FIRST DIVISION

[G.R. No. 125355. March 30, 2000.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS
COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, respondents.

and

The Solicitor General for petitioner.

Benilda V. Quevedo-Santos and Anita A. Diomalanta-Arcinue for private respondent.
SYNOPSIS
Commonwealth Management and Services Corporation (COMASERCO) is a corporation duly organized and existing
under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by
the latter to perform collection, consultative and other technical services, including functioning as an internal auditor
of Philamlife and its other affiliates. 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. COMASERCO filed
with the Court of Tax Appeals a petition for review contesting the Commissioner's assessment. COMASERCO asserted
that the services it rendered to Philamlife and its affiliates were on a "no-profit, reimbursement-of-cost-only" basis,
thus they were 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. The Court of Tax Appeals
rendered a decision in favor of the Commissioner of Internal Revenue. Respondent filed with the Court of Appeals a
petition for review of the decision of the Court of Tax Appeals. After due proceedings, the Court of Appeals rendered a
decision reversing that of the Court of Tax Appeals. The Commissioner of Internal Revenue filed with the Supreme
Court a petition for review on certiorari assailing the decision of the Court of Appeals. At issue in this case was whether
COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.
The Supreme Court agreed with the Commissioner of Internal Revenue. Contrary to COMASERCO's contention, Sec.
105 of the National Internal Revenue Code of 1997 clarifies that even a non-stock, non-profit organization or
government entity is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every
stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto. There was no merit to respondent's contention that the
Court of Appeals' decision declaring the COMASERCO as not engaged in business and not liable for the payment of
fixed and percentage taxes, binds petitioner. The issue in the appellate court is different from the present case, which
involves COMASERCO's liability for VAT. 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. The Court reversed the decision of the Court of
Appeals and reinstated the decision of the Court of Tax Appeals.
SYLLABUS
1. TAXATION; Republic Act No. 7716 (EXPANDED VAT LAW); CLARIFIES THAT EVEN A NON-STOCK, NON-PROFIT
ORGANIZATION OR GOVERNMENT ENTITY IS LIABLE TO PAY VAT ON THE SALE OF GOODS OR SERVICES. 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. Contrary to COMASERCO's contention the amended law clarifies that even a non-stock, non-profit, organization
or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at
every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profitoriented. The definition of the term "in the course of trade or business" incorporated in the 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. Section 108 of the National Internal Revenue Code of 1997 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."
2. ID.; ID.; BIR RULING NO. 010-98; EMPHASIZED THAT AS LONG AS THE ENTITY PROVIDES SERVICE FOR A FEE,
REMUNERATION OR CONSIDERATION, THEN THE SERVICE RENDERED IS SUBJECT TO VALUE ADDED TAX (VAT). On
February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 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 of 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.
3. ID.; TAXES; EXEMPTION FROM THE PAYMENT THEREOF CONSTRUED STRICTLY AGAINST THE GRANTEE AND
LIBERALLY IN FAVOR OF THE GOVERNMENT; APPLICATION IN CASE AT BAR. 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. 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.
4. REMEDIAL LAW; EVIDENCE; CONCLUSIONS OF QUASI-JUDICIAL AGENCIES; RESPECTED ON APPEAL; CASE AT BAR.
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 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. 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 and abuse or improvident exercise of its
authority. aITDAE
DECISION
PARDO, J p:
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. Cdpr
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 latter to perform collection, consultative and other technical services, including functioning as an
internal auditor, of Philamlife and its other affiliates.
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
25% surcharge 41,978.88
20% interest per annum 125,936.63
Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P351,831.01" 3

===========

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 Appeals 4 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 "noprofit, reimbursement-of-cost-only" basis. It averred that it was not engaged in the business of providing services to
Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative
efficiency of Philamlife and its affiliates, and not in the sale of services. COMASERCO stressed that it was not 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. cdasia
On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue, the
dispositive portion of which reads:
"WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency
value-added tax for the taxable year 1988 is AFFIRMED with slight modifications. Accordingly,
petitioner is ordered to pay respondent Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992
until fully paid pursuant to Section 248 and 249 of the Tax Code.
"The compromise penalty of P16,000.00 imposed by the respondent in her assessment letter shall
not be included in the payment as there was no compromise agreement entered into between
petitioner and respondent with respect to the value-added tax deficiency." 5
On July 26, 1995, respondent filed with the Court of Appeals, a petition for review of the decision of the Court of
Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing that of the Court of Tax
Appeals, the dispositive portion of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered REVERSING and SETTING ASIDE
the questioned Decision promulgated on 22 June 1995. The assessment for deficiency value-added
tax for the taxable year 1988 inclusive of surcharge, interest and penalty charges are ordered
CANCELLED for lack of legal and factual basis." 6
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.
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. cdasia
We agree with the Commissioner.

Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E.O.) No. 273 in 1988,
provides that:
"SECTION 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:
"SECTION 105. Persons Liable. Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be
subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code.
"The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to
existing sale or lease of goods, properties or services at the time of the effectivity of Republic Act No.
7716.
"The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to members of
their guests), or government entity.
"The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in
the Philippines by nonresident foreign persons shall be considered as being rendered in the course of
trade or business."
Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit organization or
government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every
stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profitoriented.
The definition of the term "in the course of trade or business" incorporated in the 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. cda
Section 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 of 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.
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. cdtai
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.
Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

SECOND DIVISION
[G.R. No. 151135. July 2, 2004.]
CONTEX
CORPORATION, petitioner, vs.
REVENUE, respondent.

HON.

COMMISSIONER

OF

INTERNAL

DECISION
QUISUMBING, J p:
For review is the Decision 1 dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823, which
reversed and set aside the decision 2 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 court's 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. Petitioner's place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly
registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the
provisions of Republic Act No. 7227. 4 As an SBMA-registered firm, petitioner is exempt from all local and national
internal revenue taxes except for the preferential tax provided for in Section 12(c) 5 of Rep. Act No. 7227. Petitioner
also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO
Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in the
conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the
purchased items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997
and 1998, respectively. 6
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 204 10 and 229 11 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. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay
Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of supplies
and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the Implementing Rules and
Regulations of the Bases Conversion and Development Act of 1992, all that petitioner is required to pay as a SBFZregistered 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 petitioner's Makati and Pasay City offices. aDATHC
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 CIR's 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.
Contex's 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 107 15of the Tax Code specifically imposes the VAT on importations. The appellate court
applied the principle that tax exemptions are strictly construed against the taxpayer. The Court of Appeals pointed out
that under the implementing rules of Rep. Act No. 7227, the exemption of SBFZ-registered enterprises from internal
revenue taxes is qualified as pertaining only to those for which they may be directly liable. It then stated that
apparently, the legislative intent behind Rep. Act No. 7227 was to grant exemptions only to direct taxes, which SBFZregistered 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 INRepublic 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 court's restrictive interpretation of petitioner's VAT exemption as
limited to those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis. It contends that the
provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local and national taxes shall be imposed
upon SBFZ-registered firms and hence, said law should govern the case. Petitioner calls our attention to regulations
issued by both the SBMA and BIR clearly and categorically providing that the tax exemption provided for by Rep. Act
No. 7227 includes exemption from the imposition of VAT on purchases of supplies and materials.
The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions, such
grant is not all-encompassing but is limited only to those taxes for which a SBFZ-registered business may be directly
liable. Hence, SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a VAT-registered
seller.
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods,
properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to
the buyer, transferee or lessee. 17 Unlike a direct tax, such as the income tax, which primarily taxes an individual's
ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods,
services, or certain transactions involving the same. 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 VAT-registered
purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to
any input tax on such purchase despite the issuance of a VAT invoice or receipt. 21
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate,
meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered
person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However,
the input tax on his purchases of goods, properties or services related to such zero-rated sale shall
be available as tax credit or refund in accordance with these regulations. 22
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 firm's
business or non-retail customers. It is for this reason that a sharp distinction must be made between zero-rating and
exemption in designating a value-added tax. 23
Apropos, the petitioner's claim to VAT exemption in the instant case for its purchases of supplies and raw materials is
founded mainly on Section 12(b) and (c) of 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
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 Registration 25 issued by the BIR. As such, it is
exempt from VAT on all its sales and importations of goods and services.

Petitioner's claim, however, for exemption from VAT for its purchases of supplies and raw materials is incongruous with
its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT Credit/Refund.
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. CcADHI
Section 4.100-2 of BIR's 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.
The following sales by VAT-registered persons shall be subject to 0%:
(a) Export Sales
"Export Sales" shall mean
xxx xxx xxx
(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.
xxx xxx xxx
(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly
registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and
Clark Development Authority (CDA), R.A. No. 7916, Philippine Economic Zone Authority
(PEZA), or international agreements, e.g. Asian Development Bank (ADB), International Rice
Research Institute (IRRI), etc. to which the Philippines is a signatory effectively subject such
sales to zero-rate."
Since the transaction is deemed a zero-rated sale, petitioner's supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT taxpayer and
thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously
paid. In fine, even if we are to assume that exemption from the burden of VAT on petitioner's 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 petitioner's suppliers who are the proper parties to claim the tax credit and accordingly refund the
petitioner of the VAT erroneously passed on to the latter.
Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that petitioner's
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.
Puno, Callejo, Sr. and Tinga, JJ ., concur.

Austria-Martinez, J ., is on leave.
||| (Contex Corp. v. Commr., G.R. No. 151135, July 02, 2004)

SECOND DIVISION
[G.R. No. 178697. November 17, 2010.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SONY PHILIPPINES, INC., respondent.
DECISION
MENDOZA, J p:
This petition for review on certiorari seeks to set aside the May 17, 2007 Decision and the July 5, 2007 Resolution of
the Court of Tax Appeals En Banc 1 (CTA-EB), in C.T.A. EB No. 90, affirming the October 26, 2004 Decision of the
CTA-First Division 2which, in turn, partially granted the petition for review of respondent Sony Philippines, Inc. (Sony).
The CTA-First Division decision cancelled the deficiency assessment issued by petitioner Commissioner of Internal
Revenue (CIR) against Sony for Value Added Tax (VAT) but upheld the deficiency assessment for expanded withholding
tax (EWT) in the amount of P1,035,879.70 and the penalties for late remittance of internal revenue taxes in the
amount of P1,269,593.90. 3
THE FACTS:
On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue
officers to examine Sony's books of accounts and other accounting records regarding revenue taxes for "the period
1997 and unverified prior years." On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and
penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the CIR issued final
assessment notices, the formal letter of demand and the details of discrepancies. 4 Said details of the deficiency taxes
and penalties for late remittance of internal revenue taxes are as follows:

DEFICIENCY VALUE-ADDED TAX (VAT)

(Assessment No. ST-VAT-97-0124-2000)

Basic Tax Due

Add: Penalties

P7,958,700.00

Interest up to 3-31-2000

P3,157,314.41

Compromise

25,000.00

3,182,314.41

Deficiency VAT Due

P11,141,014.41

=========

DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)

(Assessment No. ST-EWT-97-0125-2000)

Basic Tax Due

P1,416,976.90

Add: Penalties

Interest up to 3-31-2000

P550,485.82

Compromise

25,000.00

575,485.82

Deficiency EWT Due

P1,992,462.72

=========

DEFICIENCY OF VAT ON ROYALTY PAYMENTS

(Assessment No. ST-LR1-97-0126-2000)

Basic Tax Due

Add: Penalties

Surcharge

P359,177.80

Interest up to 3-31-2000

87,580.34

Compromise

16,000.00

462,758.14

Penalties Due

P462,758.14

========

LATE REMITTANCE OF FINAL WITHHOLDING TAX

(Assessment No. ST-LR2-97-0127-2000)

Basic Tax Due

Add: Penalties

Surcharge

P1,729,690.71

Interest up to 3-31-2000

508,783.07

Compromise

50,000.00

2,288,473.78

Penalties Due

P2,288,473.78

=========

LATE REMITTANCE OF INCOME PAYMENTS

(Assessment No. ST-LR3-97-0128-2000)

Basic Tax Due

Add: Penalties

25% Surcharge

P8,865.34

Interest up to 3-31-2000

58.29

Compromise

2,000.00

10,923.60

Penalties Due

P10,923.60

=======

GRAND TOTAL

P15.895,632.65 5

============

Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000. Sony submitted
relevant documents in support of its protest on the 16th of that same month. 6
On October 24, 2000, within 30 days after the lapse of 180 days from submission of the said supporting documents to
the CIR, Sony filed a petition for review before the CTA. 7
After trial, the CTA-First Division disallowed the deficiency VAT assessment because the subsidized advertising expense
paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. As regards the EWT, the CTAFirst Division maintained the deficiency EWT assessment on Sony's motor vehicles and on professional fees paid to
general professional partnerships. It also assessed the amounts paid to sales agents as commissions with five percent
(5%) EWT pursuant to Section 1 (g) of Revenue Regulations No. 6-85. The CTA-First Division, however, disallowed the
EWT assessment on rental expense since it found that the total rental deposit of P10,523,821.99 was incurred from
January to March 1998 which was again beyond the coverage of LOA 19734. Except for the compromise penalties, the
CTA-First Division also upheld the penalties for the late payment of VAT on royalties, for late remittance of final
withholding tax on royalty as of December 1997 and for the late remittance of EWT by some of Sony's branches. 8 In
sum, the CTA-First Division partly granted Sony's petition by cancelling the deficiency VAT assessment but upheld a
modified deficiency EWT assessment as well as the penalties. Thus, the dispositive portion reads: ICDSca
WHEREFORE, the petition for review is hereby PARTIALLY GRANTED. Respondent is ORDERED to
CANCEL and WITHDRAW the deficiency assessment for value-added tax for 1997 for lack of merit.
However, the deficiency assessments for expanded withholding tax and penalties for late remittance
of internal revenue taxes are UPHELD.
Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded withholding tax
in the amount of P1,035,879.70 and the following penalties for late remittance of internal revenue
taxes in the sum of P1,269,593.90:

1.

