FIRST DIVISION

G.R. No. 125355

March 30, 2000

25% surcharge

41,978.88

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND
SERVICES CORPORATION, respondents.

20% interest per annum

125,936.63

PARDO, J.:

Compromise penalty for late

payment

16,000.00

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.1wphi1.nt
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:
Taxable sale/receipt

P1,679,155.00
============

10% tax due thereon

167,915.50

TOTAL AMOUNT DUE AND COLLECTIBLE

P351,831.01
============

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-ofcost-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 profitmotivated, 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.

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 CANCELLED
for lack of legal and factual basis. 6

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:

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 Court of Appeals held that
COMASERCO was not liable to pay VAT for it was not
engaged in the business of selling services.

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:

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, nonprofit, 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
"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.

SECOND DIVISION
G.R. No. 151135

July 2, 2004

CONTEX CORPORATION, petitioner, vs.

HON. COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
QUISUMBING, J.:
For review is the Decision1 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 SBMAregistered 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
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:
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
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. 95-180000133 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:
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

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 SBFZregistered 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:
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
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 SBFZregistered business may be directly liable. Hence,

SBFZ locators are not relieved from the indirect

taxes that may be shifted to them by a VATregistered 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 and
legally liable for the payment thereof, ultimately
bears the burden of the tax.19

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:
(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 VATregistered 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
(b) Zero-rated Sales. These are sales by VATregistered 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
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 zerorating and exemption in designating a value-added
tax.23
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

Section 4.100-2 of BIRs Revenue Regulations 7-95,

as amended, or the "Consolidated Value-Added Tax
Regulations" provide:
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.

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.

The following sales by VAT-registered persons shall

be subject to 0%:

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.

(5) Those considered export sales under Articles 23

and 77 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other
special laws, e.g. Republic Act No. 7227, otherwise
known as the Bases Conversion and Development Act
of 1992.

The 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.

(a) Export Sales

"Export Sales" shall mean
. . .

. . .
(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 zerorate."

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 reemphasize 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 DENIED for 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.

THIRD DIVISION
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.
D E C I S I O N
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 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 CIRs 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 NDCs 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 NDCs
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 taxpayers 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 CTAs 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
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.

SECOND DIVISION
G.R. No. 164365

June 8, 2007

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

PLACER DOME TECHNICAL SERVICES (PHILS.), INC.,
respondent.
D E C I S I O N
TINGA, J.:
Two years ago, the Court in Commissioner of Internal
Revenue v. American Express International, Inc.
(Philippine Branch)1 definitively ruled that under the
National Internal Revenue Code of 1986, as amended,2
"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 [Bangko Sentral ng Pilipinas], are
zero-rated."3 The grant of the present petition entails
the extreme step of rejecting American Express as
precedent, a recourse which the Court is unwilling to
take.
The facts, as culled from the recital in the assailed
Decision4 dated 30 June 2004 of the Court of Appeals,
follow.
On 24 March 1996, at the San Antonio Mines in Marinduque
owned by Marcopper Mining Corporation (Marcopper), mine
tailings from the Taipan Pit started to escape through
the Makulapnit Tunnel and Boac Rivers, causing the
cessation of mining and milling operations, and causing
potential environmental damage to the rivers and the
immediate area. To contain the damage and prevent the
further spread of the tailing leak, Placer Dome, Inc.
(PDI), the owner of 39.9% of Marcopper, undertook to
perform the clean-up and rehabilitation of the Makalupnit
and Boac Rivers, through a subsidiary. To accomplish
this, PDI engaged Placer Dome Technical Services Limited
(PDTSL), a non-resident foreign corporation with office
in Canada, to carry out the project. In turn, PDTSL
engaged the services of Placer Dome Technical Services
(Philippines), Inc. (respondent), a domestic corporation

and registered Value-Added Tax (VAT) entity, to implement

the project in the Philippines.
PDTSL and respondent thus entered into an Implementation
Agreement signed on 15 November 1996. Due to the urgency
and potentially significant damage to the environment,
respondent had agreed to immediately implement the
project, and the Implementation Agreement stipulated that
all implementation services rendered by respondent even
prior to the agreements signing shall be deemed to have
been provided pursuant to the said Agreement. The
Agreement further stipulated that PDTSL was to pay
respondent "an amount of money, in U.S. funds, equal to
all Costs incurred for Implementation Services performed
under the Agreement,"5 as well as "a fee agreed to one
percent (1%) of such Costs."6
In August of 1998, respondent amended its quarterly VAT
returns for the last two quarters of 1996, and for the
four quarters of 1997. In the amended returns, respondent
declared a total input VAT payment of P43,015,461.98 for
the said quarters, and P42,837,933.60 as its total excess
input VAT for the same period. Then on 11 September 1998,
respondent filed an administrative claim for the refund
of its reported total input VAT payments in relation to
the project it had contracted from PDTSL, amounting to
P43,015,461.98. In support of this claim for refund,
respondent argued that the revenues it derived from
services rendered to PDTSL, pursuant to the Agreement,
qualified as zero-rated sales under Section 102(b)(2) of
the then Tax Code, since it was paid in foreign currency
inwardly remitted to the Philippines. When the
Commissioner of Internal Revenue (CIR) did not act on
this claim, respondent duly filed a Petition for Review
with the Court of Tax Appeals (CTA), praying for the
refund of its total reported excess input VAT totaling
P42,837,933.60. In its Answer to the Petition, the CIR
merely invoked the presumption that taxes are collected
in accordance with law, and that claims for refund of
taxes are construed strictly against claimants, as the
same was in the nature of an exemption from taxation.7
In its Decision dated 19 March 2002,8 the CTA supported
respondents legal position that its sale of services to
PDTSL constituted a zero-rated transaction under the Tax
Code, as these services were paid for in acceptable
foreign currency which had been inwardly remitted to the

Philippines in accordance with the rules and regulations

of the Bangko Sentral ng Pilipinas (BSP). At the same
time, the CTA pointed out that of the US$27,544,707.00
paid by PDTSL to respondent, only US$14,750,473.00 was
inwardly remitted and accounted for in accordance with
the BSP.9 The CTA also noted that not all the reported
total input VAT payments of respondent were properly
supported by VAT invoices and/or official receipts,10 and
that not all of the allowable input VAT of the respondent
could be directly attributed to its zero-rated sales.11
In the end, the CTA found that only the resulting input
VAT of P17,178,373.12 could be refunded the respondent.12

the National Internal Revenue Code of 1986, as amended19

(1986 NIRC). Section 102(b) of the 1986 NIRC reads:

The CIR filed a Motion for Reconsideration where he

invoked Section 4.102-2(b)(2) of Revenue Regulation No.
5-96,13 and especially VAT Ruling No. 040-98 dated 23
November 1998, which had interpreted the aforecited
provision.

(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);

The CTA remained unpersuaded despite the cited issuances.

In fact, the CTA Resolution14 dated 20 June 2002, denying
the CIRs motion for reconsideration, noted that
petitioners argument was not novel as it had debunked
the same when first raised before it, referring to its
decision dated 19 April 2002 in CTA Case No. 6099,
American Express International, Inc. Philippine Branch
v. Commissioner of Internal Revenue.15 The CTA reiterated
its pronouncement in said case, thus: "x x x it is very
clear that VAT Ruling No. 040-98 not only expands the
language of Section (108)(B)(2) but also of Revenue
Regulation No. 5-96 which interprets the said statute.
The same cannot be countenanced. It is a settled rule of
legal hermeneutics that the implementing rules and
regulations cannot amend the act of Congress x x x for
administrative rules and regulations are intended to
carry out, not supplant or modify, the law."16
The rulings of the CTA were elevated by petitioner to the
Court of Appeals on Petition for Review. In a Decision17
dated 30 June 2004, the appellate court affirmed the CTA
rulings. As a consequence, the present petition is now
before us.
Our evaluation of the petition must begin with the
statutory scope of the "services performed in the
Philippines by VAT-registered persons,"18 referred to in
the law applicable at the time of the subject incidents,

Section 102. Value-Added Tax on Sale of Services and Use

or Lease of Properties.
(a) x x x
(b) Transactions Subject to Zero Percent (0%) Rate. The
following services performed in the Philippines by VATregistered persons shall be subject to zero percent (0%)
rate:

(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].
x x x

20

It is Section 102(b)(2) which finds special relevance to

this case. As explicitly provided in the law, a zerorated VAT transaction includes services by VAT-registered
persons other than processing, manufacturing or repacking
goods for other persons doing business outside the
Philippines, which goods are subsequently exported, the
consideration for which is paid in foreign currency and
accounted for in accordance with the rules and
regulations of the BSP.
Still, this provision was interpreted by the Bureau of
Internal Revenue through Revenue Regulation No. 5-96,
Section 4.102-2(b)(2) of which states:
Section 4.102(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.
Although there is nothing in Section 4.102-2(b)(2) that
is expressly fatal to respondents claim, VAT Ruling No.
040-98 interpreted the provision in such fashion. The
relevant portion of the ruling reads:
The sales of services subject to zero percent (0%) VAT
under Section 108(B)(2), of the Tax Code of 1997, are
limited to such sales which are destined for consumption
outside of the Philippines in that such services are
tacked-in as part of the cost of goods exported. The
zero-rating also extends to project studies, information
services, engineering and architectural designs and other
similar services sold by a resident of the Philippines to
a non-resident foreign client because these services are
likewise destined to be consumed abroad. The phrase
project studies, information services, engineering and
architectural designs and other similar services does
not include services rendered by travel agents to foreign
tourists in the Philippines following the doctrine of
ejusdem generis, since such services by travel agents are
not of the same class or of the same nature as those
enumerated under the aforesaid section.
Considering that the services by your client to foreign
tourists are basically and substantially rendered within
the Philippines, it follows that the onus of taxation of
the revenue arising therefrom, for VAT purposes, is also
within the Philippines. For this reason, it is our
considered opinion that the tour package services of your
client to foreign tourists in the Philippines cannot
legally qualify for zero-rated (0%) VAT but rather
subject to the regular VAT rate of 10%.
Petitioner argues that following Section 4.102-2(b)(2) of
Revenue Regulation No. 5-96, there are only two
categories of services that are subject to zero percent
VAT, namely: services other than processing,
manufacturing or repacking for other persons doing
business outside the Philippines for goods which are
subsequently exported; and services by a resident to a
non-resident foreign client, such as project studies,
information services, engineering and architectural
designs and other similar services.21 Petitioner explains
that the services rendered by respondent were not for

goods which were subsequently exported. Likewise, it is

argued that the services rendered by respondent were not
similar to "project studies, information services,
engineering and architectural designs" which were
destined to be consumed abroad by non-resident foreign
clients.
These views, petitioner points out, were reiterated in
VAT Ruling No. 040-98. It is clear from that issuance
that the location or "destination" where the services
were destined for consumption was determinative of
whether the zero-rating availed when such services were
sold by a resident of the Philippines to a non-resident
foreign client. VAT Ruling No. 040-98 expresses that the
zero-rating may apply only when the services are destined
for consumption abroad. This view aligns with the
theoretical principle that the VAT is ultimately levied
on consumption.22 If the service were destined for
consumption in the Philippines, the service provider
would have the faculty to pass on its VAT liability to
the end-user, thus avoiding having to shoulder the tax
itself.
Unfortunately for petitioner, his arguments are no longer
fresh. The Court spurned them in Commissioner of
Internal Revenue v. American Express.23
American Express involved transactions invoked as "zerorated" by 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."24 The CIR in that case relied extensively
on the same VAT Ruling No. 040-98 now cited before us.
However, the Court would conclude in American Express
that the opinion therein that the service must be
destined for consumption outside of the Philippines was
"clearly ultra vires and invalid."25
The discussion of the issues in American Express was
comprehensive enough as to address each issue now
presently raised before us.
American Express explained the nature of VAT imposed on
services in this manner:

The VAT is a tax on consumption "expressed as a

percentage of the value added to goods or services"
purchased by the producer or taxpayer. As an indirect tax
on services, its main object is the transaction itself
or, more concretely, the performance of all kinds of
services conducted in the course of trade or business in
the Philippines. These services must be regularly
conducted in this country; undertaken in "pursuit of a
commercial or an economic activity;" for a valuable
consideration; and not exempt under the Tax Code, other
special laws, or any international agreement.26
Yet even as services may be subject to VAT, our tax laws
extend the benefit of zero-rating the VAT due on certain
services. The aforementioned Section 102(b) of the 1986
NIRC activates such zero-rating on two categories of
transactions: (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; and (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.27
Obviously, it is the second category that begs for
further explication, owing to its apparently broad scope,
covering as it does "services other than those mentioned
in the preceding subparagraph." Yet, as found by the
Court in American Express, such broad scope did not mean
that Section 102(b) is vague, thus:
The law is very clear. Under the last paragraph [of
Section 102(b)], 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.28
Since Section 102(b) is, in fact, "very clear," the Court
declared that any resort to statutory construction or
interpretation was 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. "[W]here the law speaks in clear and categorical
language, there is no room for interpretation. There is
only room for application." The Court has no choice but
to "see to it that its mandate is obeyed."29
It was from the awareness that Section 102(b) is free
from ambiguity in providing so broad an extension of the
zero-rated benefit on VAT-registered persons performing
services that the Court in American Express proceeded to
consider the same Section 4.102-2(b)(2) of Revenue
Regulation No. 5-96 now cited by petitioner. The Court in
American Express explained that Revenue Regulation No. 596 had amended Revenue Regulation No. 7-95, Section
4.102-2 of which had retained the broad language of
Section 102(b) in defining "transactions subject to zerorate," adding only, by way of specific example, the
phrase "those [services] rendered by hotels and other
service establishments."30 However, the amendatory
Revenue Regulation No. 5-96 opted for a more specific
approach, providing, by way of example, an enumeration of
those services contemplated as zero-rated.31 In the
present case, it is because of such enumeration that
petitioner now argues that "respondents services
likewise do not fall under the second category mentioned
in Section 4.102-2(b)(2) [as amended by Revenue
Regulation No. 5-96], because they are not similar to
project studies, information services, engineering and
architectural designs which are destined to be consumed
abroad by non-resident foreign clients."32
However, the Court in American Express clearly rebuffed a
similar contention.
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."
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."
x x x x
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. 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. 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 [1986 NIRC] is broad; it is not
susceptible of narrow interpretation. (Emphasis
supplied)33
The Court in American Express recognized the existence of
the contrary holding in VAT Ruling No. 040-98, now relied
upon by petitioner especially as he states that the zero-

rating applied only when the services are destined for

consumption abroad. American Express minced no words in
criticizing said ruling.
VAT Ruling No. 040-98 relied upon by petitioner is a less
general interpretation at the administrative level,
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" in order to qualify for zero rating, it
contravenes both the law and the regulations issued
pursuant to it. This portion of VAT Ruling No. 040-98 is
clearly ultra vires and invalid.
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," this interpretation is not conclusive and
will have to be "ignored if judicially found to be
erroneous" and "clearly absurd x x x or improper." 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.(Emphasis supplied)34
Petitioner presently invokes the "destination principle,"
citing that [r]espondents services, while rendered to a
non-resident foreign corporation, are not destined to be
consumed abroad. Hence, the onus of taxation of the
revenue arising therefrom, for VAT purposes, is also
within the Philippines. Yet the Court in American
Express debunked this argument when it rebutted the
theoretical underpinnings of VAT Ruling No. 040-98,
particularly its reliance on the "destination principle"
in taxation:
As a general rule, the VAT system uses the destination
principle as a basis for the jurisdictional reach of the
tax. 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, 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." 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.
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" when determining the service "location
or position x x x for legal purposes." 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.
x x x x
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]." 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. (Emphasis supplied)35
x x x x

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. 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. (Emphasis supplied)36
x x x x
The law neither makes a qualification nor adds a
condition in determining the tax situs of a zero-rated
service. Under this criterion, the place where the
service is rendered determines the jurisdiction to impose
the VAT. Performed in the Philippines, such service is
necessarily subject to its jurisdiction, for the State
necessarily has to have "a substantial connection" to it,
in order to enforce a zero rate. The place of payment is
immaterial; much less is the place where the output of
the service will be further or ultimately used.37
Finally, the Court in American Express found support from
the legislative record that revealed that consumption
abroad is not a pertinent factor to imbue the zero-rating
on services by VAT-registered persons performed in the
Philippines.
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 VATregistered person to be zero-rated. We quote the relevant
portions of the proceedings:
"Senator Maceda: Going back to Section 102 just for the
moment. Will the Gentleman kindly explain to me I am
referring to the lower part of the first paragraph with
the 'Provided'. Section 102. 'Provided that the following
services performed in the Philippines by VAT registered

persons shall be subject to zero percent.' There are

three here. What is the difference between the three here
which is subject to zero percent and Section 103 which is
exempt transactions, to being with?
"Senator Herrera: Mr. President, in the case of
processing and manufacturing or repacking goods for
persons doing business outside the Philippines which are
subsequently exported, and where the services are paid
for in acceptable foreign currencies inwardly remitted,
this is considered as subject to 0%. But if these
conditions are not complied with, they are subject to the
VAT.
"In the case of No. 2, again, as the Gentleman pointed
out, these three are zero-rated and the other one that he
indicated are exempted from the very beginning. These
three enumerations under Section 102 are zero-rated
provided that these conditions indicated in these three
paragraphs are also complied with. If they are not
complied with, then they are not entitled to the zero
ratings. Just like in the export of minerals, if these
are not exported, then they cannot qualify under this
provision of zero rating.
"Senator Maceda: Mr. President, just one small item so we
can leave this. Under the proviso, it is required that
the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above
includes, let us say, manufacturing computers and computer
chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in
Chicago or Washington and they send the payment inwardly to the
Philippines in foreign currency, and that is, of course, zerorated.
"Now, when we say 'services other than those mentioned in the
preceding subsection[,'] may I have some examples of these?

