the filing of the administrative claim if the
claim is filed in the later part of the two-year period. If
the 120-day period expires without any decision from
the CIR, then the administrative claim may be
considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within
30 days from the receipt of the CIR’s decision denying
the administrative claim or from the expiration of the
120-day period without any action from the CIR.

Summary of Administrative and Judicial Claims (4) All taxpayers, however, can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10
G.R. No. 193301 December 2003 up to its reversal by this Court in
Mindanao II v. CIR Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods.
  Administrativ Judicial Action on Claim
e Claim "Incidental" Transaction
Claim
Mindanao II asserts that the sale of a fully depreciated Nissan
1st Quarter, Filed late -- Deny, pursuant to Patrol is not an incidental transaction in the course of its
2003 Section 112(A) of business; hence, it is an isolated transaction that should not
the have been subject to 10% VAT.
1997 Tax Code
2nd Filed on time Prematurel Grant, pursuant Section 105 of the 1997 Tax Code does not support Mindanao
Quarter, y filed to II’s position:
2003 BIR Ruling No.
DA-489-03 SEC. 105. Persons Liable. - Any person who, in the course of
trade or business, sells barters, exchanges, leases goods or
3rd Quarter, Filed on time Filed on Grant, pursuant
properties, renders services, and any person who imports
2003 time to
goods shall be subject to the value-added tax (VAT) imposed
Section 112(C) of
in Sections 106 to 108 of this Code.
the
1997 Tax Code
The value-added tax is an indirect tax and the amount of tax
4th Quarter, Filed on time Filed on Grant, pursuant may be shifted or passed on to the buyer, transferee or lessee
2003 time to of the goods, properties or services. This rule shall likewise
Section 112(C) of apply to existing contracts of sale or lease of goods, properties
the or services at the time of the effectivity of Republic Act No.
1997 Tax Code 7716.

G.R. No. 194637 The phrase "in the course of trade or business" means the
Mindanao I v. CIR regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a
Administrative Judicial Claim Action on Claim nonstock, nonprofit private organization (irrespective of the
Claim disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
003 Filed late -- Deny, pursuant to
Section 112(A) of the
1997 Tax Code The rule of regularity, to the contrary notwithstanding, services
as defined in this Code rendered in the Philippines by
003 Filed on time Prematurely filed Grant, pursuant to nonresident foreign persons shall be considered as being
rendered in the course of trade or business. (Emphasis
BIR Ruling No. DA-489-03
supplied)
003 Filed on time Filed late Grant, pursuant to
Section 112(C) of the
1997 Tax Code Mindanao II relies on Commissioner of Internal Revenue v.
Magsaysay Lines, Inc. (Magsaysay)55 and Imperial v. Collector
003 Filed on time Filed late Grant, pursuant to of Internal Revenue (Imperial)56 to justify its position.
Section 112(C) of the Magsaysay, decided under the NIRC of 1986, involved the sale
1997 Tax Code of vessels of the National Development Company (NDC) to
79
Magsaysay Lines, Inc. We ruled that the sale of vessels was
not in the course of NDC’s trade or business as it was
involuntary and made pursuant to the Government’s policy for
privatization. Magsaysay, in quoting from the CTA’s decision,
imputed upon Imperial the definition of "carrying on business."
Imperial, however, is an unreported case that merely stated
that "‘to engage’ is to embark in a business or to employ
oneself therein."57

Mindanao II’s sale of the Nissan Patrol is said to be an isolated

transaction.1âwphi1 However, it does not follow that an
isolated transaction cannot be an incidental transaction for
purposes of VAT liability. Indeed, a reading of Section 105 of
the 1997 Tax Code would show that a transaction "in the
course of trade or business" includes "transactions incidental
thereto."

Mindanao II’s business is to convert the steam supplied to it by

PNOC-EDC into electricity and to deliver the electricity to NPC.
In the course of its business, Mindanao II bought and
eventually sold a Nissan Patrol. Prior to the sale, the Nissan
Patrol was part of Mindanao II’s property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an
incidental transaction made in the course of Mindanao II’s
business which should be liable for VAT.

Substantiation Requirements

Mindanao II claims that the CTA’s disallowance of a total

amount of ₱492,198.09 is improper as it has substantially
complied with the substantiation requirements of Section
113(A)58 in relation to Section 23759 of the 1997 Tax Code, as
implemented by Section 4.104-1, 4.104-5 and 4.108-1 of
Revenue Regulation No. 7-95.60

We are constrained to state that Mindanao II’s compliance with

the substantiation requirements is a finding of fact. The CTA
En Banc evaluated the records of the case and found that the
transactions in question are purchases for services and that
Mindanao II failed to comply with the substantiation
requirements. We affirm the CTA En Banc’s finding of fact,
which in turn affirmed the finding of the CTA First Division. We
see no reason to overturn their findings.

WHEREFORE, we PARTIALLY GRANT the petitions. The

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

For G.R. No. 193301, the claim of Mindanao II Geothermal

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

SO ORDERED.

14.

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