VAT on Royalty

P429,242.07

2.

Withholding Tax on Royalty

831,428.20

3.

EWT of Petitioner's Branches

8,923.63

Total

P1,269,593.90

===========

Plus 20% delinquency interest from January 17, 2000 until fully paid pursuant to Section 249(C)(3) of
the 1997 Tax Code.
SO ORDERED. 9
The CIR sought a reconsideration of the above decision and submitted the following grounds in support thereof:
A.The Honorable Court committed reversible error in holding that petitioner is not liable for the
deficiency VAT in the amount of P11,141,014.41;
B.The Honorable court committed reversible error in holding that the commission expense in the
amount of P2,894,797.00 should be subjected to 5% withholding tax instead of the 10% tax
rate;
C.The Honorable Court committed a reversible error in holding that the withholding tax assessment
with respect to the 5% withholding tax on rental deposit in the amount of P10,523,821.99
should be cancelled; and
D.The Honorable Court committed reversible error in holding that the remittance of final withholding
tax on royalties covering the period January to March 1998 was filed on time. 10
On April 28, 2005, the CTA-First Division denied the motion for reconsideration. Unfazed, the CIR filed a petition for
review with the CTA-EB raising identical issues:
1.Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of
P11,141,014.41; DHCSTa
2.Whether or not the commission expense in the amount of P2,894,797.00 should be subjected to
10% withholding tax instead of the 5% tax rate;
3.Whether or not the withholding assessment with respect to the 5% withholding tax on rental
deposit in the amount of P10,523,821.99 is proper; and
4.Whether or not the remittance of final withholding tax on royalties covering the period January to
March 1998 was filed outside of time. 11
Finding no cogent reason to reverse the decision of the CTA-First Division, the CTA-EB dismissed CIR's petition on May
17, 2007. CIR's motion for reconsideration was denied by the CTA-EB on July 5, 2007.

The CIR is now before this Court via this petition for review relying on the very same grounds it raised before the CTAFirst Division and the CTA-EB. The said grounds are reproduced below:
GROUNDS FOR THE ALLOWANCE OF THE
PETITION
I
THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS NOT LIABLE FOR DEFICIENCY
VAT IN THE AMOUNT OF PHP11,141,014.41.
II
AS TO RESPONDENT'S DEFICIENCY EXPANDED WITHHOLDING TAX IN THE AMOUNT OF
PHP1,992,462.72:
A.THE CTA EN BANC ERRED IN RULING THAT THE COMMISSION EXPENSE IN THE AMOUNT
OF PHP2,894,797.00 SHOULD BE SUBJECTED TO A WITHHOLDING TAX OF 5%
INSTEAD OF THE 10% TAX RATE.
B.THE CTA EN BANC ERRED IN RULING THAT THE ASSESSMENT WITH RESPECT TO THE 5%
WITHHOLDING TAX ON RENTAL DEPOSIT IN THE AMOUNT OF PHP10,523,821.99 IS
NOT PROPER. ECcaDT
III
THE CTA EN BANC ERRED IN RULING THAT THE FINAL WITHHOLDING TAX ON ROYALTIES
COVERING THE PERIOD JANUARY TO MARCH 1998 WAS FILED ON TIME. 12
Upon filing of Sony's comment, the Court ordered the CIR to file its reply thereto. The CIR subsequently filed a
manifestation informing the Court that it would no longer file a reply. Thus, on December 3, 2008, the Court resolved to
give due course to the petition and to decide the case on the basis of the pleadings filed. 13
The Court finds no merit in the petition.
The CIR insists that LOA 19734, although it states "the period 1997 and unverified prior years," should be understood
to mean the fiscal year ending in March 31, 1998. 14 The Court cannot agree.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue
officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of
account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. 15 The
very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to
examine and assess a taxpayer.
SEC. 6.Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement.
(A)Examination of Returns and Determination of tax Due. After a return has been filed as required
under the provisions of this Code, the Commissioner or his duly authorized representative may
authorize the examination of any taxpayer and the assessment of the correct amount of
tax: Provided, however, That failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer. . . . [Emphases supplied]
Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment.
Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of
such an authority, the assessment or examination is a nullity.
As earlier stated, LOA 19734 covered "the period 1997 and unverified prior years." For said reason, the CIR acting
through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they
arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998.
As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period should be covered

by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so
by including it in the LOA or issuing another LOA. TaISEH
Upon review, the CTA-EB even added that the coverage of LOA 19734, particularly the phrase "and unverified prior
years," violated Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent portion
of which reads:
3.A Letter of Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a
taxpayer shall include more than one taxable period, the other periods or years shall be specifically
indicated in the L/A. 16 [Emphasis supplied]
On this point alone, the deficiency VAT assessment should have been disallowed. Be that as it may, the CIR's
argument, that Sony's advertising expense could not be considered as an input VAT credit because the same was
eventually reimbursed by Sony International Singapore (SIS), is also erroneous.
The CIR contends that since Sony's advertising expense was reimbursed by SIS, the former never incurred any
advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising
expense should be for the account of SIS, and not Sony. 17
The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sony's deficiency
VAT assessment stemmed from the CIR's disallowance of the input VAT credits that should have been realized from the
advertising expense of the latter. 18 It is evident under Section 110 19 of the 1997 Tax Code that an advertising
expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than CIR's own
witness, Revenue Officer Antonio Aluquin. 20 There is also no denying that Sony incurred advertising expense. Aluquin
testified that advertising companies issued invoices in the name of Sony and the latter paid for the
same. 21 Indubitably, Sony incurred and paid for advertising expense/services. Where the money came from is
another matter all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable. In
support of this, the CIR cited a portion of Sony's protest filed before it:
The fact that due to adverse economic conditions, Sony-Singapore has granted to our client a
subsidy equivalent to the latter's advertising expenses will not affect the validity of the input taxes
from such expenses. Thus, at the most, this is an additional income of our client subject to income
tax. We submit further that our client is not subject to VAT on the subsidy income as this was not
derived from the sale of goods or services. 22 cIACaT
Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax, the Court
agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the
said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony's advertising expense
for it was but an assistance or aid in view of Sony's dire or adverse economic conditions, and was only "equivalent to
the latter's (Sony's) advertising expenses."
Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus:
SEC. 106.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, value-added tax equivalent to ten percent (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.
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there
was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in
payment for goods or properties sold, bartered or exchanged by Sony.
In the case of CIR v. Court of Appeals (CA), 23 the Court had the occasion to rule that services rendered for a fee even
on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however, is not
applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates
paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred although
without profit. This is not true in the present case. Sony did not render any service to SIS at all. The services rendered
by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance

to Sony in the amount equivalent to the latter's advertising expense but never received any goods, properties or
service from Sony.
Regarding the deficiency EWT assessment, more particularly Sony's commission expense, the CIR insists that said
deficiency EWT assessment is subject to the ten percent (10%) rate instead of the five percent (5%) citing Revenue
Regulation No. 2-98 dated April 17, 1998. 24 The said revenue regulation provides that the 10% rate is applied when
the recipient of the commission income is a natural person. According to the CIR, Sony's schedule of Selling, General
and Administrative expenses shows the commission expense as "commission/dealer salesman incentive," emphasizing
the word salesman.
On the other hand, the application of the five percent (5%) rate by the CTA-First Division is based on Section 1 (g) of
Revenue Regulations No. 6-85 which provides: ScCEIA
(g)Amounts paid to certain Brokers and Agents. On gross payments to customs, insurance, real
estate and commercial brokers and agents of professional entertainers five per centum (5%). 25
In denying the very same argument of the CIR in its motion for reconsideration, the CTA-First Division, held:
. . ., commission expense is indeed subject to 10% withholding tax but payments made to broker is
subject to 5% withholding tax pursuant to Section 1(g) of Revenue Regulations No. 6-85. While the
commission expense in the schedule of Selling, General and Administrative expenses submitted by
petitioner (SPI) to the BIR is captioned as "commission/dealer salesman incentive" the same does not
justify the automatic imposition of flat 10% rate. As itemized by petitioner, such expense is
composed of "Commission Expense" in the amount of P10,200.00 and 'Broker Dealer' of
P2,894,797.00. 26
The Court agrees with the CTA-EB when it affirmed the CTA-First Division decision. Indeed, the applicable rule is
Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which was the applicable rule during
the subject period of examination and assessment as specified in the LOA. Revenue Regulations No. 2-98, cited by the
CIR, was only adopted in April 1998 and, therefore, cannot be applied in the present case. Besides, the withholding tax
on brokers and agents was only increased to 10% much later or by the end of July 2001 under Revenue Regulations
No. 6-2001. 27 Until then, the rate was only 5%.
The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT assessment on
the rental deposit. According to their findings, Sony incurred the subject rental deposit in the amount of
P10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate LOA specifying
the coverage, the CIR's deficiency EWT assessment from January to March 1998, is not valid and must be disallowed.
Finally, the Court now proceeds to the third ground relied upon by the CIR.
The CIR initially assessed Sony to be liable for penalties for belated remittance of its FWT on royalties (i) as of
December 1997; and (ii) for the period from January to March 1998. Again, the Court agrees with the CTA-First Division
when it upheld the CIR with respect to the royalties for December 1997 but cancelled that from January to March 1998.
The CIR insists that under Section 3 28 of Revenue Regulations No. 5-82 and Sections 2.57.4 and 2.58 (A) (2) (a) 29 of
Revenue Regulations No. 2-98, Sony should also be made liable for the FWT on royalties from January to March of
1998. At the same time, it downplays the relevance of the Manufacturing License Agreement (MLA) between Sony and
Sony-Japan, particularly in the payment of royalties. cdasiajur
The above revenue regulations provide the manner of withholding remittance as well as the payment of final tax on
royalty. Based on the same, Sony is required to deduct and withhold final taxes on royalty payments when the royalty
is paid or is payable. After which, the corresponding return and remittance must be made within 10 days after the end
of each month. The question now is when does the royalty become payable?
Under Article X (5) of the MLA between Sony and Sony-Japan, the following terms of royalty payments were agreed
upon:
(5)Within two (2) months following each semi-annual period ending June 30 and December 31, the
LICENSEE shall furnish to the LICENSOR a statement, certified by an officer of the LICENSEE, showing
quantities of the MODELS sold, leased or otherwise disposed of by the LICENSEE during such
respective semi-annual period and amount of royalty due pursuant this ARTICLE X therefore, and the
LICENSEE shall pay the royalty hereunder to the LICENSOR concurrently with the furnishing of the
above statement. 30

Withal, Sony was to pay Sony-Japan royalty within two (2) months after every semi-annual period which ends in June
30 and December 31. However, the CTA-First Division found that there was accrual of royalty by the end of December
1997 as well as by the end of June 1998. Given this, the FWTs should have been paid or remitted by Sony to the CIR on
January 10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First Division and the CTA-EB in ruling that the FWT
for the royalty from January to March 1998 was seasonably filed. Although the royalty from January to March 1998 was
well within the semi-annual period ending June 30, which meant that the royalty may be payable until August 1998
pursuant to the MLA, the FWT for said royalty had to be paid on or before July 10, 1998 or 10 days from its accrual at
the end of June 1998. Thus, when Sony remitted the same on July 8, 1998, it was not yet late.
In view of the foregoing, the Court finds no reason to disturb the findings of the CTA-EB. IEaCDH
WHEREFORE, the petition is DENIED.
SO ORDERED.
Carpio, Leonardo-de Castro, * Peralta and Abad, JJ., concur.
||| (Commr. v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010)

EN BANC
[G.R. No. 193007. July 19, 2011.]
THE RENATO V. DIAZ and AURORA MA. F. TIMBOL, petitioners, vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
ABAD, J p:

May toll fees collected by tollway operators be subjected to value-added tax?