"One example I could immediately think ofI do not know why

this comes to my mind tonightis for tourism or escort
services. For example, the services of the tour operator or
tour escortjust a good name for all kinds of activitiesis
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.
x x x x
Senator Maceda: So, the services by Filipino citizens outside
the Philippines are subject to VAT, and I am talking of all
services. Do big contractual engineers in Saudi Arabia pay VAT?
"Senator Herrera: This provision applies to a VAT-registered
person. When he performs services in the Philippines, that is
zero-rated.
"Senator Maceda: That is right."38
It is indubitable that petitioners arguments cannot withstand
the Courts ruling in American Express, a precedent warranting
stare decisis application and one which, in any event, we are
disinclined to revisit at this juncture.
WHEREFORE, the petition is DENIED. No pronouncement as to
costs. SO ORDERED.

"Senator Herrera: Which portion is the Gentleman referring to?

"Senator Maceda: I am referring to the second paragraph, in the
same Section 102. The first paragraph is when one manufactures
or packages something here and he sends it abroad and they pay
him, that is covered. That is clear to me. The second paragraph
says 'Services other than those mentioned in the preceding
subparagraph, the consideration of which is paid for in
acceptable foreign currency. . . .'

SECOND DIVISION
G.R. No. 190102

July 11, 2012

ACCENTURE, INC., Petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N
SERENO, J.:

Goods other
than capital
Goods

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 2009.1

Domestic
PurchasesServices

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).3
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 Accentures VAT Return
for the fourth quarter of 2002:5
1wphi1
Purchases
Domestic
PurchasesCapital Goods
Domestic
Purchases-

Amount

P12,312,722.00

P64,789,507.90

Input VAT

P1,231,272.20

P6,478,950.79

P16,455,868.10

P1,645,586.81

Total Input Tax

P9,355,809.80

Zero-rated
Sales

P316,113,513.34

Total Sales

P335,640,544.74

Accenture filed its Monthly VAT Return for the

month of September 2002 on 24 October 2002; and
that for October 2002, on 12 November 2002. These
returns were amended on 9 January 2003. Accentures
Quarterly VAT Return for the first quarter of 2003,
which included the period 1 September 2002 to 30
November 2002 (2nd period), was filed on 17
December 2002; and the Amended Quarterly VAT
Return, on 18 June 2004. The latter contains the
following information:6
Purchases

Amount

Input VAT

Domestic
PurchasesCapital Goods

P80,765,294.10

P8,076,529.41

Domestic
PurchasesGoods other
than capital
Goods
Domestic
PurchasesServices

P132,820,541.70

P63,238,758.00

P13,282,054.17

P6,323,875.80

The excess input VAT was not applied to any output

VAT that Accenture was liable for in the same
quarter when the amount was earnedor to any of the
succeeding quarters. Instead, it was carried
forward to petitioners 2nd Quarterly VAT Return
for 2003.10
Thus, on 1 July 2004, Accenture filed with the
Department of Finance (DoF) an administrative claim
for the refund or the issuance of a Tax Credit
Certificate (TCC). The DoF did not act 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.

Total Input
Tax

P27,682,459.38

Zero-rated
Sales

P545,686,639.18

The Commissioner of Internal Revenue (CIR), in its

Answer,11 argued thus:

P572,880,982.68

1. The sale by Accenture of goods and services to

its clients are not zero-rated transactions.

Total Sales

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 P37,038,269.18.7
Out of the P37,038,269.18, only P35,178,844.21
pertained to the allocated input VAT on Accentures
"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.9

2. Claims for refund are construed strictly against

the claimant, and Accenture has failed to prove
that it is entitled to a refund, because its claim
has not been fully substantiated or documented.
In a 13 November 2008 Decision,12 the Division
denied the Petition of Accenture for failing to
prove that the latters sale of services to the
alleged foreign clients qualified for zero percent
VAT.13
In resolving the sole issue of whether or not
Accenture was 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

the former rendered services did business outside

the Philippines.15 Ruling that Accentures services
would qualify for zero-rating under the 1997
National Internal Revenue Code of the Philippines
(Tax Code) only if the recipient of the services
was doing business outside of the Philippines,16 the
Division cited Commissioner of Internal Revenue v.
Burmeister and Wain Scandinavian Contractor
Mindanao, Inc. (Burmeister)17 as basis.
Accenture appealed the Divisions 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:
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.20
2. Burmeister emphasized that, to qualify for zerorating, the recipient of the services should be
doing business outside the Philippines, and
Accenture had successfully established that.21
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.22
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.24

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 latters
allegation that its clients were foreign-based.27
Resolute, Accenture filed a Petition for Review
with the CTA En Banc, but the latter affirmed the
Divisions 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:
1. Whether or not Petitioners 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 petitioners 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.
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 Petitioners 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.30
For consideration in the present Petition are the
following issues:
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?

2. Has Accenture successfully proven that its

clients are entities doing business outside the
Philippines?
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 zerorated or effectively zero-rated sales. The
provision reads:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zerorated 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 zerorated 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:
SECTION 3. Section 102 of the National Internal
Revenue Code, as amended, is hereby further amended
to read as follows:
"SEC. 102. Value-added tax on sale of services and
use or lease of properties. x x x
x x x

x x x

x x x

"(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)."
Essentially, Section 102(b) of the 1977 Tax Codeas
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:
(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 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.

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:
(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 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)
The meat of Accentures 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.36
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
Philippinescan be disregarded, because this
requirement is expressly provided in Article 108(2)
of the Tax Code.37
Accenture questions the Divisions 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 Accentures 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 Courts interpretation of
the latter may be used in interpreting the former,
viz:

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 zerorated 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.

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.40

x x x

Moreover, even though Accentures 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.43

x x x

x x x

Clearly, the Supreme Courts 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.38
Assuming that the foregoing is true, Accenture
still argues that the tax appeals courts cannot be
allowed to apply to Burmeister this Courts
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:

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.41
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.

Accenture questions the CTAs 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 Courts
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 Accentures 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 payrests 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 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:
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
performers 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.44
The effect of the place of consumption on the zerorating of the transaction was not the issue in
Burmeister.1wphi1 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 zerorating 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:
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
NAPOCORs two 100-megawatt power barges in
Mindanao. (Emphasis in the original)45
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 zerorating, 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 Codeand consequently Section 108(B)(2) of the
1997 Tax Codewas 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:
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 payerrecipient 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.
x x x

x x x

x x x

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).

which is likewise a foreign corporation with no

"presence in the Philippines."

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)46

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.48

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:
1. The records of the Securities and Exchange
Commission (SEC) show that Accentures 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),

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
Accentures 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.49
In the CTAs 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.50
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.51
We deny Accentures Petition for a tax refund.

The evidence presented by Accenture may have established

that its clients are foreign.1wphi1 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:

continuous business, such as the appointment of a local

agent, and not one of a temporary character."53

SEC. 22. Definitions - When used in this Title:

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.

x x x

x x x

x x x

(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)
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:52
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

A taxpayer claiming a tax credit or refund has the burden

of proof to establish the factual basis of that
claim.1wphi1 Tax refunds, like tax exemptions, are
construed strictly against the taxpayer.54

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.55
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.
THIRD DIVISION
G.R. No. 180345

November 25, 2009

SAN ROQUE POWER CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
D E C I S I O N

CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari, under Rule 45
of the Revised Rules of Court, petitioner San Roque Power
Corporation assails the Decision1 of the Court of Tax
Appeals (CTA) En Banc dated 20 September 2007 in CTA EB
No. 248, affirming the Decision2 dated 23 March 2006 of
the CTA Second Division in CTA Case No. 6916, which
dismissed the claim of petitioner for the refund and/or
issuance of a tax credit certificate in the amount of Two
Hundred Forty-Nine Million Three Hundred Ninety-Seven
Thousand Six Hundred Twenty Pesos and 18/100
(P249,397,620.18) allegedly representing unutilized input
Value Added Tax (VAT) for the period covering January to
December 2002.
Respondent, as the Commissioner of the Bureau of Internal
Revenue (BIR), is responsible for the assessment and
collection of all national internal revenue taxes, fees,
and charges, including the Value Added Tax (VAT), imposed
by Section 1083 of the National Internal Revenue Code
(NIRC) of 1997. Moreover, it is empowered to grant
refunds or issue tax credit certificates in accordance
with Section 112 of the NIRC of 1997 for unutilized input
VAT paid on zero-rated or effectively zero-rated sales
and purchases of capital goods, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated SalesAny VATregistered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid
attributable to such sales, except transitional input
tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in
the case of zero-rated sales under Section 106(A)(2)(a)
(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and

regulations of the Bangko Sentral ng Pilipinas (BSP):

Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or
paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
(B) Capital GoodsA VAT-registered person may apply for
the issuance of a tax credit certificate or refund of
input taxes paid on capital goods imported or locally
purchased, to the extent the such input taxes have not
been applied against output taxes. The application may be
made only within two (2) years after the close of the
taxable quarter when the importation or purchase was
made.
On the other hand, petitioner is a domestic corporation
organized under the corporate laws of the Republic of the
Philippines. On 14 October 1997, it was incorporated for
the sole purpose of building and operating the San Roque
Multipurpose Project in San Manuel, Pangasinan, which is
an indivisible project consisting of the power station,
the dam, spillway, and other related facilities.4 It is
registered with the Board of Investments (BOI) on a
preferred pioneer status to engage in the design,
construction, erection, assembly, as well as own,
commission, and operate electric power-generating plants
and related activities, for which it was issued the
Certificate of Registration No. 97-356 dated 11 February
1998.5 As a seller of services, petitioner is registered
with the BIR as a VAT taxpayer under Certificate of
Registration No. OCN-98-006-007394.6
On 11 October 1997, petitioner entered into a Power
Purchase Agreement (PPA) with the National Power
Corporation (NPC) to develop the hydro potential of the
Lower Agno River, and to be able to generate additional
power and energy for the Luzon Power Grid, by developing
and operating the San Roque Multipurpose Project. The PPA
provides that petitioner shall be responsible for the

design, construction, installation, completion and

testing and commissioning of the Power Station and it
shall operate and maintain the same, subject to the
instructions of the NPC. During the cooperation period of
25 years commencing from the completion date of the Power
Station, the NPC shall purchase all the electricity
generated by the Power Plant.7

Input VAT on Importation of

Goods for the Qtr

Because of the exclusive nature of the PPA between

petitioner and the NPC, petitioner applied for and was
granted five Certificates of Zero Rate by the BIR,
through the Chief Regulatory Operations Monitoring
Division, now the Audit Information, Tax Exemption &
Incentive Division. Based on these certificates, the
zero-rated status of petitioner commenced on 27 September
1998 and continued throughout the year 2002.8
For the period January to December 2002, petitioner filed
with the respondent its Monthly VAT Declarations and
Quarterly VAT Returns. Its Quarterly VAT Returns showed
excess input VAT payments on account of its importation
and domestic purchases of goods and services, as follows9
:
Period
Covered

Date
Filed

Particulars

1st Quarter

April
20, 2002

Tax Due for the Quarter (Box

13C)

(January 1,
2002 to
March 31,
2002)

Input Tax carried over from

previous qtr (22B)
Input VAT on Domestic
Purchases for the Qtr

2nd Quarter
(April 1,
2002 to
June 30,
2002)

July 24,
2002

(22F)

20

Total Available Input tax (23)

41

VAT Refund/TCC Claimed (24A)

17

Net Creditable Input Tax (25)

23

VAT payable (Excess Input Tax)

(26)

(2

Tax Payable (overpayment) (28)

(2

Tax Due for the Quarter (Box

13C)

Input Tax carried over from

previous qtr (22B)

Input VAT on Domestic

Purchases for the Qtr
(22D)

Input VAT on Importation of

Goods for the Qtr
(22F)

Total Available Input tax (23)

(22D)

3rd Quarter
(July 1, 2002
to
September 30,
2002)

VAT Refund/TCC Claimed (24A)

2002 to

Net Creditable Input Tax (25)

December 31,
2002)

(22D)

Tax Payable (overpayment) (28)

Input VAT on Importation of

Goods for the Qtr

October Tax Due for the Quarter (Box

25, 2002 13C)

(22F)
Total Available Input tax (23)

Input Tax carried over from

previous qtr (22B)
Input VAT on Domestic Purchases
for the Qtr

Input VAT on Importation of

Goods for the Qtr
(22F)
Total Available Input tax (23)
VAT Refund/TCC Claimed (24A)
Net Creditable Input Tax (25)
VAT payable (Excess Input Tax)
(26)
Tax Payable (overpayment) (28)

(October 1,

Input VAT on Domestic Purchases

for the Qtr

VAT payable (Excess Input Tax)

(26)

(22D)

4th Quarter

Input Tax carried over from

previous qtr (22B)

January
Tax Due for the Quarter (Box
23, 2003 13C)

VAT Refund/TCC Claimed (24A)

Net Creditable Input Tax (25)
VAT payable (Excess Input Tax)
(26)
Tax Payable (overpayment) (28)
On 19 June 2002, 25 October 2002, 27 February 2003, and
29 May 2003, petitioner filed with the BIR four separate
administrative claims for refund of Unutilized Input VAT
paid for the period January to March 2002, April to June
2002, July to September 2002, and October to December
2002, respectively. In these letters addressed to the
BIR, Carlos Echevarria (Echevarria), the Vice President
and Director of Finance of petitioner, explained that
petitioners sale of power to NPC are subject to VAT at
zero percent rate, in accordance with Section 108(B)(3)
of the NIRC.10 Petitioner sought to recover the total
amount of P250,258,094.25, representing its unutilized
excess VAT on its importation of capital and other
taxable goods and services for the year 2002, broken down
as follows11 :

Qtr
Involve
d

1st

Output
Tax

Input Tax

2002 to

Input Tax carried over from

previous qtr (22B)

March 31,
2002)
Domestic
Purchases

Importations

(A)

(B)

(C)

(D) = (B) +
(C) (A)

P
26,247.27

P95,003,348.91

P20,758,668.0
0

P115,735,769.8
4

Input VAT on Domestic Purchases

for the Qtr

Excess Input
Tax

(22D)

(22F)
Total Available Input tax (23)

2nd

65,206,499.83

18,485,758.00

83,692,257.83
VAT Refund/TCC Claimed (24A)

3rd

28,924,020.79

1,465,875.00

30,389,895.79
Net Creditable Input Tax (25)

4th

34,996.36
P61,243.6
3

18,166,330.54
P207,300,200.0
7

2,308,837.00
P43,019,138.0
0

20,440,171.18
VAT payable (Excess Input Tax)
(26)

P250,258,094.4
4

Tax Payable (overpayment) (28)

Petitioner amended its Quarterly VAT Returns,
particularly the items on (1) Input VAT on Domestic
Purchases during the first quarter of 2002; (2) Input VAT
on Domestic Purchases for the fourth quarter of 2002; and
(3) Input VAT on Importation of Goods for the fourth
quarter of 2002. The amendments read as follows12 :
Period
Covered

Date
Filed

Particulars

1st Quarter

April
24, 2003

Tax Due for the Quarter (Box

13C)

(January 1,

2nd Quarter
(April 1,
2002 to
June 30,
2002)

April
24, 2003

Tax Due for the Quarter (Box

13C)
Input Tax carried over from
previous qtr (22B)
Input VAT on Domestic Purchases
for the Qtr
(22D)

Input VAT on Importation of

Goods for the Qtr

Total Available Input tax

(23)

(22F)

VAT Refund/TCC Claimed (24A)

Total Available Input tax (23)

Net Creditable Input Tax (25)

VAT Refund/TCC Claimed (24A)

VAT payable (Excess Input

Tax) (26)

Net Creditable Input Tax (25)

Tax Payable (overpayment)
(28)

VAT payable (Excess Input Tax)

(26)
4th Quarter
Tax Payable (overpayment) (28)
3rd Quarter
(July 1,
2002 to
September
30, 2002)

October 25,
2002

Tax Due for the Quarter (Box

13C)
Input Tax carried over from
previous qtr (22B)
Input VAT on Domestic
Purchases for the Qtr
(22D)

(October 1,
2002 to
December 31,
2002)

January 23,
2003

Tax Due for the Quarter (Box

13C)
Input Tax carried over from
previous qtr (22B)

Input VAT on Domestic Purchases

for the Qtr
(22D)
Input VAT on Importation of
Goods for the Qtr
(22F)
Total Available Input tax (23)

Input VAT on Importation of

Goods for the Qtr
(22F)

VAT Refund/TCC Claimed (24A)

Net Creditable Input Tax (25)
VAT payable (Excess Input Tax)
(26)

Tax Payable (overpayment) (28)

On 30 May 2003 and 31 July 2003, petitioner filed two
letters with the BIR to amend its claims for tax refund
or credit for the first and fourth quarter of 2002,
respectively. Petitioner sought to recover a total amount
of P249,397,620.18 representing its unutilized excess VAT
on its importation and domestic purchases of goods and
services for the year 2002, broken down as follows13 :
Qtr
Involve
d

Date
File
d

Output
Tax

Input Tax

Domestic
Purchases
(A)

(B)

1st

30May03

P
26,247.27

P95,126,981.69

2nd

25Oct02

65,206,499.83

3rd

27Feb03

28,924,920.79

31Jul03

34,996.36

4th

P61,243.6
3

P207,175,558.8
1

P42,283,305.0
0

Respondent failed to act on the request for tax refund or

credit of petitioner, which prompted the latter to file
on 5 April 2004, with the CTA in Division, a Petition for
Review, docketed as CTA Case No. 6916 before it could be
barred by the two-year prescriptive period within which
to file its claim. Petitioner sought the refund of the
amount of P249,397,620.18 representing its unutilized
excess VAT on its importation and local purchases of
various goods and services for the year 2002.14

During the proceedings before the CTA Second Division,

petitioner presented the following documents, among other
Importations pieces of evidence: (1) Petitioners Amended Quarterly
VAT return for the 4th Quarter of 2002 marked as Exhibit
"A," showing the amount of P42,500,000.00 paid by NTC to
petitioner for all the electricity produced during test
(C)
runs; (2) the special audit report, prepared by the CPA
firm of Punongbayan and Araullo through a partner, Angel
A. Aguilar (Aguilar), and the attached schedules, marked
P20,758,668.0 as Exhibits "J-2" to "J-21"; (3) Sales Invoices and
Official Receipts and related documents issued to
0
petitioner for the year 2002, marked as Exhibits "J-4-A1"
to "J-4-L265"; (4) Audited Financial Statements of
Petitioner for the year 2002, with comparative figures
18,185,758.00
for 2001, marked as Exhibit "K"; and (5) the Affidavit of
Echevarria dated 9 February 2005, marked as Exhibit
"L".15
1,465,875,00 During the hearings, the parties jointly stipulated on
the issues involved:
1. Whether or not petitioners sales are subject to
value-added taxes at effectively zero percent (0%) rate;

17,918,056.50

1,573,004.00

2. Whether or not petitioner incurred input taxes which

are attributable to its effectively zero-rated
transactions;

3. Whether or not petitioners importation and purchases

of capital goods and related services are within the
scope and meaning of "capital goods" under Revenue
Regulations No. 7-95;
4. Whether or not petitioners input taxes are
sufficiently substantiated with VAT invoices or official
receipts;
5. Whether or not the VAT input taxes being claimed for
refund/tax credit by petitioner (had) been credited or
utilized against any output taxes or (had) been carried
forward to the succeeding quarter or quarters; and
6. Whether or not petitioner is entitled to a refund of
VAT input taxes it paid from January 1, 2002 to December
31, 2002 in the total amount of Two Hundred Forty Nine
Million Three Hundred Ninety Seven Thousand Six Hundred
Twenty and 18/100 Pesos (P249,397,620.18).
Simply put, the issue is: whether or not petitioner is
entitled to refund or tax credit in the amount of
P249,397,620.18 representing its unutilized input VAT
paid on importation and purchases of capital and other
taxable goods and services from January 1 to December 31,
2002.
After a hearing on the merits, the CTA Second Division
rendered a Decision16 dated 23 March 2006 denying
petitioners claim for tax refund or credit. The CTA
noted that petitioner based its claim on creditable input
VAT paid, which is attributable to (1) zero-rated or
effectively zero-rated sale, as provided under Section
112(A) of the NIRC, and (2) purchases of capital goods,
in accordance with Section 112(B) of the NIRC. The court
ruled that in order for petitioner to be entitled to the
refund or issuance of a tax credit certificate on the
basis of Section 112(A) of the NIRC, it must establish
that it had incurred zero-rated sales or effectively
zero-rated sales for the taxable year 2002. Since records
show that petitioner did not make any zero-rated or
effectively-zero rated sales for the taxable year 2002,

the CTA reasoned that petitioners claim must be denied.

Parenthetically, the court declared that the claim for
tax refund or credit based on Section 112(B) of the NIRC
requires petitioner to prove that it paid input VAT on
capital goods purchased, based on the definition of
capital goods provided under Section 4.112-1(b) of
Revenue Regulations No. 7-95i.e., goods or properties
which have an estimated useful life of greater than one
year, are treated as depreciable assets under Section
34(F) of the NIRC, and are used directly or indirectly in
the production or sale of taxable goods and services. The
CTA found that the evidence offered by petitionerthe
suppliers invoices and official receipts and Import
Entries and Internal Revenue Declarations and the audit
report of the Court-commissioned Independent Certified
Public Accountant (CPA) are insufficient to prove that
the importations and domestic purchases were classified
as capital goods and properties entered as part of the
"Property, Plant and Equipment" account of the
petitioner. The dispositive part of the said Decision
reads:
WHEREFORE, the instant Petition for Review is DENIED for
lack of merit.17
Not satisfied with the foregoing Decision dated 23 March
2006, petitioner filed a Motion for Reconsideration which
was denied by the CTA Second Division in a Resolution
dated 4 January 2007.18
Petitioner filed an appeal with the CTA En Banc, docketed
as CTA EB No. 248. The CTA En Banc promulgated its
Decision19 on 20 September 2007 denying petitioners
appeal. The CTA En Banc reiterated the ruling of the
Division that petitioners claim based on Section 112(A)
of the NIRC should be denied since it did not present any
records of any zero-rated or effectively zero-rated
transactions. It clarified that since petitioner failed
to prove that any sale of its electricity had transpired,
petitioner may base its claim only on Section 112(B) of
the NIRC, the provision governing the purchase of capital
goods. The court noted that the report of the Court-

commissioned auditing firm, Punongbayan & Araullo, dealt

specifically with the unutilized input taxes paid or
incurred by petitioner on its local and foreign purchases
of goods and services attributable to its zero-rated
sales, and not to purchases of capital goods. It decided
that petitioner failed to prove that the purchases
evidenced by the invoices and receipts, which petitioner
presented, were classified as capital goods which formed
part of its "Property, Plant and Equipment," especially
since petitioner failed to present its books of account.
The dispositive part of the said Decision reads:

The main issue in this case is whether or not petitioner

may claim a tax refund or credit in the amount of
P249,397,620.18 for creditable input tax attributable to
zero-rated or effectively zero-rated sales pursuant to
Section 112(A) of the NIRC or for input taxes paid on
capital goods as provided under Section 112(B) of the
NIRC.

The CTA En Banc denied petitioners Motion for

Reconsideration in a Resolution dated 22 October 2007.21

To resolve the issue, this Court must re-examine the

facts and the evidence offered by the parties. It is an
accepted doctrine that this Court is not a trier of
facts. It is not its function to review, examine and
evaluate or weigh the probative value of the evidence
presented. However, this rule does not apply where the
judgment is premised on a misapprehension of facts, or
when the appellate court failed to notice certain
relevant facts which if considered would justify a
different conclusion.23

Hence, the present Petition for Review where the

petitioner raises the following errors allegedly
committed by the CTA En banc:

After reviewing the records, this Court finds that

petitioners claim for refund or credit is justified
under Section 112(A) of the NIRC which states that:

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

THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR

AND ACTED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO
LACK OR EXCESS OF JURISDICTION IN FAILING OR REFUSING TO
APPRECIATE THE OVERWHELMING AND UNCONTROVERTED EVIDENCE
SUBMITTED BY THE PETITIONER, THUS DEPRIVING PETITIONER OF
ITS PROPERTY WITHOUT DUE PROCESS; AND

(A) Zero-rated or Effectively Zero-rated SalesAny VATregistered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid
attributable to such sales, except transitional input
tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in
the case of zero-rated sales under Section 106(A)(2)(a)
(1), (2) and (B) and Section 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or

WHEREFORE, premises considered, the instant petition is

hereby DISMISSED. Accordingly, the assailed Decision and
Resolution are hereby AFFIRMED.20

II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR AND
ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN RULING THAT THE ABSENCE OF
ZERO-RATED SALES BY PETITIONER DURING THE YEAR COVERED BY
THE CLAIM FOR REFUND DOES NOT ENTITLE PETITIONER TO A
REFUND OF ITS EXCESS VAT INPUT TAXES ATTRIBUTABLE TO
ZERO-RATED SALES, CONTRARY TO PROVISIONS OF LAW.22
The present Petition is meritorious.

services, and the amount of creditable input tax due or

paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
To claim refund or tax credit under Section 112(A),
petitioner must comply with the following criteria: (1)
the taxpayer is VAT registered; (2) the taxpayer is
engaged in zero-rated or effectively zero-rated sales;
(3) the input taxes are due or paid; (4) the input taxes
are not transitional input taxes; (5) the input taxes
have not been applied against output taxes during and in
the succeeding quarters; (6) the input taxes claimed are
attributable to zero-rated or effectively zero-rated
sales; (7) for zero-rated sales under Section 106(A)(2)
(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been
duly accounted for in accordance with BSP rules and
regulations; (8) where there are both zero-rated or
effectively zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and entirely
attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales
volume; and (9) the claim is filed within two years after
the close of the taxable quarter when such sales were
made.24
Based on the evidence presented, petitioner complied with
the abovementioned requirements. Firstly, petitioner had
adequately proved that it is a VAT registered taxpayer
when it presented Certificate of Registration No. OCN-98006-007394, which it attached to its Petition for Review
dated 29 March 2004 filed before the CTA in Division.
Secondly, it is unquestioned that petitioner is engaged
in providing electricity for NPC, an activity which is
subject to zero rate, under Section 108(B)(3) of the
NIRC. Thirdly, petitioner offered as evidence suppliers
VAT invoices or official receipts, as well as Import
Entries and Internal Revenue Declarations (Exhibits "J-4A1" to "J-4-L265"), which were examined in the audit
conducted by Aguilar, the Court-commissioned Independent

CPA. Significantly, Aguilar noted in his audit report

(Exhibit "J-2") that of the P249,397,620.18 claimed by
petitioner, he identified items with incomplete
documentation and errors in computation with a total
amount of P3,266,009.78. Based on these findings, the
remaining input VAT of P246,131,610.40 was properly
documented and recorded in the books. The said report
reads:
In performing the procedures referred under the
Procedures Performed section of this report, no matters
came to our attention that cause us to believe that the
amount of input VAT applied for as tax credit
certificate/refund of P249,397,620.18 for the period
January 1, 2002 to December 31, 2002 should be adjusted
except for input VAT claimed with incomplete
documentation, those with various and other exceptions on
the supporting documents and those with errors in
computation totaling P3,266,009.78, as discussed in the
Findings and Results of the Agreed-Upon Audit Procedures
Performed sections of this report. We have also
ascertained that the input VAT claimed are properly
recorded in the books and, except as specifically
identified in the Findings and Results of the Agreed-Upon
Audit Procedures Performed sections of this report, are
properly supported by original and appropriate suppliers
VAT invoices and/or official receipts.25
Fourthly, the input taxes claimed, which consisted of
local purchases and importations made in 2002, are not
transitional input taxes, which Section 111 of the NIRC
defines as input taxes allowed on the beginning inventory
of goods, materials and supplies.26 Fifthly, the audit
report of Aguilar affirms that the input VAT being
claimed for tax refund or credit is net of the input VAT
that was already offset against output VAT amounting to
P26,247.27 for the first quarter of 2002 and P34,996.36
for the fourth quarter of 2002,27 as reflected in the
Quarterly VAT Returns.28
The main dispute in this case is whether or not
petitioners claim complied with the sixth requirement

the existence of zero-rated or effectively zero-rated

sales, to which creditable input taxes may be attributed.
The CTA in Division and en banc denied petitioners claim
solely on this ground. The tax courts based this
conclusion on the audited report, marked as Exhibit "J2," stating that petitioner made no sale of electricity
to NPC in 2002.29 Moreover, the affidavit of Echevarria
(Exhibit "L"), petitioners Vice President and Director
for Finance, contained an admission that no commercial
sale of electricity had been made in favor of NPC in 2002
since the project was still under construction at that
time.30

transactions that are "deemed" sale, which are thus

enumerated:

However, upon closer examination of the records, it

appears that on 2002, petitioner carried out a "sale" of
electricity to NPC. The fourth quarter return for the
year 2002, which petitioner filed, reported a zero-rated
sale in the amount of P42,500,000.00.31 In the Affidavit
of Echevarria dated 9 February 2005 (Exhibit "L"), which
was uncontroverted by respondent, the affiant stated that
although no commercial sale was made in 2002, petitioner
produced and transferred electricity to NPC during the
testing period in exchange for the amount of
P42,500,000.00, to wit:32

(2) Distribution or transfer to:

A: San Roque Power Corporation has had no sale yet during

2002. The P42,500,000.00 which was paid to us by Napocor
was something similar to a more cost recovery scheme. The
pre-agreed amount would be about equal to our costs for
producing the electricity during the testing period and
we just reflected this in our 4th quarter return as a
zero-rated sale. x x x.
The Court is not unmindful of the fact that the
transaction described hereinabove was not a commercial
sale. In granting the tax benefit to VAT-registered zerorated or effectively zero-rated taxpayers, Section 112(A)
of the NIRC does not limit the definition of "sale" to
commercial transactions in the normal course of business.
Conspicuously, Section 106(B) of the NIRC, which deals
with the imposition of the VAT, does not limit the term
"sale" to commercial sales, rather it extends the term to

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

x x x x
(B) Transactions Deemed Sale.The following transactions
shall be deemed sale:
(1) Transfer, use or consumption not in the course of
business of goods or properties originally intended for
sale or for use in the course of business;

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

the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods were
consigned; and
(4) Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation. (Our emphasis.)
After carefully examining this provision, this Court
finds it an equitable construction of the law that when
the term "sale" is made to include certain transactions
for the purpose of imposing a tax, these same
transactions should be included in the term "sale" when
considering the availability of an exemption or tax
benefit from the same revenue measures. It is undisputed
that during the fourth quarter of 2002, petitioner
transferred to NPC all the electricity that was produced
during the trial period. The fact that it was not
transferred through a commercial sale or in the normal
course of business does not deflect from the fact that
such transaction is deemed as a sale under the law.