The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief 1 assailing the
validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of
tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the
1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at
the House of Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the
Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration. CIaHDc
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT
on toll fees. The imposition was deferred, however, in view of the consistent opposition of Diaz and other sectors to
such move. But, upon President Benigno C. Aquino III's assumption of office in 2010, the BIR revived the idea and
would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the
meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the
formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. ITSacC
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation of the VAT.
The Court required the government, represented by respondents Cesar V. Purisima, Secretary of the Department of
Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10 days
from notice. 2 Later, the Court issued another resolution treating the petition as one for prohibition. 3
On August 23, 2010 the Office of the Solicitor General filed the government's comment. 4 The government avers that
the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law
provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute;
and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars. 5
The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally
read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates
cannot exempt tollway operators from VAT. In any event, it cannot be claimed that the rights of tollway operators to a
reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the
imposition of VAT on toll fees would have very minimal effect on motorists using the tollways.
In their reply 6 to the government's comment, petitioners point out that tollway operators cannot be regarded as
franchise grantees under the NIRC since they do not hold legislative franchises. Further, the BIR intends to collect the
VAT by rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since
only the Congress can modify VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular
63-2010 (BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in their
books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT
a transitional input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be
implemented. HaTAEc
The Issues Presented
The case presents two procedural issues:
1.Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and
2.Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:

1.Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway
operations in the terms "franchise grantees" and "sale of services" under Section 108 of the Code; and
2.Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b)
will impair the tollway operators' right to a reasonable return of investment under their TOAs; and c) is not
administratively feasible and cannot be implemented. SICaDA
The Court's Rulings
A.On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for
declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The government has sought
reconsideration of the Court's resolution, 7 however, arguing that petitioners' allegations clearly made out a case for
declaratory relief, an action over which the Court has no original jurisdiction. The government adds, moreover, that the
petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial,
quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol
has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the form of an appeal
to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the public good. 8 The Court has also held that a
petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of
legislative authority. 9
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more
than half a million motorists who use the tollways everyday, but more so on the government's effort to raise revenue
for funding various projects and for reducing budgetary deficits. aEcTDI
To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more
mischief both to the tax-paying public and the government. A belated declaration of nullity of the BIR action would
make any attempt to refund to the motorists what they paid an administrative nightmare with no solution.
Consequently, it is not only the right, but the duty of the Court to take cognizance of and resolve the issues that the
petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive
such technical requirements when the legal questions to be resolved are of great importance to the public. The same
may be said of the requirement of locus standi which is a mere procedural requisite. 10
B.On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected,
according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use
or lease of properties. The third paragraph of Section 108 defines "sale or exchange of services" as follows:
The phrase 'sale or exchange of services' means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or
real; warehousing services; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative
to their transport of goods or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies; and similar

services regardless of whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties. (Underscoring supplied) EACIaT
It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the Philippines for a fee,
including those specified in the list. The enumeration of affected services is not exclusive. 11 By qualifying "services"
with the words "all kinds," Congress has given the term "services" an all-encompassing meaning. The listing of specific
services are intended to illustrate how pervasive and broad is the VAT's reach rather than establish concrete limits to
its application. Thus, every activity that can be imagined as a form of "service" rendered for a fee should be deemed
included unless some provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation Decree
establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct,
maintain, and operate expressways, also called tollways, at the operators' expense. Tollways serve as alternatives to
regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular
public highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the
operators are allowed to collect government-approved fees from motorists using the tollways until such operators
could fully recover their expenses and earn reasonable returns from their investments. cITAaD
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities
over which the operator enjoys private proprietary rights 12 that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under Section 108 who allow others to use their
properties or facilities for a fee:
1.Lessors of property, whether personal or real;
2.Warehousing service operators;
3.Lessors or distributors of cinematographic films; DISHEA
4.Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
5.Lending investors (for use of money);
6.Transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land relative to their transport of
goods or cargoes; and
7.Common carriers by air and sea relative to their transport of passengers, goods or cargoes from
one place in the Philippines to another place in the Philippines. CaESTA
It does not help petitioners' cause that Section 108 subjects to VAT "all kinds of services" rendered for a fee
"regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties."
This means that "services" to be subject to VAT need not fall under the traditional concept of services, the personal or
professional kinds that require the use of human knowledge and skills.
And not only do tollway operators come under the broad term "all kinds of services," they also come under the specific
class described in Section 108 as "all other franchise grantees" who are subject to VAT, "except those under Section
119 of this Code."
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section
119 13spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do
an act or series of acts of public concern. 14
Petitioners of course contend that tollway operators cannot be considered "franchise grantees" under Section 108
since they do not hold legislative franchises. But nothing in Section 108 indicates that the "franchise grantees" it
speaks of are those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for
making a distinction between franchises granted by Congress and franchises granted by some other government
agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local
authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by
Congress itself. 15 The term "franchise" has been broadly construed as referring, not only to authorizations that
Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the
power to grant franchises has been delegated by Congress. 16

Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction,
operation, and maintenance of toll facilities on public improvements are activities of public consequence that
necessarily require a special grant of authority from the state. Indeed, Congress granted special franchise for the
operation of tollways to the Philippine National Construction Company, the former tollway concessionaire for the North
and South Luzon Expressways. Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to
the exercise of its delegated powers under P.D. 1112. 17 The franchise in this case is evidenced by a "Toll Operation
Certificate." 18
Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from
the term "sale of services" under Section 108 of the Code. But, again, nothing in Section 108 supports this contention.
The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting
companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee
to the imposition of VAT. Businesses of a public nature such as public utilities and the collection of tolls or charges for
its use or service is a franchise. 19
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional
deliberations of the would-be law. As the Court said in South African Airways v. Commissioner of Internal
Revenue, 20"statements made by individual members of Congress in the consideration of a bill do not necessarily
reflect the sense of that body and are, consequently, not controlling in the interpretation of law." The congressional will
is ultimately determined by the language of the law that the lawmakers voted on. Consequently, the meaning and
intention of the law must first be sought "in the words of the statute itself, read and considered in their natural,
ordinary, commonly accepted and most obvious significations, according to good and approved usage and without
resorting to forced or subtle construction."
Two. Petitioners argue that a toll fee is a "user's tax" and to impose VAT on toll fees is tantamount to taxing a
tax. 21 Actually, petitioners base this argument on the following discussion in Manila International Airport Authority
(MIAA) v. Court of Appeals: 22
No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the
State," are owned by the State. The term "ports" includes seaports and airports. The
MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of
public dominion and thus owned by the State or the Republic of the Philippines. TASCDI
. . . The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road, either the
public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road. The
tollway system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the character of the property
whether it is for public dominion or not. Article 420 of the Civil Code defines property of
public dominion as "one intended for public use." Even if the government collects toll
fees, the road is still "intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges
to airlines, constitute the bulk of the income that maintains the operations of MIAA. The
collection of such fees does not change the character of MIAA as an airport for public
use. Such fees are often termed user's tax. This means taxing those among the public
who actually use a public facility instead of taxing all the public including those who
never use the particular public facility. A user's tax is more equitable a principle of
taxation mandated in the 1987 Constitution." 23 (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a "user's tax" must also pertain to
tollway fees. But the main issue in the MIAA case was whether or not Paraaque City could sell airport lands and
buildings under MIAA administration at public auction to satisfy unpaid real estate taxes. Since local governments have
no power to tax the national government, the Court held that the City could not proceed with the auction sale. MIAA
forms part of the national government although not integrated in the department framework." 24 Thus, its airport
lands and buildings are properties of public dominion beyond the commerce of man under Article 420 (1) 25 of the
Civil Code and could not be sold at public auction. caIEAD

As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that
tollway fees are user's tax, but to make the point that airport lands and buildings are properties of public dominion and
that the collection of terminal fees for their use does not make them private properties. Tollway fees are not taxes.
Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a user's tax, collectible from motorists, for the
construction and maintenance of certain roadways. The tax in such a case goes directly to the government for the
replenishment of resources it spends for the roadways. This is not the case here. What the government seeks to tax
here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at
their own expense under the build, operate, and transfer scheme that the government has adopted for
expressways. 26 Except for a fraction given to the government, the toll fees essentially end up as earnings of the
tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed
under the taxing power of the government principally for the purpose of raising revenues to fund public
expenditures. 27 Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them
a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an
attribute of ownership. 28
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax.
In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable
for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case,
what is transferred is not the seller's liability but merely the burden of the VAT. 29
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the
amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax 30 and simply
becomes part of the cost that the buyer must pay in order to purchase the good, property or service. aEcADH
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under
Section 105 of the Code, 31 VAT is imposed on any person who, in the course of trade or business, sells or renders
services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for
VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "user's tax." VAT is
assessed against the tollway operator's gross receipts and not necessarily on the toll fees. Although the tollway
operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted
VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways. 32
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private
investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return
of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the
TOAs. The interest in and right to recover investments solely belongs to the private tollway investors. ScaCEH
Besides, her allegation that the private investors' rate of recovery will be adversely affected by imposing VAT on
tollway operations is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as
the Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are
manifestly conjectural. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain,
prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway
operations impractical and incapable of implementation. They cite the fact that, in order to claim input VAT, the name,
address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice. The manner
by which the BIR intends to implement the VAT by rounding off the toll rate and putting any excess collection in an
escrow account is also illegal, while the alternative of giving "change" to thousands of motorists in order to meet the
exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not
administratively feasible. 33
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be
capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance
of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or
statutory limitations are impaired." 34 Thus, even if the imposition of VAT on tollway operations may seem

burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the
Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any
declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature.
Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go
about it, 35 the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on.
Besides, any concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on
whom the task of implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR's discretion
on the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to
record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT
imposition was supposed to take effect. The issuance allegedly violates Section 111 (A) 36 of the Code which grants
first time VAT payers a transitional input VAT of 2% on beginning inventory. DCASIT
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway
operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by now can
no longer be collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for
cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the
tollway operators who have not questioned the circular's validity. They are thus the ones who have a right to challenge
the circular in a direct and proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT law's coverage
when she sought to impose VAT on tollway operations. Section 108 (A) of the Code clearly states that services of all
other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway
operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their
services among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have
been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on
language in the law too plain to be mistaken. 37 But as the law is written, no such exemption obtains for tollway
operators. The Court is thus duty-bound to simply apply the law as it is found.
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress.
The Court's role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax
statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly
referred to Congress. The Court has no discretion on the matter but simply applies the law. cTADCH
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added
Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against
tollway operators. The executive exercises exclusive discretion in matters pertaining to the implementation and
execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical
consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal Revenue's motion
for reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F.
Timbol's petition for lack of merit, and SETS ASIDE the Court's temporary restraining order dated August 13, 2010.
SO ORDERED.
Corona, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Brion, Peralta, Del Castillo, Villarama Jr., Perez and Mendoza,
JJ., concur.
Bersamin, J., is on leave.
Sereno, J., is on official leave.
||| (Diaz v. Secretary of Finance, G.R. No. 193007, July 19, 2011)

THIRD DIVISION
[G.R. No. 134467. November 17, 1999.]
ATLAS
CONSOLIDATED
MINING
&
DEVELOPMENT
COMMISSIONER OF INTERNAL REVENUE, respondent.