The seventh requirement regarding foreign currency

exchange proceeds is inapplicable where petitioners
zero-rated sale of electricity to NPC did not involve
foreign exchange and consisted only of a single
transaction wherein NPC paid petitioner P42,500,000.00 in
exchange for the electricity transferred to it by
petitioner. Similarly, the eighth requirement is
inapplicable to this case, where the only sale
transaction consisted of an effectively zero-rated sale
and there are no exempt or taxable sales that transpired,
which will require the proportionate allocation of the
creditable input tax paid.
The last requirement determines that the claim should be
filed within two years after the close of the taxable
quarter when such sales were made. The sale of
electricity to NPC was reported at the fourth quarter of
2002, which closed on 31 December 2002. Petitioner had
until 30 December 2004 to file its claim for refund or
credit. For the period January to March 2002, petitioner
filed an amended request for refund or tax credit on 30
May 2003; for the period July 2002 to September 2002, on
27 February 2003; and for the period October 2002 to
December 2002, on 31 July 2003.33 In these three
quarters, petitioners seasonably filed its requests for
refund and tax credit. However, for the period April 2002
to May 2002, the claim was filed prematurely on 25
October 2002, before the last quarter had closed on 31
December 2002.34
Despite this lapse in procedure, this Court notes that
petitioner was able to positively show that it was able
to accumulate excess input taxes on various importations
and local purchases in the amount of P246,131,610.40,
which were attributable to a transfer of electricity in
favor of NPC. The fact that it had filed its claim for
refund or credit during the quarter when the transfer of
electricity had taken place, instead of at the close of
the said quarter does not make petitioner any less
entitled to its claim. Given the special circumstances of
this case, wherein petitioner was incorporated for the

sole purpose of constructing or operating a power plant

that will transfer all the electricity it generates to
NPC, there is no danger that petitioner would try to
fraudulently claim input tax paid on purchases that will
be attributed to sale transactions that are not zerorated. Substantial justice, equity and fair play are on
the side of the petitioner. Technicalities and legalisms,
however, exalted, should not be misused by the government
to keep money not belonging to it, thereby enriching
itself at the expense of its law abiding citizens.
Substantial justice, equity and fair play are on the side
of petitioner. Technicalities and legalisms, however
exalted, should not be misused by the government to keep
money not belonging to it, thereby enriching itself at
the expense of its law-abiding citizens. Under the
principle of solutio indebiti provided in Art. 2154,
Civil Code, the BIR received something "when there [was]
no right to demand it," and thus, it has the obligation
to return it. Heavily militating against respondent
Commissioner is the ancient principle that no one, not
even the State, shall enrich oneself at the expense of
another. Indeed, simple justice requires the speedy
refund of the wrongly held taxes.35
It bears emphasis that effective zero-rating is not
intended as a benefit to the person legally liable to pay
the tax, such as petitioner, but to relieve certain
exempt entities, such as the NPC, from the burden of
indirect tax so as to encourage the development of
particular industries. Before, as well as after, the
adoption of the VAT, certain special laws were enacted
for the benefit of various entities and international
agreements were entered into by the Philippines with
foreign governments and institutions exempting sale of
goods or supply of services from indirect taxes at the
level of their suppliers. Effective zero-rating was
intended to relieve the exempt entity from being burdened
with the indirect tax which is or which will be shifted
to it had there been no exemption. In this case,
petitioner is being exempted from paying VAT on its

purchases to relieve NPC of the burden of additional

costs that petitioner may shift to NPC by adding to the
cost of the electricity sold to the latter.36
Section 13 of Republic Act No. 6395, otherwise known as
the NPC Charter, further clarifies that it is the
lawmakers intention that NPC be made completely exempt
from all taxes, both direct and indirect:
Sec. 13. Non-profit Character of the Corporation;
Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.
- The corporation shall be non-profit and shall devote
all its returns from its capital investment, as well as
excess revenues from its operation, for expansion. To
enable the corporation to pay its indebtedness and
obligations and in furtherance and effective
implementation of the policy enunciated in Section 1 of
this Act, the corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts,
charges, costs and service fees in any court or
administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities, and
other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes, and realty
taxes to be paid to the National Government, its
provinces, cities, municipalities and other government
agencies and instrumentalities;
(c) From all import duties, compensating taxes and
advanced sales tax and wharfage fees on import of foreign
goods, required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other
charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products
used by the corporation in the generation, transmission,
utilization, and sale of electric power.

To limit the exemption granted to the NPC to direct

taxes, notwithstanding the general and broad language of
the statute will be to thwart the legislative intention
in giving exemption from all forms of taxes and
impositions, without distinguishing between those that
are direct and those that are not.37
Congress granted NPC a comprehensive tax exemption
because of the significant public interest involved. This
is enunciated in Section 1 of Republic Act No. 6395:
Section 1. Declaration of Policy. Congress hereby
declares that (1) the comprehensive development,
utilization and conservation of Philippine water
resources for all beneficial uses, including power
generation, and (2) the total electrification of the
Philippines through the development of power from all
sources to meet the needs of industrial development and
dispersal and the needs of rural electrification are
primary objectives of the nation which shall be pursued
coordinately and supported by all instrumentalities and
agencies of government, including its financial
institutions.
The ability of the NPC to provide sufficient and
affordable electricity throughout the country greatly
affects our industrial and rural development. Erroneously
and unjustly depriving industries that generate
electrical power of tax benefits that the law clearly
grants will have an immediate effect on consumers of
electricity and long term effects on our economy.
In the same breath, we cannot lose sight of the fact that
it is the declared policy of the State, expressed in
Section 2 of Republic Act No. 9136, otherwise known as
the EPIRA Law, "to ensure and accelerate the total
electrification of the country;" "to enhance the inflow
of private capital and broaden the ownership base of the
power generation, transmission and distribution sectors;"
and "to promote the utilization of indigenous and new and
renewable energy resources in power generation in order
to reduce dependence on imported energy." Further,

Section 6 provides that "pursuant to the objective of

lowering electricity rates to end-users, sales of
generated power by generation companies shall be valueadded tax zero-rated.
Section 75 of said law succinctly declares that "this Act
shall, unless the context indicates otherwise, be
construed in favor of the establishment, promotion,
preservation of competition and power empowerment so that
the widest participation of the people, whether directly
or indirectly is ensured."
The objectives as set forth in the EPIRA Law can only be
achieved if government were to allow petitioner and
others similarly situated to obtain the input tax credits
available under the law. Denying petitioner such credits
would go against the declared policies of the EPIRA
Law.1 a vv p h i 1
The legislative grant of tax relief (whether in the EPIRA
Law or the Tax Code) constitutes a sovereign commitment
of Government to taxpayers that the latter can avail
themselves of certain tax reliefs and incentives in the
course of their business activities here. Such a
commitment is particularly vital to foreign investors who
have been enticed to invest heavily in our countrys
infrastructure, and who have done so on the firm
assurance that certain tax reliefs and incentives can be
availed of in order to enable them to achieve their
projected returns on these very long-term and heavily
funded investments. While the governments ability to
keep its commitment is put in doubt, credit rating turns
to worse; the costs of borrowing becomes higher and the
harder it will be to attract foreign investors. The
countrys earnest efforts to move forward will all be put
to naught.
Having decided that petitioner is entitled to claim
refund or tax credit under Section 112(A) of the NIRC or
on the basis of effectively zero-rated sales in the
amount of P246,131,610.40, there is no more need to
establish its right to make the same claim under Section

112(B) of the NIRC or on the basis of purchase of capital

goods.
Finally, respondent contends that according to wellestablished doctrine, a tax refund, which is in the
nature of a tax exemption, should be construed
strictissimi juris against the taxpayer.38 However, when
the claim for refund has clear legal basis and is
sufficiently supported by evidence, as in the present
case, then the Court shall not hesitate to grant the
same.39
WHEREFORE, the instant Petition for Review is GRANTED.
The Decision of the Court of Tax Appeals En Banc dated 20
September 2007 in CTA EB Case No. 248, affirming the
Decision dated 23 March 2006 of the CTA Second Division
in CTA Case No. 6916, is REVERSED. Respondent
Commissioner of Internal Revenue is ordered to refund, or
in the alternative, to issue a tax credit certificate to
petitioner San Roque Power Corporation in the amount of
Two Hundred Forty-Six Million One Hundred Thirty-One
Thousand Six Hundred Ten Pesos and 40/100
(P246,131,610.40), representing unutilized input VAT for
the period 1 January 2002 to 31 December 2002. No costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 180042

February 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
IRONCON BUILDERS AND DEVELOPMENT CORPORATION, Respondent.
D E C I S I O N
ABAD, J.:
This addresses the question of whether or not creditable
value-added tax (VAT) withheld from a taxpayer in excess
of its output VAT liability may be the subject of a tax
refund in place of a tax credit.

The Facts and the Case

On May 10, 2001 respondent Ironcon Builders and
Development Corporation (Ironcon) sought the refund by
the Bureau of Internal Revenue (BIR) of its income tax
overpayment and excess creditable VAT. When petitioner
Commissioner of Internal Revenue (CIR) continued not to
act on its claims, on July 1, 2002 Ironcon filed a
petition for review with the Court of Tax Appeals (CTA)
in CTA Case 6502, which was raffled to its Second
Division.
After hearing, the Second Division held that in regard to
the claim for overpaid income taxes, taxpayers have the
option to either carry over the excess credit or ask for
a refund. Here, respondent Ironcon filed two income tax
returns for the year 2000, an original and an amended
one. In the original return, Ironcon placed an "x" mark
in a box corresponding to the option "To be carried over
as tax credit next year/quarter." Although Ironcons
amended return indicated a preference for "refund" of the
overpaid tax, the Second Division ruled that Ironcons
original choice is regarded as irrevocable, pursuant to
Section 76 of Republic Act (R.A.) 8424 (the National
Internal Revenue Code of 1997 or NIRC). Further, the
Second Division found that Ironcon actually carried over
the credit for overpaid income taxes and applied it to
the tax due for the year 2001. It, therefore, denied
Ironcons claim for its refund.
As to the claim for VAT refund, the Second Division found
that by the end of 2000, Ironcon had excess tax credit of
P3,135,990.69 carried over from 1999, allowable input tax
of P15,242,271.43, and 6% creditable VAT of
P11,027,758.51, withheld and remitted by its clients.
These amounts were deductible from Ironcons total output
VAT liability of P20,073,422.63. Consequently, by the end
of 2000 Ironcons actual excess creditable VAT was
P9,332,597.99 only as against its claim for refund of
P18,053,715.64.

The CTA held, however, that input VAT payments should

first be applied to the reported output VAT liability.
Only after this deduction has been made will the 6% VAT
withheld be applied to the amount of VAT payable. Thus,
the excess of P9,332,597.99 mentioned above represents
the excess 6% creditable VAT withheld, not creditable
input VAT.
The CTA further ruled that since Ironcon had no more
output VAT against which the excess creditable VAT
withheld may be applied or credited, the VAT withheld had
been excessively paid. Thus, the Court ruled that the
excess amount may be refunded under Section 204(C) in
relation to Section 229 of the NIRC. Before a refund may
be granted, however, it must be shown that the claim was
not used or carried over to the succeeding quarters.
Ironcon did not present before the Second Division its
VAT returns for the succeeding quarters of 2001. Without
this, the Second Division could not verify whether the
tax credit was applied to output VAT liability in 2001.
Thus, the Second Division also denied Ironcons claim for
refund of excess creditable VAT.
Ironcon filed a motion for reconsideration, attaching to
it its amended quarterly VAT returns for 2001. These were
marked in open court as Exhibits "A-1," "B-1," "C-1," and
"D-1." The CTA promulgated an Amended Decision on July
31, 2006, admitting the exhibits and ruling that Ironcon
sufficiently proved that its excess creditable VAT
withheld was not carried over or applied to any output
VAT for 2001. Thus, the Court granted its application for
the refund of unutilized excess creditable VAT of
P9,332,597.99.
Petitioner CIR filed a motion for reconsideration of the
amended decision, which the Second Division denied,
prompting the CIR to elevate the matter to the CTA En
Banc by way of a petition for review in CTA EB 235. The
CTA En Banc denied the petition in a Decision dated
August 9, 2007. It also denied the CIRs motion for
reconsideration, hence, this petition for review.1

Issue Presented
Simply put, the only issue the petition raises is whether
or not the CTA erred in granting respondent Ironcons
application for refund of its excess creditable VAT
withheld.

For the year 2000, Ironcons actual VAT liability payable

may be computed as follows:
Output taxes

P 20,073,422.63

Less: allowable input taxes

P 15,242,271.43

The Courts Ruling

Respondent Ironcons excess creditable VAT in this case
consists of amounts withheld and remitted to the BIR by
Ironcons clients. These clients were government agencies
that applied the 6% withholding rate on their payments to
Ironcon pursuant to Section 114 of the NIRC (prior to its
amendment by R.A. 9337). Petitioner CIRs main contention
is that, since these amounts were withheld in accordance
with what the law provides, they cannot be regarded as
erroneously or illegally collected as contemplated in
Sections 204(C) and 229 of the NIRC.
Petitioner CIR also points out 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. Excess creditable VAT withheld
is much unlike excess income taxes withheld. In the
latter case, Sections 76 and 58(D) of the NIRC
specifically make the option to seek a refund available
to the taxpayer. The CIR submits thus that the only
option available to taxpayers in case of excess
creditable VAT withheld is to apply the excess credits to
succeeding quarters.
But the amounts involved in this case are creditable
withholding taxes, not final taxes subject to
withholding. As the CTA correctly points out, taxes
withheld on certain payments under the creditable
withholding tax system are but intended to approximate
the tax due from the payee.2 The withheld taxes remitted
to the BIR are treated as deposits or advances on the
actual tax liability of the taxpayer, subject to
adjustment at the proper time when the actual tax
liability can be fully and finally determined.3

P 4,831,151.20
Less: tax credit (1999)

P 3,135,990.69

VAT payable

P 1,695,160.51

Respondent Ironcons clients had, however, already

withheld and remitted P11,027,758.51 to the BIR in
compliance with Section 114. As stated above, this
withheld amount is to be treated as advance payment for
Ironcons VAT liability payable and, therefore, the
difference of P9,332,597.99 should be treated as
Ironcons overpaid taxes.
The ruling in Citibank N.A. v. Court of Appeals, while
dealing with excessive income taxes withheld, is also
applicable to this case: "Consequently and clearly, the
tax withheld during the course of the taxable year, while
collected legally under the aforesaid revenue regulation,
became untenable and took on the nature of erroneously
collected taxes at the end of the taxable year."4
Even if the law does not expressly state that Ironcons excess
creditable VAT withheld is refundable, it may be the subject of
a claim for refund as an erroneously collected tax under
Sections 204(C) and 229. It should be clarified that this
ruling only refers to creditable VAT withheld pursuant to
Section 114 prior to its amendment. After its amendment by R.A.
9337, the amount withheld under Section 114 is now treated as a

final VAT, no longer under the creditable withholding tax

system.5
The rule is that before a refund may be granted, respondent
Ironcon must show that it had not used the creditable amount or
carried it over to succeeding taxable quarters. Originally, the
CTAs Second Division said in its January 5, 2006 decision that
Ironcons failure to offer in evidence its quarterly returns
for 2001 was fatal to its claim. Ironcon filed a motion for
reconsideration, attaching its 2001 returns, and, at the
hearing of the motion, had these returns marked as Exhibits "A1," "B-1," "C-1," and "D-1." Petitioner CIR argues that these
Exhibits should be deemed inadmissible considering that they
were offered only after trial had ended and should be treated
as forgotten evidence.
Citing BPI-Family Savings Bank v. Court of Appeals,6 the CTA
ruled that once a claim for refund has been clearly
established, it may set aside technicalities in the
presentation of evidence. Petitioner CIR points out, however,
that the present case is not on all fours with BPI. The latter
case dealt with the refund of creditable income taxes withheld,
for which the NIRC specifically grants taxpayers the option to
apply for refund of any excess.
But, considering the CTAs finding in the present case that
Ironcon had excess creditable VAT withheld for which it was
entitled to a refund, it makes no sense to deny Ironcon the
benefit of the BPI ruling that overlooks technicalities in the
presentation of evidence. In BPI, this Court admitted an
exhibit attached to the claimants motion for reconsideration,
even if the claimant submitted it only after the trial.1avvphi1
"[The claimant] may have failed to strictly comply with the
rules of procedure; it may have even been negligent. These
circumstances, however, should not compel the Court to
disregard this cold, undisputed fact: that [the claimant] x x x
could not have applied the amount claimed as tax credits."7
Substantial justice dictates that the government should not
keep money that does not belong to it at the expense of
citizens.8 Since he ought to know the tax records of all
taxpayers, petitioner CIR could have easily disproved the
claimants allegations.9 That he chose not to amounts to a
waiver of that right.10 Also, the CIR failed in this case to
make a timely objection to or comment on respondent Ironcons
offer of the documents in question despite an opportunity to do

so.11 Taking all these circumstances together, it was

sufficiently proved that Ironcons excess creditable VAT
withheld was not carried over to succeeding taxable quarters.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court
of Tax Appeals En Bancs decision in CTA EB 235 dated August
9, 2007, its resolution dated October 11, 2007, as well as the
amended decision of the Court of Tax Appeals Second Division
in CTA Case 6502 dated July 31, 2006.
SO ORDERED.

EN BANC
G.R. No. 173425

September 4, 2012

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT
OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS,
BUREAU OF INTERNAL REVENUE, Respondents.
D E C I S I O N
DEL CASTILLO, J.:
Courts cannot limit the application or coverage of a
law, nor can it impose conditions not provided therein.
To do so constitutes judicial legislation.
This Petition for Review on Certiorari under Rule 45 of
the Rules of Court assails the July 7, 2006 Decision1 of
the Court of Appeals (CA) in CA-G.R. SP No. 61436, the
dispositive portion of which reads.

WHEREFORE, the instant petition is hereby DISMISSED.

ACCORDINGLY, the Decision dated October 12, 2000 of the
Court of Tax Appeals in CTA Case No. 5735, denying
petitioners claim for refund in the amount of Three
Hundred Fifty-Nine Million Six Hundred Fifty-Two Thousand
Nine Pesos and Forty-Seven Centavos (P 359,652,009.47),
is hereby AFFIRMED.
SO ORDERED.2
Factual Antecedents
Petitioner Fort Bonifacio Development Corporation (FBDC)
is a duly registered domestic corporation engaged in the
development and sale of real property.3 The Bases
Conversion Development Authority (BCDA), a wholly owned
government corporation created under Republic Act (RA)
No. 7227,4 owns 45% of petitioners issued and
outstanding capital stock; while the Bonifacio Land
Corporation, a consortium of private domestic
corporations, owns the remaining 55%.5
On February 8, 1995, by virtue of RA 7227 and Executive
Order No. 40,6 dated December 8, 1992, petitioner
purchased from the national government a portion of the
Fort Bonifacio reservation, now known as the Fort
Bonifacio Global City (Global City).7
On January 1, 1996, RA 77168 restructured the Value-Added
Tax (VAT) system by amending certain provisions of the
old National Internal Revenue Code (NIRC). RA 7716
extended the coverage of VAT to real properties held
primarily for sale to customers or held for lease in the
ordinary course of trade or business.9
On September 19, 1996, petitioner submitted to the Bureau
of Internal Revenue (BIR) Revenue District No. 44, Taguig
and Pateros, an inventory of all its real properties, the
book value of which aggregated P 71,227,503,200.10 Based
on this value, petitioner claimed that it is entitled to
a transitional input tax credit of P 5,698,200,256,11
pursuant to Section 10512 of the old NIRC.

In October 1996, petitioner started selling Global City

lots to interested buyers.13
For the first quarter of 1997, petitioner generated a
total amount of P 3,685,356,539.50 from its sales and
lease of lots, on which the output VAT payable was P
368,535,653.95.14 Petitioner paid the output VAT by
making cash payments to the BIR totalling P
359,652,009.47 and crediting its unutilized input tax
credit on purchases of goods and services of P
8,883,644.48.15
Realizing that its transitional input tax credit was not
applied in computing its output VAT for the first quarter
of 1997, petitioner on November 17, 1998 filed with the
BIR a claim for refund of the amount of P 359,652,009.47
erroneously paid as output VAT for the said period.16
Ruling of the Court of Tax Appeals
On February 24, 1999, due to the inaction of the
respondent Commissioner of Internal Revenue (CIR),
petitioner elevated the matter to the Court of Tax
Appeals (CTA) via a Petition for Review.17
In opposing the claim for refund, respondents interposed
the following special and affirmative defenses:
x x x x
8. Under Revenue Regulations No. 7-95, implementing
Section 105 of the Tax Code as amended by E.O. 273, the
basis of the presumptive input tax, in the case of real
estate dealers, is the improvements, such as buildings,
roads, drainage systems, and other similar structures,
constructed on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of
real properties only on September 19, 1996, failed to
comply with the aforesaid revenue regulations mandating
that for purposes of availing the presumptive input tax
credits under its Transitory Provisions, "an inventory as
of December 31, 1995, of such goods or properties and

improvements showing the quantity, description, and

amount should be filed with the RDO no later than January
31, 1996. x x x"18

value of the improvements on the land, the CA said that

it is entitled to great weight as it was issued pursuant
to Section 24527 of the old NIRC.28

On October 12, 2000, the CTA denied petitioners claim

for refund. According to the CTA, "the benefit of
transitional input tax credit comes with the condition
that business taxes should have been paid first."19 In
this case, since petitioner acquired the Global City
property under a VAT-free sale transaction, it cannot
avail of the transitional input tax credit.20 The CTA
likewise pointed out that under Revenue Regulations No.
(RR) 7-95, implementing Section 105 of the old NIRC, the
8% transitional input tax credit should be based on the
value of the improvements on land such as buildings,
roads, drainage system and other similar structures,
constructed on or after January 1, 1998, and not on the
book value of the real property.21 Thus, the CTA disposed
of the case in this manner:

Issues

WHEREFORE, in view of all the foregoing, the claim for

refund representing alleged overpaid value-added tax
covering the first quarter of 1997 is hereby DENIED for
lack of merit.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner filed a Petition for Review23 under
Rule 43 of the Rules of Court before the CA.
On July 7, 2006, the CA affirmed the decision of the CTA.
The CA agreed that petitioner is not entitled to the 8%
transitional input tax credit since it did not pay any
VAT when it purchased the Global City property.24 The CA
opined that transitional input tax credit is allowed only
when business taxes have been paid and passed-on as part
of the purchase price.25 In arriving at this conclusion,
the CA relied heavily on the historical background of
transitional input tax credit.26 As to the validity of RR
7-95, which limited the 8% transitional input tax to the

Hence, the instant petition with the principal issue of

whether petitioner is entitled to a refund of P
359,652,009.47 erroneously paid as output VAT for the
first quarter of 1997, the resolution of which depends
on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively
repealed or repudiated Revenue Regulations No. 7-95
insofar as the latter limited the
transitional/presumptive input tax credit which may be
claimed under Section 105 of the National Internal
Revenue Code to the "improvements" on real properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid
implementation of Section 105 of the National Internal
Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No.
7-95 by the Bureau of Internal Revenue, and declaration
of validity of said Regulations by the Court of Tax
Appeals and Court of Appeals, were in violation of the
fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret
and construe the provisions of Section 105 of the
National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of
business tax by petitioner on its land before it may
claim the input tax credit granted by Section 105 of the
National Internal Revenue Code.
3.05.f. Whether the Court of Appeals and Court of Tax
Appeals merely speculated on the purpose of the
transitional/presumptive input tax provided for in
Section 105 of the National Internal Revenue Code.

3.05.g. Whether the economic and social objectives in the

acquisition of the subject property by petitioner from
the Government should be taken into consideration.29
Petitioners Arguments
Petitioner claims that it is entitled to recover the
amount of P 359,652,009.47 erroneously paid as output VAT
for the first quarter of 1997 since its transitional
input tax credit of P 5,698,200,256 is more than
sufficient to cover its output VAT liability for the said
period.30
Petitioner assails the pronouncement of the CA that prior
payment of taxes is required to avail of the 8%
transitional input tax credit.31 Petitioner contends that
there is nothing in Section 105 of the old NIRC to
support such conclusion.32
Petitioner further argues that RR 7-95, which limited the
8% transitional input tax credit to the value of the
improvements on the land, is invalid because it goes
against the express provision of Section 105 of the old
NIRC, in relation to Section 10033 of the same Code, as
amended by RA 7716.34
Respondents Arguments
Respondents, on the other hand, maintain that petitioner
is not entitled to a transitional input tax credit
because no taxes were paid in the acquisition of the
Global City property.35 Respondents assert that prior
payment of taxes is inherent in the nature of a
transitional input tax.36 Regarding RR 7-95, respondents
insist that it is valid because it was issued by the
Secretary of Finance, who is mandated by law to
promulgate all needful rules and regulations for the
implementation of Section 105 of the old NIRC.37
Our Ruling
The petition is meritorious.

The issues before us are no longer new or novel as these

have been resolved in the related case of Fort Bonifacio
Development Corporation v. Commissioner of Internal
Revenue.38
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. A person who
becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to
the filing of an inventory as prescribed by regulations,
be allowed input tax on his beginning inventory of goods,
materials and supplies equivalent to 8% of the value of
such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax. (Emphasis
supplied.)
Contrary to the view of the CTA and the CA, there is
nothing in the above-quoted provision to indicate that
prior payment of taxes is necessary for the availment of
the 8% transitional input tax credit. Obviously, all that
is required is for the taxpayer to file a beginning
inventory with the BIR.
To require prior payment of taxes, as proposed in the
Dissent is not only tantamount to judicial legislation
but would also render nugatory the provision in Section
105 of the old NIRC that the transitional input tax
credit shall be "8% of the value of [the beginning]
inventory or the actual [VAT] paid on such goods,
materials and supplies, whichever is higher" because the
actual VAT (now 12%) paid on the goods, materials, and
supplies would always be higher than the 8% (now 2%) of
the beginning inventory which, following the view of
Justice Carpio, would have to exclude all goods,
materials, and supplies where no taxes were paid.
Clearly, limiting the value of the beginning inventory

only to goods, materials, and supplies, where prior taxes

were paid, was not the intention of the law. Otherwise,
it would have specifically stated that the beginning
inventory excludes goods, materials, and supplies where
no taxes were paid. As retired Justice Consuelo YnaresSantiago has pointed out in her Concurring Opinion in the
earlier case of Fort Bonifacio:
If the intent of the law were to limit the input tax to
cases where actual VAT was paid, it could have simply
said that the tax base shall be the actual value-added
tax paid. Instead, the law as framed contemplates a
situation where a transitional input tax credit is
claimed even if there was no actual payment of VAT in the
underlying transaction. In such cases, the tax base used
shall be the value of the beginning inventory of goods,
materials and supplies.39
Moreover, prior payment of taxes is not required to avail
of the transitional input tax credit because it is not a
tax refund per se but a tax credit. Tax credit is not
synonymous to tax refund. Tax refund is defined as the
money that a taxpayer overpaid and is thus returned by
the taxing authority.40 Tax credit, on the other hand, is
an amount subtracted directly from ones total tax
liability.41 It is any amount given to a taxpayer as a
subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment of
taxes is not a prerequisite to avail of a tax credit. In
fact, in Commissioner of Internal Revenue v. Central
Luzon Drug Corp.,42 we declared that prior payment of
taxes is not required in order to avail of a tax
credit.43 Pertinent portions of the Decision read:
While a tax liability is essential to the availment or
use of any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such
credit, neither a tax liability nor a prior tax payment
is needed. The Tax Code is in fact replete with
provisions granting or allowing tax credits, even though
no taxes have been previously paid.

For example, in computing the estate tax due, Section

86(E) allows a tax credit -- subject to certain
limitations -- for estate taxes paid to a foreign
country. Also found in Section 101(C) is a similar
provision for donors taxes -- again when paid to a
foreign country -- in computing for the donors tax due.
The tax credits in both instances allude to the prior
payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax) - registered
person engaging in transactions -- whether or not subject
to the VAT -- is also allowed a tax credit that includes
a ratable portion of any input tax not directly
attributable to either activity. This input tax may
either be the VAT on the purchase or importation of goods
or services that is merely due from -- not necessarily
paid by -- such VAT-registered person in the course of
trade or business; or the transitional input tax
determined in accordance with Section 111(A). The latter
type may in fact be an amount equivalent to only eight
percent of the value of a VAT-registered persons
beginning inventory of goods, materials and supplies,
when such amount -- as computed -- is higher than the
actual VAT paid on the said items. Clearly from this
provision, the tax credit refers to an input tax that is
either due only or given a value by mere comparison with
the VAT actually paid -- then later prorated. No tax is
actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax
credit that is merely presumptive is allowed. For the
purchase of primary agricultural products used as inputs
-- either in the processing of sardines, mackerel and
milk, or in the manufacture of refined sugar and cooking
oil -- and for the contract price of public works
contracts entered into with the government, again, no
prior tax payments are needed for the use of the tax
credit.
More important, a VAT-registered person whose sales are
zero-rated or effectively zero-rated may, under Section
112(A), apply for the issuance of a tax credit

certificate for the amount of creditable input taxes

merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent
that the input taxes have not been applied against output
taxes. Where a taxpayer is engaged in zero-rated or
effectively zero-rated sales and also in taxable or
exempt sales, the amount of creditable input taxes due
that are not directly and entirely attributable to any
one of these transactions shall be proportionately
allocated on the basis of the volume of sales. Indeed, in
availing of such tax credit for VAT purposes, this
provision -- as well as the one earlier mentioned -shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code
is another illustration of a tax credit allowed, even
though no prior tax payments are not required.
Specifically, in this provision, the imposition of a
final withholding tax rate on cash and/or property
dividends received by a nonresident foreign corporation
from a domestic corporation is subjected to the condition
that a foreign tax credit will be given by the
domiciliary country in an amount equivalent to taxes that
are merely deemed paid. Although true, this provision
actually refers to the tax credit as a condition only for
the imposition of a lower tax rate, not as a deduction
from the corresponding tax liability. Besides, it is not
our government but the domiciliary country that credits
against the income tax payable to the latter by the
foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section
34(C)(7)(b), categorically allows as credits, against the
income tax imposable under Title II, the amount of income
taxes merely incurred -- not necessarily paid -- by a
domestic corporation during a taxable year in any foreign
country. Moreover, Section 34(C)(5) provides that for
such taxes incurred but not paid, a tax credit may be
allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum

as may be required; and further conditioned upon payment

by the taxpayer of any tax found due, upon petitioners
redetermination of it.
In addition to the above-cited provisions in the Tax
Code, there are also tax treaties and special laws that
grant or allow tax credits, even though no prior tax
payments have been made.
Under the treaties in which the tax credit method is used
as a relief to avoid double taxation, income that is
taxed in the state of source is also taxable in the state
of residence, but the tax paid in the former is merely
allowed as a credit against the tax levied in the latter.
Apparently, payment is made to the state of source, not
the state of residence. No tax, therefore, has been
previously paid to the latter.
Under special laws that particularly affect businesses,
there can also be tax credit incentives. To illustrate,
the incentives provided for in Article 48 of Presidential
Decree No. (PD) 1789, as amended by Batas Pambansa Blg.
(BP) 391, include tax credits equivalent to either five
percent of the net value earned, or five or ten percent
of the net local content of export. In order to avail of
such credits under the said law and still achieve its
objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that
prior tax payments are not indispensable to the availment
of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax
payments by private establishments concerned. However, we
do not agree with its finding that the carry-over of tax
credits under the said special law to succeeding taxable
periods, and even their application against internal
revenue taxes, did not necessitate the existence of a tax
liability.
The examples above show that a tax liability is certainly
important in the availment or use, not the existence or
grant, of a tax credit. Regarding this matter, a private

establishment reporting a net loss in its financial

statements is no different from another that presents a
net income. Both are entitled to the tax credit provided
for under RA 7432, since the law itself accords that
unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no
tax is due, will be an improvident usance.44
In this case, when petitioner realized that its
transitional input tax credit was not applied in
computing its output VAT for the 1st quarter of 1997, it
filed a claim for refund to recover the output VAT it
erroneously or excessively paid for the 1st quarter of
1997. In filing a claim for tax refund, petitioner is
simply applying its transitional input tax credit against
the output VAT it has paid. Hence, it is merely availing
of the tax credit incentive given by law to first time
VAT taxpayers. As we have said in the earlier case of
Fort Bonifacio, the provision on transitional input tax
credit was enacted to benefit first time VAT taxpayers by
mitigating the impact of VAT on the taxpayer.45 Thus,
contrary to the view of Justice Carpio, the granting of a
transitional input tax credit in favor of petitioner,
which would be paid out of the general fund of the
government, would be an appropriation authorized by law,
specifically Section 105 of the old NIRC.
The history of the transitional input tax credit likewise
does not support the ruling of the CTA and CA. In our
Decision dated April 2, 2009, in the related case of Fort
Bonifacio, we explained that:
If indeed the transitional input tax credit is integrally
related to previously paid sales taxes, the purported
causal link between those two would have been nonetheless
extinguished long ago. Yet Congress has reenacted the
transitional input tax credit several times; that fact
simply belies the absence of any relationship between
such tax credit and the long-abolished sales taxes.