CORPORATION, petitioner, vs.

Siguion Reyna Montecillo & Ongsiako for petitioner.

The Litigation and Prosecution Division (BIR) for respondent.
SYNOPSIS
Petitioner Atlas Consolidated and Mining Corp. was engaged in the business of mining, production and sale of various
mineral products. It is duly registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) enterprise.
The BIR also approved petitioner's application for VAT zero-rating for the sales of gold to the Central Bank, copper
concentrates to the Philippine Smelting and Refining Corp. (PASAR) and pyrite to Philippine Phosphate, Inc.
(PHILPHOS). PASAR and PHILPHOS are both Board of Investments (BOI) and Export Processing Zone Authority (EPZA)
registered as export-oriented enterprises located in an EPZA Zone. On July 24, 1990, petitioner filed with respondent
Commissioner of Internal Revenue a refund/credit of VAT input taxes on its purchases of goods and services for the first
quarter of 1990 in the total amount of P35,522,056.58, as amended. The respondent resolved petitioner's claim for
VAT refund/credit by allowing only P12,101,569.11 as refundable/creditable tax. On appeal, the Court of Appeals
upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be imposed on VAT-registered entities, explaining that
the zero-percent rating of BOI registered enterprises shall be set in proportion to the amount of its actual exports. And
that EPZA and BOI registration were by themselves not enough for zero-rating to apply. SHECcD
This Court ruled that an examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to Section 102 (b) of
the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual
production are to be zero-rated, provided the seller complies with other requirements, like registration with the BOI
and the EPZA. The said Regulation does not even hint, much less expressly mention, that only a percentage of the
sales would be zero-rated. The internal revenue commissioner cannot, by administrative fiat, amend the law, by
making compliance therewith more burdensome.
Thus, it is the totality of petitioner's sales to Philphos and PASAR that must be taken into account, not merely the
proportion of such sales to the actual exports of the said enterprises.
SYLLABUS'
1. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSION; BINDING ON DECLARANT; EXCEPTIONS. As a rule, a judicial
admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such
rule does not apply when there is a showing that (1) the admission was made through a "palpable mistake," or that (2)
"no such admission was made."
2. ID.; ID.; ID.; "PALPABLE MISTAKE" WAS COMMITTED; CASE AT BAR. In the present case, we are convinced that a
"palpable mistake" was committed. True, petitioner was VAT-registered under Registration No. 32-A-6-00224, as
indicated in Item 2 of the Stipulation: "2. Petitioner is engaged in the business of mining, production and sale of
various mineral products, consisting principally of copper concentrates and gold duly registered with the BIR as a VAT
enterprise per its Registration No. 32-A-6-002224 (p. 250, BIR Records)." Moreover, the Registration Certificate, which
in the said stipulation is alluded to as appearing on page 250 of the BIR Records, bears the number 32-0-004622 and
became effective August 15, 1990. But theactual VAT Registration Certificate, which petitioner mentioned in the
stipulation, is numbered 32-A-002224 and became effective on January 1, 1988, thereby showing that petitioner had
been VAT-registered even prior to the first quarter of 1990. Clearly, there exists a discrepancy, since the VAT
registration number stated in the joint stipulation is NOT the one mentioned in the actual Certificate attached to the
BIR Records. The foregoing simply indicates that petitioner made a "palpable mistake" either in referring to the wrong
BIR record, which was evident, or in attaching the wrong VAT Registration Certificate.

3. TAXATION; VALUE ADDED TAX; REVENUE MEMO CIRCULAR NO. 6-88; REQUIRES VAT-REGISTERED BUSINESSES TO REREGISTER AFTER IT MOVED ITS MAIN OFFICE TO ANOTHER REVENUE DISTRICT. We note that petitioner also had
another registration number, 32-0-004622, because sometime during the third quarter of 1990, it moved its principal
place of business to a different revenue district. Its second registration as a VAT enterprise on August 15, 1990 was
made in compliance with Section 3 of Revenue Memo Circular No. 6-88, which required it to re-register after it moved
its principal place of business to another revenue district. The said Circular reads as follows: "Section 3. Time, Place
and Manner of Registration. Persons who are required to register under Section 2 of these regulations shall file an
application for Non-VAT registration within 10 days from the commencement of the business with the Revenue District
Officer, or any other authorized officer of the Bureau of Internal Revenue indicating the name of style of the business,
place of residence, place where the business is conducted, and such other information as may be required by the
Commissioner in the form prescribed therefor. "Persons transferring their place of business to another Revenue District
shall likewise file their application for registration within 10 days from the date of transfer." The above regulation
implements Section 107 (a) of the Tax Code, which provides that registration shall be in the revenue district where the
main office is located. ITSacC
4. ID.; TAXES MUST BE TRUE, FAIR AND EQUITABLE. We believe that petitioner should be taxed only for such amount
and under such circumstances as are true, fair and equitable. After all, even the respondent commissioner, as shown in
the other provisions of the joint stipulation, has granted it VAT exemption for the period even prior to the first quarter
of 1990; that is, as early as January 1, 1988. In view of the foregoing, we stress that a litigation is neither a game of
technicalities nor a battle of wits and legalisms. Rather, it is an abiding search for truth, fairness and justice.
5. ID.; REVENUE REGULATION 7-95; DOES NOT REQUIRE THAT ONLY PERCENTAGE OF SALES OF AN EXPORT-ORIENTED
ENTERPRISE WOULD BE ZERO-RATED. An examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to
Section 102 (b) of the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70
percent of its annual production are to be zero-rated, provided the seller complies with other requirements, like
registration with the BOI and the EPZA. The said Regulation does not even hint, much less expressly mention, that only
a percentage of the sales would be zero-rated.
6. POLITICAL LAW; CONSTITUTIONAL LAW; EXECUTIVE DEPARTMENT; INTERNAL REVENUE COMMISSIONER COULD NOT,
BY ADMINISTRATIVE FIAT, AMEND THE LAW. The internal revenue commissioner cannot, by administrative fiat,
amend the law, by making compliance therewith more burdensome.
7. TAXATION; VALUE ADDED TAX; VAT INVOICE SHOULD BE USED ONLY FOR SALE OF GOODS AND SERVICES THAT ARE
SUBJECT TO VAT. It is clear that a VAT invoice can be used only for the sale of goods and services that are subject to
VAT. The corresponding taxes thereon shall be allowed as input tax credits for those subject to VAT. Section 108
expressly provides the invoicing and accounting entries required from VAT-registered persons. On the other hand,
Section 111 of the Tax Code empowers the commissioner to suspend the business operations of VAT-registered persons
for the specific violations listed therein.
8. ID.; REVENUE REGULATION 5-87; SECTION 21; SPECIFIES PENALTY FOR SPECIFIC VIOLATION OF SECTION 108 OF TAX
CODE. Section 21 of Revenue Regulation 5-87 is not invalid, as it simply prescribes the penalty for failure to comply
with the accounting and invoicing requirements laid down in Section 108, a penalty similar to that found in Sections
111 and 263. In short, Section 108 provides the guidelines and necessary requirements for VAT invoices; Sections 111
and 263 of the Tax Code provide penalties for different types of violations of Section 108; and Section 21 of Revenue
Regulation 5-87 specifies the penalty for a specific violation of Section 108.
9. ID.; VALUE ADDED TAX; COMPUTATION OF OUTPUT VAT OF SELLER SHOULD BE BASED ON SELLING PRICE
APPEARING ON ITS OWN VAT INVOICE. We agree with respondent's position that the computation of the output VAT
of the seller should be based on the selling price appearing on its own VAT invoice, not on the selling price appearing
on that of the customer. Indeed, it is the duty of the seller to comply with the invoicing and accounting requirements
laid down in, among others, Section 108 of the Tax Code.
10. ID.; REVENUE REGULATION 5-87; SECTION 21; VALIDITY THEREOF MUST BE TAKEN IN CONJUNCTION WITH
PRONOUNCEMENT REGARDING ZERO-RATING GIVEN TO SALES OF PETITIONER MADE TO PHILPHOS AND PASAR; CASE
AT BAR. This Court's ruling on the validity of Section 21 of Revenue Regulation 5-87 must be taken in conjunction
with its pronouncement regarding the zero-rating given to the sales which petitioner made to Philphos and PASAR. As
explained above, such sales are subject to zero-rating, as that rating was definitely approved by the respondent
commissioner. His approval indubitably signified that petitioner had already complied with the requirements, invoicing
or otherwise, necessary for the zero-rating of petitioner's sales of raw materials to Philphos and PASAR.
DECISION
PANGANIBAN, J p:

A litigation is neither a game of technicalities nor a battle of wits and legalisms; rather, it is an abiding search for truth,
fairness and justice. While stipulations of facts are normally binding on the declarant or the signatory thereto, a party
may nonetheless be allowed to show that an admission made therein was the result of a "palpable mistake" that can
be easily verified from the stipulated facts themselves and from other incontrovertible pieces of evidence admitted by
the other party. A patently clerical mistake in the stipulation of facts, which would result in falsehood, unfairness and
injustice, cannot be countenanced. LexLib

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging in part the
February 6, 1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR SP No. 34152 and its July 2, 1998 Resolution
denying reconsideration.
The Court of Tax Appeals in CTA Case No. 4794 was reversed in the herein assailed CA Decision, which ruled as follows:
"a. VAT Ruling No. 008-92, in imposing 10% VAT on sales of copper concentrates to PASAR, pyrite to
PHILPHOS and gold to the Central Bank lacks legal bases, hence, of no effect.
b. VAT Ruling No. 059-92 (dated April 20, 1992) which applies retroactively to January 1, 1988 VAT
Ruling No. 008-92 (dated January 23, 1992) is contrary to law.
c. Refund of input tax for zero-rated sale of goods to Board of Investment (BOI)-registered exporters
shall be allowed only upon presentation of documents of liquidation evidencing the actual
utilization of the raw materials in the manufacture of goods at least 70% of which have been
actually exported (Revenue Regulations No. 2-88).
d. Revenue Regulations that automatically disallow VAT refunds on account of failure to faithfully
comply with the documentary requirements enunciated thereunder are valid.
e. A VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be
allowed transitional input tax which shall be credited against output tax. Be that as it may,
current input tax, excluding the presumptive input tax, may be credited against output tax
on miscellaneous taxable sales if the suspended taxes on purchasers and importations has
not been fully paid. Further, direct offsetting of excess input over taxes against other internal
revenue tax liabilities of the zero-rated taxpayer is not allowed.
f. Section 106(e) of the NIRC prescribing a sixty (60) day period from the date of filing of the VAT
refund/tax credit applications within which the Commissioner shall refund the input tax is
merely directory. Hence, no interest can be due as a result of the failure of the Commissioner
to act on the petitioner's claim within sixty (60) days from the date of application therefor.
g. Motu proprio application of excess tax credits to other tax liabilities is not allowed.
"WHEREFORE, premises considered, the assailed decision and resolution of the Court of Tax Appeals
in C.T.A. Case no. 4794 are hereby REVERSED and SET ASIDE. Let the records of this case be
remanded to the court a quo for a proper computation of the refundable amount which should be
remitted, without interest, to the petitioner within sixty (60) days from the finality of this decision. No
pronouncement as to costs." 3
Asking that the foregoing disposition be partially set aside, the instant Petition specifically prays for a new judgment
declaring that:
"(1) Petitioner was VAT registered beginning January 1, 1988 and continued to be so for the first
quarter of 1990;
"(2) In the computation of the amount to be refunded to petitioner, the totality of the sales to the
EPZA-registered enterprise must be taken into account, not merely the proportion which such
sales have to the actual exports of the enterprise.
"(3) Section 21 of Revenue Regulations No. 5-87 insofar as it disallows input taxes for purchases not
covered by VAT invoices is invalid and contrary to law." 4