Obviously then, the purpose behind the transitional input

tax credit is not confined to the transition from sales
tax to VAT.
There is hardly any constricted definition of
"transitional" that will limit its possible meaning to
the shift from the sales tax regime to the VAT regime.
Indeed, it could also allude to the transition one
undergoes from not being a VAT-registered person to
becoming a VAT-registered person. Such transition does
not take place merely by operation of law, E.O. No. 273
or Rep. Act No. 7716 in particular. It could also occur
when one decides to start a business. Section 105 states
that the transitional input tax credits become available
either to (1) a person who becomes liable to VAT; or (2)
any person who elects to be VAT-registered. The clear
language of the law entitles new trades or businesses to
avail of the tax credit once they become VAT-registered.
The transitional input tax credit, whether under the Old
NIRC or the New NIRC, may be claimed by a newly-VAT
registered person such as when a business as it commences
operations. If we view the matter from the perspective of
a starting entrepreneur, greater clarity emerges on the
continued utility of the transitional input tax credit.
Following the theory of the CTA, the new enterprise
should be able to claim the transitional input tax credit
because it has presumably paid taxes, VAT in particular,
in the purchase of the goods, materials and supplies in
its beginning inventory. Consequently, as the CTA held
below, if the new enterprise has not paid VAT in its
purchases of such goods, materials and supplies, then it
should not be able to claim the tax credit. However, it
is not always true that the acquisition of such goods,
materials and supplies entail the payment of taxes on the
part of the new business. In fact, this could occur as a
matter of course by virtue of the operation of various
provisions of the NIRC, and not only on account of a
specially legislated exemption.
Let us cite a few examples drawn from the New NIRC. If
the goods or properties are not acquired from a person in

the course of trade or business, the transaction would

not be subject to VAT under Section 105. The sale would
be subject to capital gains taxes under Section 24 (D),
but since capital gains is a tax on passive income it is
the seller, not the buyer, who generally would shoulder
the tax.
If the goods or properties are acquired through donation,
the acquisition would not be subject to VAT but to
donors tax under Section 98 instead. It is the donor who
would be liable to pay the donors tax, and the donation
would be exempt if the donors total net gifts during the
calendar year does not exceed P 100,000.00.
If the goods or properties are acquired through testate
or intestate succession, the transfer would not be
subject to VAT but liable instead for estate tax under
Title III of the New NIRC. If the net estate does not
exceed P 200,000.00, no estate tax would be assessed.
The interpretation proffered by the CTA would exclude
goods and properties which are acquired through sale not
in the ordinary course of trade or business, donation or
through succession, from the beginning inventory on which
the transitional input tax credit is based. This prospect
all but highlights the ultimate absurdity of the
respondents position. Again, nothing in the Old NIRC (or
even the New NIRC) speaks of such a possibility or
qualifies the previous payment of VAT or any other taxes
on the goods, materials and supplies as a pre-requisite
for inclusion in the beginning inventory.
It is apparent that the transitional input tax credit
operates to benefit newly VAT-registered persons, whether
or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT
to VAT status, the transitional input tax credit serves
to alleviate the impact of the VAT on the taxpayer. At
the very beginning, the VAT-registered taxpayer is
obliged to remit a significant portion of the income it
derived from its sales as output VAT. The transitional

input tax credit mitigates this initial diminution of the

taxpayer's income by affording the opportunity to offset
the losses incurred through the remittance of the output
VAT at a stage when the person is yet unable to credit
input VAT payments.
There is another point that weighs against the CTAs
interpretation. Under Section 105 of the Old NIRC, the
rate of the transitional input tax credit is "8% of the
value of such inventory or the actual value-added tax
paid on such goods, materials and supplies, whichever is
higher." If indeed the transitional input tax credit is
premised on the previous payment of VAT, then it does not
make sense to afford the taxpayer the benefit of such
credit based on "8% of the value of such inventory"
should the same prove higher than the actual VAT paid.
This intent that the CTA alluded to could have been
implemented with ease had the legislature shared such
intent by providing the actual VAT paid as the sole basis
for the rate of the transitional input tax credit.46
In view of the foregoing, we find petitioner entitled to
the 8% transitional input tax credit provided in Section
105 of the old NIRC. The fact that it acquired the Global
City property under a tax-free transaction makes no
difference as prior payment of taxes is not a prerequisite.
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the old
NIRC
As regards Section 4.105-147 of RR 7-95 which limited the
8% transitional input tax credit to the value of the
improvements on the land, the same contravenes the
provision of Section 105 of the old NIRC, in relation to
Section 100 of the same Code, as amended by RA 7716,
which defines "goods or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties.
(a) Rate and base of tax. There shall be levied,
assessed and collected on every sale, barter or exchange

of goods or properties, a value-added tax equivalent to

10% of the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor.
(1) The term "goods or properties" shall mean all
tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers
or held for lease in the ordinary course of trade or
business; x x x
In fact, in our Resolution dated October 2, 2009, in the
related case of Fort Bonifacio, we ruled that Section
4.105-1 of RR 7-95, insofar as it limits the transitional
input tax credit to the value of the improvement of the
real properties, is a nullity.48 Pertinent portions of
the Resolution read:
As mandated by Article 7 of the Civil Code, an
administrative rule or regulation cannot contravene the
law on which it is based. RR 7-95 is inconsistent with
Section 105 insofar as the definition of the term "goods"
is concerned. This is a legislative act beyond the
authority of the CIR and the Secretary of Finance. The
rules and regulations that administrative agencies
promulgate, which are the product of a delegated
legislative power to create new and additional legal
provisions that have the effect of law, should be within
the scope of the statutory authority granted by the
legislature to the objects and purposes of the law, and
should not be in contradiction to, but in conformity
with, the standards prescribed by law.
To be valid, an administrative rule or regulation must
conform, not contradict, the provisions of the enabling
law.1wphi1 An implementing rule or regulation cannot
modify, expand, or subtract from the law it is intended
to implement. Any rule that is not consistent with the
statute itself is null and void.

While administrative agencies, such as the Bureau of

Internal Revenue, may issue regulations to implement
statutes, they are without authority to limit the scope
of the statute to less than what it provides, or extend
or expand the statute beyond its terms, or in any way
modify explicit provisions of the law. Indeed, a quasijudicial body or an administrative agency for that matter
cannot amend an act of Congress. Hence, in case of a
discrepancy between the basic law and an interpretative
or administrative ruling, the basic law prevails.
To recapitulate, RR 7-95, insofar as it restricts the
definition of "goods" as basis of transitional input tax
credit under Section 105 is a nullity.49
As we see it then, the 8% transitional input tax credit
should not be limited to the value of the improvements on
the real properties but should include the value of the
real properties as well.
In this case, since petitioner is entitled to a
transitional input tax credit of P 5,698,200,256, which
is more than sufficient to cover its output VAT liability
for the first quarter of 1997, a refund of the amount of
P 359,652,009.47 erroneously paid as output VAT for the
said quarter is in order.
WHEREFORE, the petition is hereby GRANTED. The assailed
Decision dated July 7, 2006 of the Court of Appeals in
CA-G.R. SP No. 61436 is REVERSED and SET ASIDE.
Respondent Commissioner of Internal Revenue is ordered to
refund to petitioner Fort Bonifacio Development
Corporation the amount of P 359,652,009.47 paid as output
VAT for the first quarter of 1997 in light of the
transitional input tax credit available to petitioner for
the said quarter, or in the alternative, to issue a tax
credit certificate corresponding to such amount.
SO ORDERED.

EN BANC
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.
D E C I S I O N
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
CIRs petition for review in CTA Case No. 7574. The CTA
EB dismissed, for having been prematurely filed, Taganito
Mining Corporations (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 Corporations (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
The Facts

The CTA EBs 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.
[CIRs] 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 Roques
claim. In its Decision16 dated 8 March 2006, it cited the
following as bases for the denial of San Roques 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 Roques] 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 Roques 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 Roques 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
Roques 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 Roques claim for refund
or tax credit of its unutilized input VAT attributable to
its zero-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 Divisions 29

November 2007 Amended Decision reads:
WHEREFORE, [San Roques] "Motion for New Trial and/or
Reconsideration" is hereby PARTIALLY GRANTED and this
Courts 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 CIRs 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 Roques 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 CIRs 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 Roques
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 Divisions 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 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
r

Nature
of

Mode of

Filing Date

the
Return
L to L-4

Original Electronic

April 15,
2005

M to M-3

Amended

Electronic

July 20, 2005

N to N-4

Amended

Electronic

October 18,
2006

Q to Q-3

1st

filing

2nd

R to R-4

U to U-4

3rd

V to V-4

Y to Y-4

Z to Z-4

4th

Original Electronic

July 20, 2005

Amended

Electronic

October 18,
2006

Original Electronic

October 19,
2005

Amended

Electronic

October 18,
2006

Original Electronic

January 20,
2006

Amended

October 18,
2006

Electronic

As can be gleaned from its amended Quarterly VAT Returns,

[Taganito] reported zero-rated sales amounting to
P1,446,854,034.68; input VAT on its domestic purchases
and importations of goods (other than capital goods) and
services amounting to P2,314,730.43; and input VAT on its
domestic purchases and importations of capital goods
amounting to P6,050,933.95, the details of which are
summarized as follows:

Period
Covere
d

Zero-Rated
Sales

Input VAT
on
Domestic
Purchases
and
Importatio
ns
of Goods
and
Services

Input VAT
Total
on
Input VAT
Domestic
Purchases
and
Importatio
ns
of Capital
Goods

amounting to 8,365,664.38 for the period covering

January 1, 2004 to 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 amount.
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 8,365,664.38 as actually referring to
the period covering January 1, 2005 to December 31, 2005.
As the statutory period within which to file a claim for
refund for said input VAT is about to lapse without
action on the part of the [CIR], [Taganito] filed the
instant Petition for Review on February 17, 2007.

01/01/
05 03/31/
05

P551,179,871. P1,491,880 P239,803.2 P1,731,683

58
.56
2
.78

04/01/
05 06/30/
05

64,677,530.78 204,364.17 5,811,130. 6,015,494.

73
90

07/01/
05 09/30/
05

480,784,287.3 144,887.67 0

144,887.67

5. The amount of 8,365,664.38 being claimed by

[Taganito] as alleged unutilized input VAT on domestic
purchases of goods and services and on importation of
capital goods for the period January 1, 2005 to December
31, 2005 is not properly documented;

10/01/
05 12/31/
05

350,212,345.0 473,598.03 2

473,598.03

6. [Taganito] must prove that it has complied with the

provisions of Sections 112 (A) and (D) and 229 of the
National Internal Revenue Code of 1997 (1997 Tax Code) on
the prescriptive period for claiming tax refund/credit;

TOTAL

P1,446,854,03 P2,314,730 P6,050,933 P8,365,664

4.68
.43
.95
.38

On November 14, 2006, [Taganito] filed with [the CIR],

through BIRs Large Taxpayers Audit and Investigation
Division II (LTAID II), a letter dated November 13, 2006
claiming a tax credit/refund of its supposed input VAT

In his Answer filed on March 28, 2007, [the CIR]

interposes the following defenses:
4. [Taganitos] alleged claim for refund is subject to
administrative investigation/examination by the Bureau of
Internal Revenue (BIR);

7. Proof of compliance with the prescribed checklist of

requirements to be submitted involving claim for VAT
refund pursuant to Revenue Memorandum Order No. 53-98,
otherwise there would be no sufficient compliance with
the filing of administrative claim for refund, the
administrative claim thereof being mere proforma, which
is a condition sine qua non prior to the filing of
judicial claim in accordance with the provision of

Section 229 of the 1997 Tax Code. Further, Section 112

(D) of the Tax Code, as amended, requires the submission
of complete documents in support of the application filed
with the BIR before the 120-day audit period shall apply,
and before the taxpayer could avail of judicial remedies
as provided for in the law. Hence, [Taganitos] failure
to submit proof of compliance with the above-stated
requirements warrants immediate dismissal of the petition
for review.
8. [Taganito] must prove that it has complied with the
invoicing requirements mentioned in Sections 110 and 113
of the 1997 Tax Code, as amended, in relation to
provisions of Revenue Regulations No. 7-95.
9. In an action for refund/credit, the burden of proof is
on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for
refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil.
466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the
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 looked upon
with disfavor (Western Minolco Corp. vs. Commissioner of
Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to
entertain 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:
Section 112. Refunds or Tax Credits of Input Tax.
x x x

x x x

x x x

(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 [Taganitos] "Memorandum" filed on January
19, 2009 and [the CIRs] "Memorandum" filed on December
19, 2008.24
The Court of Tax Appeals Ruling: Division
The CTA Second Division partially granted Taganitos
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 Divisions
Decision read:
Finally, records show that [Taganitos] 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 twoyear 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.
In a Resolution28 dated 7 April 2010, the CTA Second
Division denied the CIRs 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 Taganitos entire claim for refund
be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the
CIRs 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 twoyear 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 Courts 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 Taganitos
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:

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
Taganitos motion in a Resolution36 dated 14 March 2011.
The CTA EB did not see any justifiable reason to depart
from this Courts rulings in Aichi and Mirant.

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.

G.R. No. 197156

Philex Mining Corporation v. CIR

SO ORDERED.32

[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.

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 Courts 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

The Facts
The CTA EBs narration of the pertinent facts is as
follows:

[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 CIRs] 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.

The CTA EB, in its Decision38 dated 3 December 2010,

denied Philexs petition and affirmed the CTA Second
Divisions Decision and Resolution.

In [her] Answer, respondent CIR alleged the following

special and affirmative defenses:

The pertinent portions of the Decision read:

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 Philexs 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 Philexs 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.
On 10 November 2009, the CTA Second Division denied
Philexs 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.

In this case, while there is no dispute that [Philexs]

administrative claim for refund was filed within the twoyear 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 30day 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 [Philexs] 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 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 Courts Ruling

I. The Court of Tax Appeals En Banc erred in holding that

[San Roques] claim for refund was not prematurely filed.

For ready reference, the following are the provisions of

the Tax Code applicable to the present cases:

II. The Court of Tax Appeals En Banc erred in affirming

the amended decision of the Court of Tax Appeals (Second
Division) granting [San Roques] 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

Section 105:

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 [Taganitos] 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:

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

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.

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.

Failure to comply with the 120-day waiting period

violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and
renders the petition premature and thus without a cause
of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayers petition. Philippine
jurisprudence is replete with cases upholding and
reiterating these doctrinal principles.46

(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
Roques 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,

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 Commissioners 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 Roques 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 Roques void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of

the Civil Code states that such void petition cannot be

legitimized "except when the law itself authorizes [its]
validity." There is no law authorizing the petitions
validity.
It is hornbook doctrine that a person committing a void
act contrary to a mandatory provision of law cannot claim
or acquire any right from his void act. A right cannot
spring in favor of a person from his own void or illegal
act. This doctrine is repeated in Article 2254 of the
Civil Code, which states, "No vested or acquired right
can arise from acts or omissions which are against the
law or which infringe upon the rights of others."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 Roques
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 taxpayers
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 Return
& Payment of
Tax

Date of
Date of Filing
Filing
Administrative
Petition
Claim
With CTA

2nd
Quarter,
1990
Close of
Quarter
30 June
1990

20 July 1990

21 August 1990 20 July

1992

3rd
Quarter,
1990
Close of
Quarter
30
September
1990

18 October
1990

21 November
1990

4th
Quarter,
1990
Close of

20 January
1991

Period
Covered

19 February
1991

9 October
1992

14 January
1993

Quarter
31 December
1990
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 Roques
claim for tax refund.
Whether the Atlas doctrine or the Mirant doctrine is
applied to San Roque is immaterial because what is at
issue in the present case is San Roques non-compliance
with the 120-day mandatory and jurisdictional period,
which is counted from the date it filed its
administrative claim with the Commissioner. The 120-day
period may extend beyond the two-year prescriptive
period, as long as the administrative claim is filed
within the two-year prescriptive period. However, San
Roques fatal mistake is that it did not wait for the
Commissioner to decide within the 120-day period, a
mandatory period whether the Atlas or the Mirant doctrine
is applied.
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)56 expressly grants the
Commissioner 120 days within which to decide the
taxpayers 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 Commissioners decision within
the 120-day mandatory and jurisdictional period. The CTA
will have no jurisdiction because there will be no
"decision" or "deemed a denial" decision of the
Commissioner for the CTA to review. In San Roques 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 30day 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 dayperiod, 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 Commissioners
decision, or if the Commissioner does not act on the
taxpayers claim within the 120-day period, the taxpayer
may appeal to the CTA within 30 days from the expiration
of the 120-day period.
b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
Like San Roque, Taganito also filed its petition for
review with the CTA without waiting for the 120-day
period to lapse. Also, like San Roque, Taganito filed its
judicial claim before the promulgation of the Atlas
doctrine. Taganito filed a Petition for Review on 14
February 2007 with the CTA. This is almost four months

before the adoption of the Atlas doctrine on 8 June 2007.

Taganito is similarly situated as San Roque - both cannot
claim being misled, misguided, or confused by the Atlas
doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-0357
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 the third quarter of taxable year 2005; (2)
filed on 20 March 2006 its administrative claim for
refund or credit; (3) filed on 17 October 2007 its
Petition for Review with the CTA. The close of the third
taxable quarter in 2005 is 30 September 2005, which is
the reckoning date in computing the two-year prescriptive
period under Section 112(A).
Philex timely filed its administrative claim on 20 March
2006, within the two-year prescriptive period. Even if
the two-year prescriptive period is computed from the
date of payment of the output VAT under Section 229,
Philex still filed its administrative claim on time.
Thus, the Atlas doctrine is immaterial in this case. The
Commissioner had until 17 July 2006, the last day of the
120-day period, to decide Philexs claim. Since the
Commissioner did not act on Philexs claim on or before
17 July 2006, Philex had until 17 August 2006, the last
day of the 30-day period, to file its judicial claim. The
CTA EB held that 17 August 2006 was indeed the last day
for Philex to file its judicial claim. However, Philex
filed its Petition for Review with the CTA only on 17
October 2007, or four hundred twenty-six (426) days after
the last day of filing. In short, Philex was late by one

year and 61 days in filing its judicial claim. As the CTA

EB correctly found:

to comply with the statutory conditions and must thus

bear the consequences.

Evidently, the Petition for Review in C.T.A. Case No.

7687 was filed 426 days late. Thus, the Petition for
Review in C.T.A. Case No. 7687 should have been dismissed
on the ground that the Petition for Review was filed way
beyond the 30-day prescribed period; thus, no
jurisdiction was acquired by the CTA Division; x x x58
(Emphasis supplied)

II. Prescriptive Periods under Section 112(A) and (C)

Unlike San Roque and Taganito, Philexs case is not one

of premature filing but of late filing. Philex did not
file any petition with the CTA within the 120-day period.
Philex did not also file any petition with the CTA within
30 days after the expiration of the 120-day period.
Philex filed its judicial claim long after the expiration
of the 120-day period, in fact 426 days after the lapse
of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case,
Philexs judicial claim will have to be rejected because
of late filing. Whether the two-year prescriptive period
is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the
taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines,
Philexs judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late
filing of its judicial claim. The inaction of the
Commissioner on Philexs claim during the 120-day period
is, by express provision of law, "deemed a denial" of
Philexs claim. Philex had 30 days from the expiration of
the 120-day period to file its judicial claim with the
CTA. Philexs failure to do so rendered the "deemed a
denial" decision of the Commissioner final and
inappealable. The right to appeal to the CTA from a
decision or "deemed a denial" decision of the
Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory
privilege requires strict compliance with the conditions
attached by the statute for its exercise.59 Philex failed

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 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 VATregistered 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 "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
taxpayers 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 Commissioners 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 120day 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 OneStop 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 taxpayers judicial claim, or
even for purposes of determining if the BIR should
actually concede to the taxpayers judicial claim. The
internal administrative evaluation of the taxpayers
claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts
and the law warrant otherwise, for the BIR to concede to
the judicial claim, resulting in the termination of the
judicial proceedings.
What is important, as far as the present cases are
concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the
120-day period cannot operate to divest the Commissioner
of his jurisdiction to decide an administrative claim
within the 120-day mandatory period, unless the
Commissioner has clearly given cause for equitable

estoppel to apply as expressly recognized in Section 246

of the Tax Code.67

Commissioner, subject to review by the Secretary of

Finance.

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

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.

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 "taxpayerclaimant 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 with
the CTA. In these cases, the Commissioner cannot be
allowed to later on question the CTAs assumption of
jurisdiction over such claim since equitable estoppel has
set in as expressly authorized under Section 246 of the
Tax Code.
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
and To Decide
provisions of
the exclusive

of the Commissioner To Interpret Tax Laws

Tax Cases. The power to interpret the
this Code and other tax laws shall be under
and original jurisdiction of the

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.1wphi1 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 BIRs own issuances
but later was suddenly saddled with deficiency taxes due
to its subsequent ruling changing the category of the
taxpayers 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 120day 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. DA489-03 was issued only after San Roque filed its judicial
claim. At the time San Roque filed its judicial claim,
the law as applied and administered by the BIR was that
the Commissioner had 120 days to act on administrative
claims. This was in fact the position of the BIR prior to
the issuance of BIR Ruling No. DA-489-03. Indeed, San

Roque never claimed the benefit of BIR Ruling No. DA-48903 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.
Philexs situation is not a case of premature filing of
its judicial claim but of late filing, indeed very late
filing. BIR Ruling No. DA-489-03 allowed premature filing
of a judicial claim, which means non-exhaustion of the
120-day period for the Commissioner to act on an
administrative claim. Philex cannot claim the benefit of
BIR Ruling No. DA-489-03 because Philex did not file its
judicial claim prematurely but filed it long after the
lapse of the 30-day period following the expiration of
the 120-day period. In fact, Philex filed its judicial
claim 426 days after the lapse of the 30-day period.
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 twoyear prescriptive period. The effect of the claim of the
dissenting opinions is that San Roques 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 petitioners 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 petitioners
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 petitioners transactions fall under the
classification of zero-rated sales, nevertheless denied

petitioners 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
"petitioners 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 twoyear 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 Ironcons 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
petitioners 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.
Petitioners 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 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 twoyear 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 sixtyday 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
x x x x
(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 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.
x x x x
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
x x x x
(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.1wphi1
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 readopting 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 Roques claim,
having been filed administratively on 28 March 2003, is
governed by the 1997 Tax Code, not the 1977 Tax Code.
Since San Roque filed its judicial claim before the
expiration of the 120-day mandatory and jurisdictional
period, San Roques claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which
expressly provides that the taxpayer can only file the
judicial claim "after" the lapse of the 60-day period
from the filing of the administrative claim. 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 wellsettled 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.

SECOND DIVISION
G.R. No. 193301

March 11, 2013

MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 194637
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
D E C I S I O N
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 Partnerships
(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 CIRs petition for review in CTA
Case No. 476. The CTA En Banc denied Mindanao I
Geothermal Partnerships (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 IIs
alleged excess or unutilized input taxes due to VAT zerorated sales. In CTA Case No. 7227, Mindanao II claims a
tax refund or credit of P3,160,984.69 for the first
quarter of 2003. In CTA Case No. 7287, Mindanao II claims
a tax refund or credit of P1,562,085.33 for the second
quarter of 2003. In CTA Case No. 7317, Mindanao II claims
a tax refund or credit of P3,521,129.50 for the third and
fourth quarters of 2003.
The CTA First Divisions narration of the pertinent facts
is as follows:
x x x x
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.
x x x x
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
IIs input tax credits remain unutilized.
Thus, on the belief that its sales qualify for VAT zerorating, Mindanao II adopted the VAT zero-rating of the
EPIRA in computing for its VAT payable when it filed its
Quarterly VAT Returns on the following dates:
CTA Case No.

7227

Period Covered
(2003)

1st Quarter

2003

(sic),
April 1, 2004 &
October 22, 2004

7287

2nd Quarter

July 22,
2003

April 1, 2004

7317

3rd Quarter

Oct. 27,
2003

April 1, 2004

7317

4th Quarter

Jan. 26,
2004

April 1, 2204

Considering that it has accumulated unutilized creditable

input taxes from its only income-generating activity,
Mindanao II filed an application for refund and/or
issuance of tax credit certificate with the BIRs 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

Date of Filing
Original
Return

Amended Return

April 23,

July 3, 2002

In its 22 September 2008 Decision,12 the CTA First

Division found that Mindanao II satisfied the twin
requirements for VAT zero rating under EPIRA: (1) it is a
generation company, and (2) it derived sales from power
generation. The CTA First Division also stated that
Mindanao II complied with five requirements to be
entitled to a refund:

1. There must be zero-rated or effectively zero-rated

sales;

7317

3rd
Quarter

25 Oct.
2003

1 April
2004

13 April 2005

9 Sept.
2005

7317

4th
Quarter

26 Jan.
2004

1 April
2004

13 April 2005

9 Sept.
200515

2. That input taxes were incurred or paid;

3. That such input VAT payments are directly attributable
to zero-rated sales or effectively zero-rated sales;
4. That the input VAT payments were not applied against
any output VAT liability; and
5. That the claim for refund was filed within the twoyear prescriptive period.13
With respect to the fifth requirement, the CTA First
Division tabulated the dates of filing of Mindanao IIs
return as well as its administrative and judicial claims,
and concluded that Mindanao IIs administrative and
judicial claims were timely filed in compliance with this
Courts ruling in Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal
Revenue (Atlas).14 The CTA First Division declared that
the two-year prescriptive period for filing a VAT refund
claim should not be counted from the close of the quarter
but from the date of the filing of the VAT return. As
ruled in Atlas, VAT liability or entitlement to a refund
can only be determined upon the filing of the quarterly
VAT return.
CTA
Case
No.

Period
Covered
(2003)

Date Filing
Original
Return

Amended
Return

Administrative Judicial
Return
Claim

7227

1st
Quarter

23 April
2003

1 April
2004

13 April 2005

2nd
Quarter

22 July
2003

1 April
2004

13 April 2005

7287

22 April
2005
7 July
2005

Thus, counting from 23 April 2003, 22 July 2003, 25

October 2003, and 26 January 2004, when Mindanao II filed
its VAT returns, its administrative claim filed on 13
April 2005 and judicial claims filed on 22 April 2005, 7
July 2005, and 9 September 2005 were timely filed in
accordance with Atlas.
The CTA First Division found that Mindanao II is entitled
to a refund in the modified amount of P7,703,957.79,
after disallowing P522,059.91 from input VAT16 and
deducting P18,181.82 from Mindanao IIs sale of a fully
depreciated P200,000.00 Nissan Patrol. The input taxes
amounting to P522,059.91 were disallowed for failure to
meet invoicing requirements, while the input VAT on the
sale of the Nissan Patrol was reduced by P18,181.82
because the output VAT for the sale was not included in
the VAT declarations.
The dispositive portion of the CTA First Divisions 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 (P7,703,957.79)
representing its unutilized input VAT for the four (4)
quarters of the taxable year 2003.
SO ORDERED.17
Mindanao II filed a motion for partial reconsideration.18
It stated that the sale of the fully depreciated Nissan
Patrol is a one-time transaction and is not incidental to
its VAT zero-rated operations. Moreover, the disallowed

input taxes substantially complied with the requirements

for refund or tax credit.
The CIR also filed a motion for partial reconsideration.
It argued that the judicial claims for the first and
second quarters of 2003 were filed beyond the period
allowed by law, as stated in Section 112(A) of the 1997
Tax Code. The CIR further stated that Section 229 is a
general provision, and governs cases not covered by
Section 112(A). The CIR countered the CTA First
Divisions 22 September 2008 decision by citing this
Courts ruling in Commisioner of Internal Revenue v.
Mirant Pagbilao Corporation (Mirant),19 which stated that
unutilized input VAT payments must be claimed within two
years reckoned from the close of the taxable quarter when
the relevant sales were made regardless of whether said
tax was paid.
The CTA First Division denied Mindanao IIs motion for
partial reconsideration, found the CIRs motion for
partial reconsideration partly meritorious, and rendered
an Amended Decision20 on 26 June 2009. The CTA First
Division stated that the claim for refund or credit with
the BIR and the subsequent appeal to the CTA must be
filed within the two-year period prescribed under Section
229. The two-year prescriptive period in Section 229 was
denominated as a mandatory statute of limitations.
Therefore, Mindanao IIs claims for refund for the first
and second quarters of 2003 had already prescribed.
The CTA First Division found that the records of Mindanao
IIs case are bereft of evidence that the sale of the
Nissan Patrol is not incidental to Mindanao IIs VAT
zero-rated operations. Moreover, Mindanao IIs submitted
documents failed to substantiate the requisites for the
refund or credit claims.
The CTA First Division modified its 22 September 2008
Decision to read as follows:
WHEREFORE, the Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, the CIR is hereby ORDERED to REFUND

or to ISSUE A TAX CREDIT CERTIFICATE to Mindanao II

Geothermal Partnership in the modified amount of TWO
MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT HUNDRED EIGHTY
SEVEN AND 77/100 PESOS (P2,980,887.77) representing its
unutilized input VAT for the third and fourth quarters of
the taxable year 2003.
SO ORDERED.21
Mindanao II filed a Petition for Review,22 docketed as
CTA EB No. 513, before the CTA En Banc.
The Court of Tax Appeals Ruling: En Banc
On 10 March 2010, the CTA En Banc rendered its Decision23
in CTA EB No. 513 and denied Mindanao IIs petition. The
CTA En Banc ruled that (1) Section 112(A) clearly
provides that the reckoning of the two-year prescriptive
period for filing the application for refund or credit of
input VAT attributable to zero-rated sales or effectively
zero-rated sales shall be counted from the close of the
taxable quarter when the sales were made; (2) the Atlas
and Mirant cases applied different tax codes: Atlas
applied the 1977 Tax Code while Mirant applied the 1997
Tax Code; (3) the sale of the fully-depreciated Nissan
Patrol is incidental to Mindanao IIs 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 Bancs 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 IIs 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 Is
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 P3,893,566.14 for the
first quarter of 2003. In CTA Case No. 7286, Mindanao I
claims a tax refund or credit of P2,351,000.83 for the
second quarter of 2003. In CTA Case No. 7318, Mindanao I
claims a tax refund or credit of P7,940,727.83 for the
third and fourth quarters of 2003.
Mindanao I is similarly situated as Mindanao II. The CTA
Second Divisions narration of the pertinent facts is as
follows:
x x x x

In December 1994, Mindanao I entered into a contract of

Build-Operate-Transfer (BOT) with the Philippine National
Oil Corporation Energy Development Corporation (PNOCEDC) for the finance, design, construction, testing,
commissioning, operation, maintenance and repair of a 47megawatt geothermal power plant. Under the said BOT
contract, PNOC-EDC shall supply and deliver steam to
Mindanao I at no cost. In turn, Mindanao I will convert
the steam into electric capacity and energy for PNOC-EDC
and shall subsequently supply and deliver the same to the
National Power Corporation (NPC), for and in behalf of
PNOC-EDC.
Mindanao Is 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 zerorated, which previously were subject to ten percent (10%)
VAT.
x x x x
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
P14,185, 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
P14,185,294.80 excess input VAT applied for refund, only
P11,657,447.14 can be considered substantiated excess
input VAT due to disallowances by the Independent
Certified Public Accountant, adjustment on the
disallowances per the CTA Second Divisions further
verification, and additional disallowances per the CTA
Second Divisions further verification;
(3) Mindanao Is 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 Is 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 Divisions 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
(P10,523,177.53) representing Mindanao Is 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 Is 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 zerorated sales. Mindanao I claims that its unreported
collection is directly attributable to its VAT zero-rated
sales. The CTA Second Division denied Mindanao Is motion
and maintained the proportionate allocation because there
was a portion of the gross receipts that was undeclared
in Mindanao Is 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
CIRs 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 Divisions 10
March 2009 Resolution reads:

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 Is claim. The CTA En Banc reconsidered its
31 May 2010 Decision in light of this Courts ruling in
Commissioner of Internal Revenue v. Aichi Forging Company
of Asia, Inc. (Aichi).38

WHEREFORE, premises considered, the CIRs Motion for

Partial Reconsideration and Mindanao Is Motion for
Partial Reconsideration with Motion for Clarification are
hereby DENIED for lack of merit.