The Facts
The facts are undisputed. They were culled by the Court of Appeals from the joint stipulation of the parties, which we
quote:
"The antecedent facts of the case as agreed to by the parties in the Joint Stipulation of Facts
submitted to the Court of Tax Appeals on January 8, 1993, follow:
"xxx xxx xxx
"2. Petitioner is engaged in the business of mining, production and sale of various mineral products,
consisting principally of copper concentrates and gold and duly registered with the BIR
[Bureau of Internal Revenue] as a VAT [Value Added Tax] enterprise per its Registration No.
32-A-6-002224. (p. 250, BIR Records).
"3. Respondent [BIR] duly approved petitioner's application for VAT zero-rating of the following sales:
a. Gold to the Central Bank (CB) [now referred to as the Bangko Sentral ng Pilipinas;]
b. Copper concentrates to the Philippines Smelting and Refining Corp. (PASAR); and
c. Pyrite [concentrated] to Philippine Phosphates, Inc. (Philphos).
"The BIR's approval of sales to CB and PASAR was dated April 21, 1988 while zero-rating of sales to
PHILPHOS was approved effective June 1, 1988.
"4. PASAR and Philphos are both Board of Investments (BOI) and Export Processing Zone Authority
(EPZA) registered export-oriented enterprises located in an EPZA zone.
"5. On April 20, 1990, petitioner filed a VAT return with the BIR for the first quarter of 1990 whereby
it declared its sales described in par. 3 hereof, i.e., to the CB, PASAR and Philphos, as zerorated sales and therefore not subject to any output VAT . . . .
"6. On or about July 24, 1990, petitioner filed a claim with respondent for refund/credit of VAT input
taxes on its purchase of goods and services for the first quarter of 1990 in the total amount
of P40,078,267.81 . . . .
"7. On or about September 2, 1992, petitioner filed an Amended Application for tax credit/refund in
the amount of P35,522,056.58 . . . .
"8. On September 9, 1992, respondent resolved petitioner's claim for VAT refund/credit by allowing
only P2,518,122.32 as refundable/creditable while disallowing P33,003,934.26, to wit:
a. Amount claimed P35,522,056.58
LESS: Disallowances
b. No O.R./Invoices/Proper 1,384,172.48
Documents
c. Invoice without VAT 474,606.87
Registration Number
d. Invoice with Sold to 'Cash' 31,499.04
e. Invoice without Authority 326,374.23
to Print
f. VAT No. stamped/ 441,195.54
typewritten/handwritten
printed in 1988-1989
g. Others 71,088.09
h. Erroneous computation 85,382.58
i. 2,814,318.83

j. ALLOWANCE INPUT

P32,707,737.75
TAX
OTHER DEDUCTIONS:
k. Output tax due on 972,535.67
miscellaneous taxable sales
l. *Output tax due on sale 16,301,277.11
of gold to the Central Bank
(179,314,048.17 x 1/11)
m. **Input tax attributable to sales
to PASAR (submitted BOI
certification did not qualify as
required under RMO 22-92)
(465,095,536.14

1,226,381,659.74 x
32,707,737.75) 12,404,150.65
n. ***Input tax attributable to
sales to PHILPHOS (No BOI
certificate from the BOI)
(18,809,519.07/

1,226,381,659.74 x 501,652.00
32,707,737.75)
o. Penalty for issuance of 10,000.00 30,189,615.43
invoices without authority
to use loose leaf sales invoices
ALLOWANCE INPUT TAX P2,518,122.32
RECOMMENDED FOR
ISSUANCE OF TAX CREDIT
CERTIFICATE
"9. A supplemental report of investigation was submitted by the BIR examiners on October 15, 1992
recommending the increase in allowable input tax credit from P2,518,122.32 to
P12,101,569.11 or an increment of P9,583,446.79 due to petitioner's submission of BOI
certifications on the sales to PASAR which brought down the deduction of P12,404,150.65 to
P2,518,122.32. Cdpr
"The parties further stipulated that the issues to be resolved are:
'a. the validity of VAT Ruling No. 008-92 in connection with
'i. the applicability of 10% VAT rating with regard to sales of copper concentrates to PASAR
and pyrite to PHILPHOS; and
'ii. the application of 10% VAT on sales of gold to CB.
'b. the validity of VAT Ruling No. 59-92 dated April 20, 1992 which applies retroactively VAT Ruling
No. 008-92 dated January 23, 1992;
'c. the applicability of Revenue Regulation 2-88 in that it requires the purchaser to export more than
70% of its total sales for the supplier, such as petitioner to be 100% zero-rated;
'd. the validity of the disallowance of input taxes in the amount of P2,814,318.83 on the ground that
the petitioner has not complied with Article 108(a) of the NIRC;
'e. the validity of BIR Regulations that automatically disallow VAT refund for failure to present the
required documents although the purchases can be substantiated by other documents;
'f. the propriety of deducting the 'output tax on miscellaneous taxable sales' from the current input
tax instead of against petitioner's presumptive input tax (PIT) which, as per BIR findings, are
sufficient to cover the amount assessed;

'g. the mandatory nature of Section 106 (e) of the NIRC prescribing a specific period of sixty (60)
days within which to process and grant applications for input VAT refund and the
corresponding right given to claimants to apply VAT credits to other tax liabilities as allowed
under Section 104(b) of the NIRC as well as interest for the delay in the grant of petitioner's
claims for VAT refund/credit.
"On November 8, 1993, the [Court of Tax Appeals] rendered a decision . . . . The petitioner moved for
reconsideration of the decision, which mo[tion] the respondent court denied." 5
Ruling of the Court of Appeals
Ruling that the parties were bound by the above-quoted Joint Stipulation of Facts which it was powerless to modify, the
Court of Appeals held: "[I]t is beyond cavil that the petitioner is registered with the BIR as a VAT enterprise effective
August 15, 1990." 6 It upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be imposed on VAT-registered
entities, explaining that the "zero-percent rating" of BOI-registered enterprises shall be set in proportion to the amount
of its actual exports; and that EPZA and BOI registrations were by themselves not enough for zero-rating to apply.
Finally, the CA ruled as mandatory the information which Revenue Regulation 5-87 required to be stated in VAT
invoices and receipts, as such information had already been prescribed by Sections 108 (a) and 238 of the Tax Code
and violations thereof were penalized under Sections 111 and 263 of the same Code.
On August 24, 1998, the present Petition was filed. 7 As the respondent commissioner did not appeal the CA Decision
and Resolution, the Court shall take up in this review only the issues raised by Atlas Consolidated Mining and
Development Corporation.

Issues
Petitioner submits, for the consideration of this Court, the following issues:
"I
Whether or not the court a quo erred in upholding the finding of the Court of Tax Appeals that
petitioner is not VAT-registered for the 1st quarter of 1990 despite clear evidence showing the date
of effectivity of petitioner's VAT registration to be January 1, 1988.
"II
Whether or not the court a quo erred in not holding that the totality of sales to EPZA-registered
enterprises should be zero-rated, not merely the proportion which such sales have to the actual
exports of the enterprise.
"III
[Whether or not] the court a quo erred in not declaring as invalid Section 21 of Revenue Regulations
No. 5-87, insofar as it went beyond the law by disallowing input VAT for purchases not covered by
VAT invoices." 8
The Court's Ruling
The Petition is partly meritorious.
First Issue: VAT Registration
Petitioner contends that its sales to Philippine Phosphate, Inc. (Philphos) and Philippine Smelting and Refining
Corporation (PASAR) should be zero-rated for the first quarter of 1990, and not only as of "August 15, 1990" as held by
the CA, which allegedly ignored "clear evidence" that petitioner's VAT registration had been effected earlier, on January
1, 1988.

Respondent commissioner counters that by virtue of the Joint Stipulation of Facts, petitioner is bound by its admission
therein that it was registered as a VAT enterprise effective only from August 15, 1990, well beyond the first quarter of
1990, the period for which it is applying for tax credit.
We agree with the Court of Appeals that, as a rule, a judicial admission, such as that made by petitioner in the Joint
Stipulation of Facts, is binding on the declarant. However, such rule does not apply when there is a showing that (1)
the admission was made through a "palpable mistake," or that (2) "no such admission was made." Indeed, Section 4 of
Rule 129 of the Rules of Court states:
"SEC. 4. Judicial Admissions. An admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by
showing that it was made through palpable mistake or that no such admission was made."
In the present case, we are convinced that a "palpable mistake" was committed. True, petitioner was VAT-registered
under Registration No. 32-A-6-00224, as indicated in Item 2 of the Stipulation:
"2. Petitioner is engaged in the business of mining, production and sale of various mineral products,
consisting principally of copper concentrates and gold duly registered with the BIR as a VAT
enterprise per its Registration No. 32-A-6-002224 (p. 250, BIR Records)." 9
Moreover, the Registration Certificate, which in the said stipulation is alluded to as appearing on page 250 of the BIR
Records, bears the number 32-0-004622 and became effective August 15, 1990. But the actual VAT Registration
Certificate, which petitioner mentioned in the stipulation, is numbered 32-A-6-002224 and became effective on January
1, 1988, thereby showing that petitioner had been VAT-registered even prior to the first quarter of 1990. Clearly, there
exists a discrepancy, since the VAT registration number stated in the joint stipulation is NOT the one mentioned in the
actual Certificate attached to the BIR Records.
The foregoing simply indicates that petitioner made a "palpable mistake" either in referring to the wrong BIR record,
which was evident, or in attaching the wrong VAT Registration Certificate. The Court of Appeals should have corrected
the unintended clerical oversight. In any event, the indelible fact is: the petitioner was VAT-registered as of January 1,
1988.
Similarly, in Philippine American General Insurance Company v. IAC, 10 this Court accepted the explanation and the
subsequent proof of petitioner that the latter had made a mistake in stating the date when the Order denying its
Motion for Reconsideration was actually received. Thus, the Court ruled that the appeal to the IAC had been filed on
time. It explained:
"In assailing the decision of the respondent Intermediate Appellate Court, petitioner maintains that it
was error for respondent court to refuse to consider petitioner's evidence that the accrual date of
receipt by it of the order denying the motion for reconsideration of the lower court's decision was
November 15, 1982, not November 12, 1982, as mistakenly stated in the Notice of Appeal. Invoking
Section 2 of Rule 129 of the Rules of Court, petitioner contends that a party is allowed to contradict
an admission in its pleading if it is shown that the same was made through palpable mistake.
"We find merit in the petition. Apart from the showing that notice of the trial court's order denying
petitioner's motion for reconsideration was actually received by petitioner on November 15, 1982,
the fact that the order was sent to the wrong address was apparently not considered by both the
respondent appellate court and the trial court . . ."
That herein petitioner's explanation of the discrepancy was made only after the CTA had promulgated its Decision is
understandable. It was only when that promulgation was made that petitioner became aware of the clerical error in the
Joint Stipulation of Facts. Hence, it explained in its Motion for Reconsideration therein that it had already been VATregistered as early as the first quarter of 1988 under VAT Registration No. 32-A-6-002224. Petitioner attached to said
Motion a copy of the Registration Certificate corresponding to the above number, showing January 1, 1988 as its
registration date. prLL
We note that petitioner also had another registration number, 32-0-004622, because sometime during the third
quarter of 1990, it moved its principal place of business to a different revenue district. Its second registration as a VAT
enterprise on August 15, 1990 was made in compliance with Section 3 of Revenue Memo Circular No. 6-88, which
required it to re-register after it moved its principal place of business to another revenue district. The said Circular
reads as follows:
"Section 3. Time, Place and Manner of Registration. Persons who are required to register under
Section 2 of these regulations shall file an application for Non-VAT registration within 10 days from