The pertinent portions of the CTA En Bancs 24 November

2010 Amended Decision read:

SO ORDERED.34

(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;

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 Bancs 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 Bancs 31 May 2010
Decision. In an Amended Decision promulgated on 24
November 2010, the CTA En Banc agreed with the CIRs
claim that Section 229 of the NIRC of 1997 is
inapplicable in light of this Courts ruling in Mirant.
The CTA En Banc also ruled that the procedure prescribed

C.T.A. Case No. 7228:

(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 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;

(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, 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.

(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;
x x x x
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;

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 Is 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.
x x x x
IN VIEW OF THE FOREGOING, the Commissioner of Internal
Revenues Motion for Reconsideration is hereby GRANTED;
Mindanao Is Motion for Partial Reconsideration is hereby
DENIED for lack of merit.
The May 31, 2010 Decision of this Court En Banc is hereby
REVERSED.

Accordingly, the Petition for Review of the Commissioner

of Internal Revenue in CTA EB No. 476 is hereby GRANTED
and the entire claim of Mindanao I Geothermal Partnership
for the first, second, third and fourth quarters of 2003
is hereby DENIED.
SO ORDERED.39
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition
for Review:
I. The Honorable Court of Tax Appeals erred in holding
that the claim of Mindanao II for the 1st and 2nd
quarters of year 2003 has already prescribed pursuant to
the Mirant case.
A. The Atlas case and Mirant case have conflicting
interpretations of the law as to the reckoning date of
the two year prescriptive period for filing claims for
VAT refund.
B. The Atlas case was not and cannot be superseded by the
Mirant case in light of Section 4(3), Article VIII of the
1987 Constitution.
C. The ruling of the Mirant case, which uses the close of
the taxable quarter when the sales were made as the
reckoning date in counting the two-year prescriptive
period cannot be applied retroactively in the case of
Mindanao II.
II. The Honorable Court of Tax Appeals erred in
interpreting Section 105 of the 1997 Tax Code, as amended
in that the sale of the fully depreciated Nissan Patrol
is a one-time transaction and is not incidental to the
VAT zero-rated operation of Mindanao II.
III. The Honorable Court of Tax Appeals erred in denying
the amount disallowed by the Independent Certified Public

Accountant as Mindanao II substantially complied with the

requisites of the 1997 Tax Code, as amended, for
refund/tax credit.
A. The amount of P2,090.16 was brought about by the
timing difference in the recording of the foreign
currency deposit transaction.
B. The amount of P2,752.00 arose from the out-of-pocket
expenses reimbursed to SGV & Company which is
substantially suppoerted [sic] by an official receipt.
C. The amount of P487,355.93 was unapplied and/or was not
included in Mindanao IIs claim for refund or tax credit
for the year 2004 subject matter of CTA Case No. 7507.
IV. The doctrine of strictissimi juris on tax exemptions
should be relaxed in the present case.40
G.R. No. 194637
Mindanao I v. CIR
Mindanao I raised the following grounds in its Petition
for Review:
I. The administrative claim and judicial claim in CTA
Case No. 7228 were timely filed pursuant to the case of
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue, which was then the
controlling ruling at the time of filing.
A. The recent ruling in the Commissioner of Internal
Revenue vs. Mirant Pagbilao Corporation, which uses the
end of the taxable quarter when the sales were made as
the reckoning date in counting the two-year prescriptive
period, cannot be applied retroactively in the case of
Mindanao I.
B. The Atlas case promulgated by the Third Division of
this Honorable Court on June 8, 2007 was not and cannot
be superseded by the Mirant Pagbilao case promulgated by
the Second Division of this Honorable Court on September

12, 2008 in light of the explicit provision of Section

4(3), Article VIII of the 1987 Constitution.
II. Likewise, the recent ruling of this Honorable Court
in Commissioner of Internal Revenue vs. Aichi Forging
Company of Asia, Inc., cannot be applied retroactively to
Mindanao I in the present case.41
In a Resolution dated 14 December 2011,42 this Court
resolved to consolidate G.R. Nos. 193301 and 194637 to
avoid conflicting rulings in related cases.
The Courts Ruling
Determination of Prescriptive Period
G.R. Nos. 193301 and 194637 both raise the question of
the determination of the prescriptive period, or the
interpretation of Section 112 of the 1997 Tax Code, in
light of our rulings in Atlas and Mirant.
Mindanao IIs unutilized input VAT tax credit for the
first and second quarters of 2003, in the amounts of
P3,160,984.69 and P1,562,085.33, respectively, are
covered by G.R. No. 193301, while Mindanao Is unutilized
input VAT tax credit for the first, second, third, and
fourth quarters of 2003, in the amounts of P3,893,566.14,
P2,351,000.83, and P7,940,727.83, respectively, are
covered by G.R. No. 194637.
Section 112 of the 1997 Tax Code
The pertinent sections of the 1997 Tax Code, the law
applicable at the time of Mindanao IIs and Mindanao Is
administrative and judicial claims, provide:
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zerorated or Effectively Zero-rated Sales. - Any VATregistered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid

attributable to such sales, except transitional input

tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in
the case of zero-rated sales under Section 106(A)(2)(a)
(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or
paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
x x x x
(D) Period within which Refund or Tax Credit of Input
Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate
for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete
documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
x x x x

43

(Underscoring supplied)

The relevant dates for G.R. No. 193301 (Mindanao II) are:
CT
A

Period
covered

Close
of

Last
day

Actual
date of

Last
day

Actual
Date

Ca
se
No
.

by
VAT
Sales in
2003 and
amount

quart
er
when
sales
were
made

for
filing
applica
tion
of tax
refund/
tax
credit
certifi
cate
with
the
CIR

filing
applicati
on for
tax
refund/
credit
with the
CIR
(administ
rative
claim)44

for
filin
g
case
with
CTA45

of
filing
case
with
CTA
(judic
ial
claim)

72
27

1st
Quarter,
P3,160,9
84.69

31
March
2003

31
March
2005

13 April
2005

12
Septe
mber
2005

22
April
2005

72
87

2nd
Quarter,
P1,562,0
85.33

30
June
2003

30 June
2005

13 April
2005

12
Septe
mber
2005

7 July
2005

3rd and
4th
Quarters
,
P3,521,1
29.50

30
Septe
mber
2003

30
Septemb
er
2005

12
Septe
mber
2005

9
Septem
ber
2005

31
Decem
ber
2003

2
January
2006
(31
Decembe
r
2005
being
a

73
17

13 April
2005

Saturda
y)
The relevant dates for G.R. No. 194637 (Minadanao I) are:
CT
A
Ca
se
No
.

Period
covered
by
VAT
Sales in
2003 and
amount

Close
of
quart
er
when
sales
were
made

Last
day
for
filing
applica
tion
of tax
refund/
tax
credit
certifi
cate
with
the
CIR

Actual
date of
filing
applicati
on for
tax
refund/
credit
with the
CIR
(administ
rative
claim)46

Last
day
for
filin
g
case
with
CTA47

Actual
Date
of
filing
case
with
CTA
(judic
ial
claim)

72
27

1st
Quarter,
P3,893,5
66.14

31
March
2003

31
March
2005

4 April
2005

1
Septe
mber
2005

22
April
2005

72
87

2nd
Quarter,
P2,351,0
00.83

30
June
2003

30 June
2005

4 April
2005

1
Septe
mber
2005

7 July
2005

73
17

3rd
and 4th
Quarters
,
P7,940,7
27.83

30
Septe
mber
2003

30
Septemb
er
2005

4 April
2005

1
Septe
mber
2005

9
Septem
ber
2005

31
Decem

2
January

ber
2003

2006
(31
Decembe
r
2005
being
a
Saturda
y)

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
Roques 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 taxpayers 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 Commissioners 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 Roques 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 Roques void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of
the Civil Code states that such void petition cannot be
legitimized "except when the law itself authorizes its
validity." There is no law authorizing the petitions
validity.
It is hornbook doctrine that a person committing a void
act contrary to a mandatory provision of law cannot claim

or acquire any right from his void act. A right cannot

spring in favor of a person from his own void or illegal
act. This doctrine is repeated in Article 2254 of the
Civil Code, which states, "No vested or acquired right
can arise from acts or omissions which are against the
law or which infringe upon the rights of others." For
violating a mandatory provision of law in filing its
petition with the CTA, San Roque cannot claim any right
arising from such void petition. Thus, San Roques
petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the
mandatory and jurisdictional nature of the 120-day period
just because the Commissioner merely asserts that the
case was prematurely filed with the CTA and does not
question the entitlement of San Roque to the refund. The
mere fact that a taxpayer has undisputed excess input
VAT, or that the tax was admittedly illegally,
erroneously or excessively collected from him, does not
entitle him as a matter of right to a tax refund or
credit. Strict compliance with the mandatory and
jurisdictional conditions prescribed by law to claim such
tax refund or credit is essential and necessary for such
claim to prosper. Well-settled is the rule that tax
refunds or credits, just like tax exemptions, are
strictly construed against the taxpayer.
The burden is on the taxpayer to show that he has
strictly complied with the conditions for the grant of
the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional
conditions mandated by law simply because the
Commissioner chose not to contest the numerical
correctness of the claim for tax refund or credit of the
taxpayer. Non-compliance with mandatory periods, nonobservance of prescriptive periods, and non-adherence to
exhaustion of administrative remedies bar a taxpayers
claim for tax refund or credit, whether or not the
Commissioner questions the numerical correctness of the
claim of the taxpayer. 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 zerorated 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 IIs 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 taxpayers 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
Commissioners decision within the 120-day mandatory and
jurisdictional period. The CTA will have no jurisdiction
because there will be no "decision" or "deemed a denial"
decision of the Commissioner for the CTA to review. In
San Roques 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 30day 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 dayperiod, 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 Commissioners
decision, or if the Commissioner does not act on the
taxpayers claim within the 120-day period, the taxpayer
may appeal to the CTA within 30 days from the expiration
of the 120-day period.
x x x x
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 Roques 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 IIs 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 CIRs 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 120day 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 IIs judicial claim
for the second quarter of 2003 was prematurely filed.
However, pursuant to San Roques recognition of the
effect of BIR Ruling No. DA-489-03, we rule that Mindanao
IIs 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 IIs 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 IIs 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 CIRs denial by inaction,52 the last day
for filing a judicial claim with the CTA for the second,
third, and fourth quarters of 2003 was on 1 September
2005. However, the judicial claim cannot be filed earlier
than 2 August 2005, which is the expiration of the 120day 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 Is judicial claim
for the second quarter of 2003 was prematurely filed.
However, pursuant to San Roques recognition of the
effect of BIR Ruling No. DA-489-03, we rule that Mindanao
Is judicial claim for the second quarter of 2003
qualifies under the exception to the strict application
of the 120+30 day periods.

No. DA-489-03 expressly states that the "taxpayerclaimant 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:

(3) Mindanao I filed its judicial claim for the fourth

quarter of 2003 before the CTA on 9 September 2005.
Mindanao Is 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.

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.

San Roque: Recognition of BIR Ruling No. DA-489-03

x x x x

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 Commissioners decision within
the 120-day mandatory and jurisdictional period. The CTA
will have no jurisdiction because there will be no
decision or deemed a denial decision of the
Commissioner for the CTA to review."

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.

(2) Mindanao I filed its judicial claim for the third

quarter of 2003 before the CTA on 9 September 2005.
Mindanao Is 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.

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

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.

DA-489-03

Clearly, BIR Ruling No. DA-489-03 is a general

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

3rd
Quarter,
2003

Filed on time

Filed on
time

Grant, pursuant
to
Section 112(C)
of the
1997 Tax Code

x x x x

4th
Quarter,
2003

Filed on time

Filed on
time

Grant, pursuant
to
Section 112(C)
of the
1997 Tax Code

Administrativ
e
Claim

Judicial
Claim

Action on Claim

1st
Quarter,
2003

Filed late

--

Deny, pursuant
to
Section 112(A)
of the
1997 Tax Code

2nd
Quarter,
2003

Filed on time

Prematurely Grant, pursuant

filed
to
BIR Ruling No.
DA-489-03

3rd
Quarter,
2003

Filed on time

Filed late

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)

G.R. No. 194637

Mindanao I v. CIR

Summary of Administrative and Judicial Claims

G.R. No. 193301
Mindanao II v. CIR

1st
Quarter,
2003

2nd
Quarter,
2003

Administrativ
e
Claim

Judicial
Claim

Action on Claim

Filed late

--

Deny, pursuant
to
Section 112(A)
of the
1997 Tax Code

Filed on time

Prematurely Grant, pursuant

filed
to
BIR Ruling No.

Grant, pursuant
to
Section 112(C)
of the
1997 Tax Code

4th
Quarter,
2003

Filed on time

Filed late

Grant, pursuant
to
Section 112(C)
of the
1997 Tax Code

Summary of Rules on Prescriptive Periods Involving VAT

We summarize the rules on the determination of the
prescriptive period for filing a tax refund or credit of
unutilized input VAT as provided in Section 112 of the
1997 Tax Code, as follows:
(1) An administrative claim must be filed with the CIR
within two years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales were
made.
(2) The CIR has 120 days from the date of submission of
complete documents in support of the administrative claim
within which to decide whether to grant a refund or issue
a tax credit certificate. The 120-day period may extend
beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later
part of the two-year period. If the 120-day period
expires without any decision from the CIR, then the
administrative claim may be considered to be denied by
inaction.
(3) A judicial claim must be filed with the CTA within 30
days from the receipt of the CIRs decision denying the
administrative claim or from the expiration of the 120day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on 6
October 2010, as an exception to the mandatory and
jurisdictional 120+30 day periods.
"Incidental" Transaction

Mindanao II asserts that the sale of a fully depreciated

Nissan Patrol is not an incidental transaction in the
course of its business; hence, it is an isolated
transaction that should not have been subject to 10% VAT.
Section 105 of the 1997 Tax Code does not support
Mindanao IIs position:
SEC. 105. Persons Liable. - Any person who, in the course
of trade or business, sells barters, exchanges, leases
goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. This rule
shall likewise apply to existing contracts of sale or
lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by
any person regardless of whether or not the person
engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members
or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding,
services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be
considered as being rendered in the course of trade or
business. (Emphasis supplied)
Mindanao II relies on Commissioner of Internal Revenue v.
Magsaysay Lines, Inc. (Magsaysay)55 and Imperial v.
Collector of Internal Revenue (Imperial)56 to justify its
position. Magsaysay, decided under the NIRC of 1986,
involved the sale of vessels of the National Development
Company (NDC) to Magsaysay Lines, Inc. We ruled that the

sale of vessels was not in the course of NDCs trade or

business as it was involuntary and made pursuant to the
Governments policy for privatization. Magsaysay, in
quoting from the CTAs 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 IIs sale of the Nissan Patrol is said to be an
isolated transaction.1wphi1 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 IIs 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 IIs property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an
incidental transaction made in the course of Mindanao IIs
business which should be liable for VAT.
Substantiation Requirements
Mindanao II claims that the CTAs disallowance of a total
amount of P492,198.09 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 IIs 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 Bancs 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.