the commencement of the business with the Revenue District Officer, or any other authorized officer
of the Bureau of Internal Revenue indicating the name of style of the business, place of residence,
place where the business is conducted, and such other information as may be required by the
Commissioner in the form prescribed therefor.
"Persons transferring their place of business to another Revenue District shall likewise file their
application for registration within 10 days from the date of transfer." 11
The above regulation implements Section 107 (a) of the Tax Code, which provides that registration shall be in the
revenue district where the main office is located. The said provision states:
"Sec. 107. Registration of value-added taxpayers.
(a) In general. Any person subject to a value-added tax under Sections 100 and 102 of this Code
shall register with the appropriate Revenue District Officer and pay an annual registration fee in the
amount of One thousand pesos (P1,000.00) for every separate or distinct establishment or place of
business and every year thereafter on or before the last day of January. Any person just commencing
a business subject to the value-added tax must pay the fee before engaging therein.
"A person who maintains a head or main office and branches in different places shall register with
the Revenue District Office, collection agent, or authorized Treasurer of the municipality where each
place of business or branch is situated."12
Petitioner presented the two different Registration Certificates corresponding to the two registration numbers assigned
to it. The Registration Certificate numbered 32-A-6-002224 listed petitioner's address as 8776 Paseo de Roxas, Makati,
and its date of effectivity as January 1, 1988. The Registration Certificate numbered 32-0-004622 showed petitioner's
address (head office) to be at the 15th Floor of the Pacific Star Building in Gil Puyat Street corner Makati Avenue,
Makati, and its date of effectivity as August 15, 1990.
In view of the foregoing, we believe that petitioner should be taxed only for such amount and under such
circumstances as are true, fair and equitable. After all, even the respondent commissioner, as shown in the other
provisions of the joint stipulation, has granted it VAT exemption for the period even prior to the first quarter of 1990;
that is, as early as January 1, 1988. In view of the foregoing, we stress that a litigation is neither a game of
technicalities nor a battle of wits and legalisms. Rather, it is an abiding search for truth, fairness and justice. We
believe, and so hold, that substantial justice is on the side of petitioner on this issue.
Second Issue: VAT Exemption of Sales
to Export-Oriented Enterprises
Regarding the second issue, petitioner criticizes the respondent commissioner, as its sales to PASAR and Philphos
both registered with the BOI (Board of Investments) and EPZA (Export Processing Zone Authority) as export-oriented
entities were zero-rated only in proportion to the actual exports made by the two, and not to the entirety of
petitioner's sales to them.
Respondent, on the other hand, maintains that before zero-rating can be applied, petitioner must first show that the
entities to which the raw materials have been sold are export-oriented, and that their export sales exceed 70 percent
of their total annual production. Should these conditions be met, zero-rating would apply, but only in proportion to the
exports actually made.
The Joint Stipulation of Facts expressly states that petitioner's sales of raw materials have been approved for zerorating. Verily, the commissioner has already conceded that PASAR and Philphos qualify as export-oriented enterprises
whose export sales exceed 70 percent of their total annual production, and that petitioner's sales to them thus qualify
for zero-rating.
Finding that the respondent commissioner had indeed already approved the zero-rating of petitioner's past sales to
PASAR and Philphos, the CA ruled:
"Indeed, the BIR has already recognized and admitted that said transactions are zero-rated
(paragraph 3, pages 1-2 of the Joint Stipulation of Facts; page 40-41 of the CTA Records). Said stance
is demonstrated in the following acts of the BIR:
a. the grant of petitioner's applications for zero-rating of sales to PASAR AND PHILPHOS (Annexes 'A'
and 'B', Joint Stipulation of Facts; pages 56-57 of the CTA Record);

b. Revenue Regulation No. 2-88, wherein it recognized sales to BOI-registered enterprises which
export over 70% of its sales as zero-rated, subject to certain conditions (Annex 'H', Joint Stipulation
of Facts; pages 70-71 of the CTA Record);
c. VAT Ruling No. 271-88 (dated June 24, 1988), wherein it was recognized that sales to PHILPHOS are
zero-rated (Annex 'I', Joint Stipulation of Facts; p. 72 of the CTA Record);
d. Letter dated April 18, 1988, whereby it recognized that sales of copper concentrates to PASAR are
zero-rated (Annex 'J', Joint Stipulation of Facts; page 73 of the CTA Record); and
e. VAT Ruling No. 008-92, which states that the sale of raw materials to BOI-registered enterprises
can qualify for zero-rating (Annex 'N', Joint Stipulation of Facts; pages 79-82 of the CTA Record)." 13
Finally, an examination of Section 4.100.2 of Revenue Regulation 7-95 14 in relation to Section 102 (b) of the Tax Code
shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual production are to
be zero-rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The
said Regulation does not even hint, much less expressly mention, that only a percentage of the sales would be zerorated. The internal revenue commissioner cannot, by administrative fiat, amend the law by making compliance
therewith more burdensome.
Third Issue:
Validity of Section 21 of Revenue Regulation 5-87
Petitioner contends that Section 21 of Revenue Regulation 5-87 is invalid because it effectively legislates something
not provided for in Section 108 of the Tax Code, which provides as follows:
"Sec. 108. Invoicing and accounting requirements for VAT-registered persons.
(a) Invoicing requirements. A VAT-registered person shall, for every sale, issue an invoice or
receipt. In addition to the information required under Section 238, the following information shall be
indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification
number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication
that such amount includes the value-added tax. cdrep
(b) Accounting requirements. Notwithstanding the provisions of Section 233, all persons subject to
the value-added tax under Sections 100 and 102 shall, in addition to the regular accounting records
required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales
and purchases are recorded. The subsidiary journals shall contain such information as may be
required by the Secretary of Finance." 15
On the other hand, Section 21 of Revenue Regulation 5-87 states:
"Sec. 21. Invoicing Requirements. (a) Invoice and/or receipts. All VAT-registered persons who
sell goods or services shall, for every sale, issue an invoice or receipt. The invoice should contain the
information prescribed in Section 108(a) and 238. Only VAT-registered persons can print the VAT
registration number in their invoice and receipt. Any invoice bearing the VAT registration number of
the seller shall be considered as 'VAT Invoice.' Value-Added Tax, whether indicated as a separate
item or not in the 'VAT Invoice' shall be allowed as input tax credits to those liable to the value-added
tax. All purchases covered by invoices other than 'VAT Invoice' shall not be entitled to input
taxes." 16
Petitioner insists that while Section 108 of the Tax Code lists the information necessary for VAT Invoices, it is silent on
the withholding of input tax credits for purchases that are not subjects to VAT.
We disagree. It is clear that a VAT invoice can be used only for the sale of goods and services that are subject to VAT.
The corresponding taxes thereon shall be allowed as input tax credits for those subject to VAT. Section 108 expressly
provides the invoicing and accounting entries required from VAT-registered persons. On the other hand, Section 111 of

the Tax Code empowers the commissioner to suspend the business operations of VAT-registered persons for the
specific violations listed therein. We quote below the latter provision:
"SEC. 111. Power of the Commissioner to suspend the business operations of a taxpayer. The
Commissioner or his authorized representative is hereby empowered to suspend the business
operations and temporarily close the business establishment of any person for any of the following
violations:
(a) In the case of a VAT-registered person.
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 110;
(3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or
receipts for the taxable quarter.
(b) Failure of any person to register as required under Section 107. The temporary closure of the
establishment shall be for the duration of not less than five (5) days and shall be lifted only upon
compliance with whatever requirements [are] prescribed by the Commissioner in the closure order."
Corollary thereto, punishment for other types of violations similar to but other than those listed in Section 111 are
provided for in Section 263 of the Tax Code, which reads:
"SEC. 263. Failure or refusal to issue receipts or sales or commercial invoices, violations related to
the printing of such receipts or invoices and other violations.
(a) Any person who, being required under Section 238 to issue receipts or sales or commercial
invoices, fails or refuses to issue such receipts or invoices, issues receipts or invoices that do not
truly reflect and/or contain all the information required to be shown therein, or uses multiple or
double receipts or invoices, shall, upon conviction for each act or omission, be fined not less than
one thousand pesos but not more than fifty thousand pesos and suffer imprisonment of not less than
two years but not more than four years.
(b) Any person who commits any of the acts enumerated hereunder shall be penalized in the same
manner and to the same extent as provided for in this Section:
1. Prints receipts or sales or commercial invoices without authority from the Bureau of Internal
Revenue;
2. Prints double or multiple sets of invoices or receipts;
3. Prints unnumbered receipts or sales or commercial invoices, not bearing the name, business style,
taxpayer identification number, and business address of the person or entity; or
4. Fails to submit the quarterly report required in Section 239."
A careful perusal of the violations specifically listed down in Sections 111 and 263 of the Tax Code shows that they do
not encompass all possible types of violations of Section 108. Certainly, there are other ways of noncompliance with
the requirements the latter has laid down, and these too must have their corresponding consequences. Section 21 of
Revenue Regulation 5-87 is not invalid, as it simply prescribes the penalty for failure to comply with the accounting
and invoicing requirements laid down in Section 108, a penalty similar to that found in Sections 111 and 263. In short,
Section 108 provides the guidelines and necessary requirements for VAT invoices; Sections 111 and 263 of the Tax
Code provide penalties for different types of violations of Section 108; and Section 21 of Revenue Regulation 5-87
specifies the penalty for a specific violation of Section 108.
Furthermore, we agree with respondent's position that the computation of the output VAT of the seller should be based
on the selling price appearing on its own VAT invoice, not on the selling price appearing on that of the customer.
Indeed, it is the duty of the seller to comply with the invoicing and accounting requirements laid down in, among
others, Section 108 of the Tax Code.

However, this Court's ruling on the validity of Section 21 of Revenue Regulation 5-87 must be taken in conjunction with
its pronouncement regarding the zero-rating given to the sales which petitioner made to Philphos and PASAR. As
explained above, such sales are subject to zero-rating, as that rating was definitely approved by the respondent
commissioner. His approval indubitably signified that petitioner had already complied with the requirements, invoicing
or otherwise, necessary for the zero-rating of petitioner's sales of raw materials to Philphos and PASAR.
WHEREFORE, the Petition is hereby partially GRANTED and the assailed Decision is MODIFIED as follows: (1) petitioner
is deemed VAT-registered for the first quarter of 1990 and beyond; and (2) it is the totality of petitioner's sales to
Philphos and PASAR that must be taken into account, not merely the proportion of such sales to the actual exports of
the said enterprises. Other than the above modifications, the challenged Decision is AFFIRMED.
SO ORDERED. cdll
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
||| (Atlas Consolidated Mining & Development Corp. v. Commr. of Internal Revenue, G.R. No. 134467, November 17,
1999)

SECOND DIVISION
[G.R. No. 183505. February 26, 2010.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SM PRIME HOLDINGS, INC. and
FIRST ASIA REALTY DEVELOPMENT CORPORATION, respondents.
DECISION
DEL CASTILLO, J p:
When the intent of the law is not apparent as worded, or when the application of the law would lead to absurdity or
injustice, legislative history is all important. In such cases, courts may take judicial notice of the origin and history of
the law, 1 the deliberations during the enactment, 2 as well as prior laws on the same subject matter 3 to ascertain
the true intent or spirit of the law.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic Act (RA) No.
9282, 4 seeks to set aside the April 30, 2008 Decision 5 and the June 24, 2008 Resolution 6 of the Court of Tax Appeals
(CTA).

Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) are
domestic corporations duly organized and existing under the laws of the Republic of the Philippines. Both are engaged
in the business of operating cinema houses, among others. 7
CTA Case No. 7079
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice (PAN)
for value added tax (VAT) deficiency on cinema ticket sales in the amount of P119,276,047.40 for taxable year
2000. 8 In response, SM Prime filed a letter-protest dated December 15, 2003. 9
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency, which the
latter protested in a letter dated January 14, 2004. 10
On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the VAT deficiency for
taxable year 2000 in the amount of P124,035,874.12. 11 SAcCIH
On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA Case No. 7079. 12
CTA Case No. 7085
On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on cinema ticket sales for taxable year 1999 in the
total amount of P35,823,680.93. 13 First Asia protested the PAN in a letter dated July 9, 2002. 14
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested by First
Asia in a letter dated December 12, 2002. 15
On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia to pay the amount of
P35,823,680.93 for VAT deficiency for taxable year 1999. 16
Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No.
7085. 17
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for taxable year 2000 in
the amount of P35,840,895.78. First Asia protested the PAN through a letter dated April 22, 2004. 18
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency. 19 First Asia protested the same in a
letter dated July 9, 2004. 20
On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT deficiency in the amount of
P35,840,895.78 for taxable year 2000. 21
This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004. The case was docketed as
CTA Case No. 7111. 22
CTA Case No. 7272
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of P32,802,912.21 was
issued against First Asia by the BIR. In response, First Asia filed a protest-letter dated November 11, 2004. The BIR
then sent a Formal Letter of Demand, which was protested by First Asia on December 14, 2004. 23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of P28,196,376.46 for the taxable year 2003 was
issued by the BIR against First Asia. In a letter dated September 23, 2004, First Asia protested the PAN. A Formal Letter

of Demand was thereafter issued by the BIR to First Asia, which the latter protested through a letter dated November
11, 2004. 24 cECaHA
On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to pay the amounts of
P33,610,202.91 and P28,590,826.50 for VAT deficiency for taxable years 2002 and 2003, respectively. 25
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7272. 26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime and First Asia. 27
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case No. 7079
on the grounds that the issues raised therein are identical and that SM Prime is a majority shareholder of First Asia.
The motion was granted. 28
Upon submission of the parties' respective memoranda, the consolidated cases were submitted for decision on the
sole issue of whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are
subject to VAT. 29
Ruling of the CTA First Division
On September 22, 2006, the First Division of the CTA rendered a Decision granting the Petition for Review. Resorting to
the language used and the legislative history of the law, it ruled that the activity of showing cinematographic films is
not a service covered by VAT under the National Internal Revenue Code (NIRC) of 1997, as amended, but an activity
subject to amusement tax under RA 7160, otherwise known as the Local Government Code (LGC) of 1991. Citing
House Joint Resolution No. 13, entitled "Joint Resolution Expressing the True Intent of Congress with Respect to the
Prevailing Tax Regime in the Theater and Local Film Industry Consistent with the State's Policy to Have a Viable,
Sustainable and Competitive Theater and Film Industry as One of its Partners in National Development," 30 the CTA
First Division held that the House of Representatives resolved that there should only be one business tax applicable to
theaters and movie houses, which is the 30% amusement tax imposed by cities and provinces under the LGC of 1991.
Further, it held that consistent with the State's policy to have a viable, sustainable and competitive theater and film
industry, the national government should be precluded from imposing its own business tax in addition to that already
imposed and collected by local government units. The CTA First Division likewise found that Revenue Memorandum
Circular (RMC) No. 28-2001, which imposes VAT on gross receipts from admission to cinema houses, cannot be given
force and effect because it failed to comply with the procedural due process for tax issuances under RMC No. 2086. 31 Thus, it disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review.
Respondent's Decisions denying petitioners' protests against deficiency value-added taxes are
hereby REVERSED. Accordingly, Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00000122, 003-03 and 008-02 are ORDERED cancelled and set aside.
SO ORDERED. 32
Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its Resolution dated December
14, 2006. 33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc. 34 The case was docketed as CTA EB No. 244. 35 The CTA En
Banc however denied 36 the Petition for Review and dismissed 37 as well petitioner's Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are
intended to be subject to VAT. And since the showing or exhibition of motion pictures, films or movies by cinema
operators or proprietors is not among the enumerated activities contemplated in the phrase "sale or exchange of
services," then gross receipts derived by cinema/theater operators or proprietors from admission tickets in showing
motion pictures, film or movie are not subject to VAT. It reiterated that the exhibition or showing of motion pictures,
films, or movies is instead subject to amusement tax under the LGC of 1991. As regards the validity of RMC No. 282001, the CTA En Banc agreed with its First Division that the same cannot be given force and effect for failure to
comply with RMC No. 20-86. TaSEHD
Issue

Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by operators/proprietors of cinema houses
from admission tickets [are] subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE PAYING PUBLIC
IS A SALE OF SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE EXPRESSLY SUBJECT TO VAT
UNDER SECTION 108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW AND THE
APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS
UNWARRANTED;
(d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE APPLICABLE
HEREIN, STILL THE HONORABLE COURT ERRONEOUSLY APPLIED THE SAME AND
PROMULGATED DANGEROUS PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING RESPONDENTS' SERVICES
FROM THE VAT IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO BE TRIED BY THE
HONORABLE COURT; and
(g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108 OF THE NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is merely
subject to the amusement tax imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001. 38
Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors of cinema/theater
houses from admission tickets are subject to VAT. AEIHaS
Petitioner's Arguments
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because
it covers all sales of services unless exempted by law. He claims that the CTA erred in applying the rules on statutory
construction and in using extrinsic aids in interpreting Section 108 because the provision is clear and unambiguous.
Thus, he maintains that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale
of service, is subject to VAT.
Respondents' Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross
receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the services
subject to VAT. Respondents insist that gross receipts from cinema/theater admission tickets were never intended to be
subject to any tax imposed by the national government. According to them, the absence of gross receipts from
cinema/theater admission tickets from the list of services which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative intent. Respondents also highlight the fact that RMC No. 282001 on which the deficiency assessments were based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive

Section 108 of the NIRC of the 1997 reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension
houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods or cargoes
for hire and other domestic common carriers by land, air and water relative to their transport of
goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of this Code; services
of banks, non-bank financial intermediaries and finance companies; and non-life insurance
companies (except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase "sale or exchange of services" shall
likewise include: ECAaTS
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
xxx xxx xxx
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.
xxx xxx xxx (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale or exchange of services"
subject to VAT is not exhaustive. The words, "including," "similar services," and "shall likewise include," indicate that
the enumeration is by way of example only. 39
Among those included in the enumeration is the "lease of motion picture films, films, tapes and discs." This, however,
is not the same as the showing or exhibition of motion pictures or films. As pointed out by the CTA En Banc:
"Exhibition" in Black's Law Dictionary is defined as "To show or display. . . . To produce anything in
public so that it may be taken into possession" (6th ed., p. 573). While the word "lease" is defined as
"a contract by which one owning such property grants to another the right to possess, use and enjoy
it on specified period of time in exchange for periodic payment of a stipulated price, referred to as
rent (Black's Law Dictionary, 6th ed., p. 889). . . . 40
Since the activity of showing motion pictures, films or movies by cinema/theater operators or proprietors is not
included in the enumeration, it is incumbent upon the court to the determine whether such activity falls under the
phrase "similar services." The intent of the legislature must therefore be ascertained.
The
legislature
never
or proprietors of cinema/theater houses to be covered by VAT

intended

operators

Under the NIRC of 1939 41 the national government imposed amusement tax on proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses, boxing exhibitions, and other places of amusement, including
cockpits, race tracks, and cabaret. 42 In the case of theaters or cinematographs, the taxes were first deducted,
withheld, and paid by the proprietors, lessees, or operators of such theaters or cinematographs before the gross
receipts were divided between the proprietors, lessees, or operators of the theaters or cinematographs and the

distributors of the cinematographic films. Section 11 43 of the Local Tax Code, 44 however, amended this provision by
transferring the power to impose amusement tax45 on admission from theaters, cinematographs, concert halls,
circuses and other places of amusements exclusively to the local government. Thus, when the NIRC of 1977 46 was
enacted, the national government imposed amusement tax only on proprietors, lessees or operators of cabarets, day
and night clubs, Jai-Alai and race tracks. 47 ADTCaI
On January 1, 1988, the VAT Law 48 was promulgated. It amended certain provisions of the NIRC of 1977 by imposing
a multi-stage VAT to replace the tax on original and subsequent sales tax and percentage tax on certain services. It
imposed VAT on sales of services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. (a) Rate and base of tax. There shall be
levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts
derived by any person engaged in the sale of services. The phrase "sale of services" means the
performance of all kinds of services for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; stock, real estate, commercial,
customs and immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods
for others; and similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties: Provided That the following services performed in
the Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, . . .
xxx xxx xxx
"Gross receipts" means the total amount of money or its equivalent representing the contract price,
compensation or service fee, including the amount charged for materials supplied with the services
and deposits or advance payments actually or constructively received during the taxable quarter for
the service performed or to be performed for another person, excluding value-added tax.
(b) Determination of the tax. (1) Tax billed as a separate item in the invoice. If the tax is billed
as a separate item in the invoice, the tax shall be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. If the tax is not billed separately
or is billed erroneously in the invoice, the tax shall be determined by multiplying the gross receipts
(including the amount intended to cover the tax or the tax billed erroneously) by 1/11. (Emphasis
supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were exempted from the
coverage of VAT. 49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which clarified that the power to
impose amusement tax on gross receipts derived from admission tickets was exclusive with the local government units
and that only the gross receipts of amusement places derived from sources other than from admission tickets were
subject to amusement tax under the NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read: DAEaTS
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on gross
receipts arising from admission to places of amusement has been transferred to the local
governments to the exclusion of the national government.
xxx xxx xxx
Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the
amendatory laws which amended the National Internal Revenue Code, including the value added tax
law under Executive Order No. 273, has amended the provisions of Section 11 of the Local Tax Code.
Accordingly, the sole jurisdiction for collection of amusement tax on admission receipts in places of
amusement rests exclusively on the local government, to the exclusion of the national government.
Since the Bureau of Internal Revenue is an agency of the national government, then it follows that it
has no legal mandate to levy amusement tax on admission receipts in the said places of
amusement.
Considering the foregoing legal background, the provisions under Section 123 of the National
Internal Revenue Code as renumbered by Executive Order No. 273 (Sec. 228, old NIRC) pertaining to

amusement taxes on places of amusement shall be implemented in accordance with BIR RULING,
dated December 4, 1973 and BIR RULING NO. 231-86 dated November 5, 1986 to wit:
". . . Accordingly, only the gross receipts of the amusement places derived from sources
other than from admission tickets shall be subject to . . . amusement tax prescribed under
Section 228 of the Tax Code, as amended (now Section 123, NIRC, as amended by E.O.
273). The tax on gross receipts derived from admission tickets shall be levied and
collected by the city government pursuant to Section 23 of Presidential Decree No. 231,
as amended x x x" or by the provincial government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code.(Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local government retained the power to impose
amusement tax on proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and
other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees
under Section 140 thereof. 50 In the case of theaters or cinemas, the tax shall first be deducted and withheld by their
proprietors, lessees, or operators and paid to the local government before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the cinematographic films. However, the provision in the Local
Tax Code expressly excluding the national government from collecting tax from the proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses and other places of amusements was no longer included. DEaCSA
In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its administration. Three years
later, RA 7716 was amended by RA 8241. Shortly thereafter, the NIRC of 1997 51 was signed into law. Several
amendments 52 were made to expand the coverage of VAT. However, none pertain to cinema/theater operators or
proprietors. At present, only lessors or distributors of cinematographic films are subject to VAT. While persons subject
to amusement tax 53 under the NIRC of 1997 are exempt from the coverage of VAT. 54 Based on the foregoing, the
following facts can be established:
(1) Historically, the activity of showing motion pictures, films or movies by cinema/theater operators
or proprietors has always been considered as a form of entertainment subject to amusement
tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the national
government.
(3) When the Local Tax Code was enacted, amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of amusements were transferred to
the local government.
(4) Under the NIRC of 1977, the national government imposed amusement tax only on proprietors,
lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks.
(5) The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage
tax on certain services.
(6) When the VAT law was implemented, it exempted persons subject to amusement tax under the
NIRC from the coverage of VAT.
(7) When the Local Tax Code was repealed by the LGC of 1991, the local government continued to
impose amusement tax on admission tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements.
(8) Amendments to the VAT law have been consistent in exempting persons subject to amusement
tax under the NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films are included in the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds
true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local government
unit and not by the national government is immaterial. The Local Tax Code, in transferring the power to tax gross
receipts derived by cinema/theater operators or proprietor from admission tickets to the local government, did not
intend to treat cinema/theater houses as a separate class. No distinction must, therefore, be made between the places
of amusement taxed by the national government and those taxed by the local government. EIAScH

To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who
would be paying an additional 10% 55 VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of
1991, or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would
be in a better position than those taxed under the LGC of 1991. We need not belabor that a literal application of a law
must be rejected if it will operate unjustly or lead to absurd results. 56 Thus, we are convinced that the legislature
never intended to include cinema/theater operators or proprietors in the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals, 57 to wit:
The power of taxation is sometimes called also the power to destroy. Therefore, it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in
order to maintain the general public's trust and confidence in the Government this power must be
used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT against respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator was then subject to amusement tax
under Section 260 ofCommonwealth Act No. 466, otherwise known as the National Internal Revenue
Code of 1939, computed on the amount paid for admission. With the enactment of the Local Tax
Code under Presidential Decree (PD) No. 231, dated June 28, 1973, the power of imposing taxes on
gross receipts from admission of persons to cinema/theater and other places of amusement had,
thereafter, been transferred to the provincial government, to the exclusion of the national or
municipal government (Sections 11 & 13, Local Tax Code). However, the said provision containing
the exclusive power of the provincial government to impose amusement tax, had also been repealed
and/or deleted by Republic Act (RA) No. 7160, otherwise known as the Local Government Code of
1991, enacted into law on October 10, 1991. Accordingly, the enactment of RA No. 7160, thus,
eliminating the statutory prohibition on the national government to impose business tax
on gross receipts from admission of persons to places of amusement, led the way to the
valid imposition of the VAT pursuant to Section 102 (now Section 108) of the old Tax
Code, as amended by the Expanded VAT Law (RA No. 7716) and which was implemented
beginning January 1, 1996. 58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts
of cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition under the
Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on
cinema/theater operators or proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a
burden on the taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. 59 As it is, the power to impose amusement
tax on cinema/theater operators or proprietors remains with the local government. IDSaTE
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from admission
to cinema houses must be struck down. We cannot overemphasize that RMCs must not override, supplant, or modify
the law, but must remain consistent and in harmony with, the law they seek to apply and implement. 60
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the procedural due
process for tax issuances as prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the
taxpayer is clearly subject to the tax being levied against him. 61 The reason is obvious: it is both illogical and
impractical to determine who are exempted without first determining who are covered by the provision. 62 Thus,
unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that
the imposition of a tax cannot be presumed. 63 In fact, in case of doubt, tax laws must be construed strictly against
the government and in favor of the taxpayer. 64

WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court of Tax Appeals En
Banc holding that gross receipts derived by respondents from admission tickets in showing motion pictures, films or
movies are not subject to value-added tax under Section 108 of the National Internal Revenue Code of 1997, as
amended, and its June 24, 2008 Resolution denying the motion for reconsideration are AFFIRMED.
SO ORDERED.
Carpio, Brion, Abad and Perez, JJ., concur.
||| (Commr. v. SM Prime Holdings, Inc., G.R. No. 183505, February 26, 2010)

SECOND DIVISION
[G.R. No. 153205. January 22, 2007.]
COMMISSIONER
OF
INTERNAL
REVENUE, petitioner, vs.
SCANDINAVIAN CONTRACTOR MINDANAO, INC., respondent.

BURMEISTER

AND

WAIN

DECISION
CARPIO, J p:
The Case
This petition for review 1 seeks to set aside the 16 April 2002 Decision 2 of the Court of Appeals in CA-G.R. SP No.
66341 affirming the 8 August 2001 Decision 3 of the Court of Tax Appeals (CTA). The CTA ordered the Commissioner of
Internal Revenue (petitioner) to issue a tax credit certificate for P6,994,659.67 in favor of Burmeister and Wain
Scandinavian Contractor Mindanao, Inc. (respondent).
The Antecedents
The CTA summarized the facts, which the Court of Appeals adopted, as follows:
[Respondent] is a domestic corporation duly organized and existing under and by virtue of the laws
of the Philippines with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang,
Davao City.
It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian
Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd.
entered into a contract with the National Power Corporation (NAPOCOR) for the operation and
maintenance of [NAPOCOR's] two power barges. The Consortium appointed BWSC-Denmark as its
coordination manager.
BWSC-Denmark established [respondent] which subcontracted the actual operation and
maintenance of NAPOCOR's two power barges as well as the performance of other duties and acts
which necessarily have to be done in the Philippines. aITECA
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and
Peso). The freely convertible non-Peso component is deposited directly to the Consortium's bank
accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate
and special designated bank account in the Philippines. On the other hand, the Consortium pays
[respondent] in foreign currency inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling
from the BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein
that if [respondent] chooses to register as a VAT person and the consideration for its services is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of Registration
bearing RDO Control No. 95-113-007556 was issued in favor of [respondent] by the Revenue District
Office No. 113 of Davao City.
For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns reflecting, among others, a
total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14, detailed as follows:
Qtr. Exh. Date Filed Zero-Rated Sales VAT Input Tax

1st E 04-18-96 P33,019,651.07 P608,953.48

2nd F 07-16-96 37,108,863.33 756,802.66
3rd G 10-14-96 34,196,372.35 930,279.14
4th H 01-20-97 42,992,302.87 1,065,138.86
Totals P147,317,189.62 P3,361,174.14

============= ===========
On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR.
It allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable
to its case. Revenue Regulations No. 5-96 provides in part thus:
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue Regulations No. 7-95 are hereby
amended to read as follows:
Section 4.102-2(b)(2) "Services other than processing, manufacturing or repacking for
other persons doing business outside the Philippines for goods which are subsequently
exported, as well as services by a resident to a non-resident foreign client such as project
studies, information services, engineering and architectural designs and other similar
services, the consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP."
xxx xxx xxx
In [conformity] with the aforecited Revenue Regulations, [respondent] subjected its sale of services
to the Consortium to the 10% VAT in the total amount of P103,558,338.11 representing April to
December 1996 sales since said Revenue Regulations No. 5-96 became effective only on April 1996.
The sum of P43,893,951.07, representing January to March 1996 sales was subjected to zero rate.
Consequently, [respondent] filed its 1996 amended VAT return consolidating therein the VAT output
and input taxes for the four calendar quarters of 1996. It paid the amount of P6,994,659.67 through
BIR's collecting agent, PCIBank, as its output tax liability for the year 1996, computed as follows:
Amount subject to 10% VAT P103,558,338.11
Multiply by 10%

VAT Output Tax P10,355,833.81

Less: 1996 Input VAT P3,361,174.14

VAT Output Tax Payable P6,994,659.67

=============
On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT Review
Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the services being
rendered by BWSCMI is subject to VAT at zero percent (0%)."
On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for the
issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent] believed
that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment
Program (VAP) of the BIR. 4
On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the running of the two-year
prescriptive period under the Tax Code.
The Ruling of the Court of Tax Appeals
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of
respondent. The CTA's ruling stated:
[Respondent's] sale of services to the Consortium [was] paid for in acceptable foreign currency
inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations
of Bangko Sentral ng Pilipinas. These were established by various BPI Credit Memos showing

remittances in Danish Kroner (DKK) and US dollars (US$) as payments for the specific invoices billed
by [respondent] to the consortium. These remittances were further certified by the Branch Manager .
. . of BPI-Davao Lanang Branch to represent payments for sub-contract fees that came from Den
Danske Aktieselskab Bank-Denmark for the account of [respondent]. Clearly, [respondent's] sale of
services to the Consortium is subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code.
xxx xxx xxx
The zero-rating of [respondent's] sale of services to the Consortium was even confirmed by the
[petitioner] in BIR Ruling No. 023-95 dated February 15, 1995, and later by VAT Ruling No. 003-99
dated January 7, 1999, . . . .
Since it is apparent that the payments for the services rendered by [respondent] were indeed subject
to VAT at zero percent, it follows that it mistakenly availed of the Voluntary Assessment Program by
paying output tax for its sale of services. . . . DTAHSI
. . . Considering the principle of solutio indebiti which requires the return of what has been delivered
by mistake, the [petitioner] is obligated to issue the tax credit certificate prayed for by
[respondent]. . . . 5
Petitioner filed a petition for review with the Court of Appeals, which dismissed the petition for lack of merit and
affirmed the CTA decision. 6
Hence, this petition.
The Court of Appeals' Ruling
In affirming the CTA, the Court of Appeals rejected petitioner's view that since respondent's services are not destined
for consumption abroad, they are not of the same nature as project studies, information services, engineering and
architectural designs, and other similar services mentioned in Section 4.102-2 (b) (2) of Revenue Regulations No. 596 7 as subject to 0% VAT. Thus, according to petitioner, respondent's services cannot legally qualify for 0% VAT but
are subject to the regular 10% VAT. 8
The Court of Appeals found untenable petitioner's contention that under VAT Ruling No. 040-98, respondent's services
should be destined for consumption abroad to enjoy zero-rating. Contrary to petitioner's interpretation, there are two
kinds of transactions or services subject to zero percent VAT under VAT Ruling No. 040-98. These are (a) services other
than repacking goods for other persons doing business outside the Philippines which goods are subsequently exported;
and (b) services by a resident to a non-resident foreign client, such as project studies, information services,
engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP). 9
The Court of Appeals stated that "only the first classification is required by the provision to be consumed abroad in
order to be taxed at zero rate. In . . . the absence of such express or implied stipulation in the statute, the second
classification need not be consumed abroad." 10
The Court of Appeals further held that assuming petitioner's interpretation of Section 4.102-2 (b) (2) of Revenue
Regulations No. 5-96 is correct, such administrative provision is void being an amendment to the Tax Code. Petitioner
went beyond merely providing the implementing details by adding another requirement to zero-rating. "This is
indicated by the additional phrase 'as well as services by a resident to a non-resident foreign client, such as project
studies, information services and engineering and architectural designs and other similar services.' In effect, this
phrase adds not just one but two requisites: (a) services must be rendered by a resident to a non-resident; and (b)
these must be in the nature of project studies, information services, etc." 11

The Court of Appeals explained that under Section 108 (b) (2) of the Tax Code, 12 for services which were performed
in the Philippines to enjoy zero-rating, these must comply only with two requisites, to wit: (1) payment in acceptable
foreign currency and (2) accounted for in accordance with the rules of the BSP. Section 108 (b) (2) of the Tax Code does
not provide that services must be "destined for consumption abroad" in order to be VAT zero-rated. 13
The Court of Appeals disagreed with petitioner's argument that our VAT law generally follows the destination principle
(i.e., exports exempt, imports taxable). 14 The Court of Appeals stated that "if indeed the 'destination principle'

underlies and is the basis of the VAT laws, then petitioner's proper remedy would be to recommend an amendment of
Section 108 (b) (2) to Congress. Without such amendment, however, petitioner should apply the terms of the basic law.
Petitioner could not resort to administrative legislation, as what [he] had done in this case." 15
The Issue
The lone issue for resolution is whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid
output VAT for the year 1996. 16
The Ruling of the Court
We deny the petition.
At the outset, the Court declares that the denial of the instant petition is not on the ground that respondent's services
are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling No. 02395 17 and VAT Ruling No. 003-99, 18 which held that respondent's services are subject to 0% VAT and which
respondent invoked in applying for refund of the output VAT.
Section 102 (b) of the Tax Code, 19 the applicable provision in 1996 when respondent rendered the services and paid
the VAT in question, enumerates which services are zero-rated, thus:
(b) Transactions subject to zero-rate. The following services performed in the Philippines by VATregistered persons shall be subject to 0%:
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippineswhich 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 theBangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of
total annual production. (Emphasis supplied) ITEcAD
In insisting that its services should be zero-rated, respondent claims that it complied with the requirements of the Tax
Code for zero rating under the second paragraph of Section 102 (b). Respondent asserts that (1) the payment of its
service fees was in acceptable foreign currency, (2) there was inward remittance of the foreign currency into the
Philippines, and (3) accounting of such remittance was in accordance with BSP rules. Moreover, respondent contends
that its services which "constitute the actual operation and management of two (2) power barges in Mindanao" are not
"even remotely similar to project studies, information services and engineering and architectural designs under
Section 4.102-2 (b) (2) of Revenue Regulations No. 5-96." As such, respondent's services need not be "destined to be
consumed abroad in order to be VAT zero-rated."
Respondent is mistaken.
The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of goods" and
that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules. Another
essential condition for qualification to zero-rating under Section 102 (b) (2) is that the recipient of such services is
doing businessoutside the Philippines. While this requirement is not expressly stated in the second paragraph of
Section 102 (b), this is clearly provided in the first paragraph of Section 102 (b) where the listed services must be " for
other persons doing business outside the Philippines." The phrase "for other persons doing business outside the
Philippines" not only refers to the services enumerated in the first paragraph of Section 102 (b), but also pertains to
the general term "services" appearing in the second paragraph of Section 102 (b). In short, services other than

processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the
Philippines.
This can only be the logical interpretation of Section 102 (b) (2). If the provider and recipient of the "other services"
are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to
the regular VAT under Section 102 (a) can avoid paying the VAT by simply stipulating payment in foreign currency
inwardly remitted by the recipient of services. To interpret Section 102 (b) (2) to apply to a payer-recipient of services
doing business in the Philippines is to make the payment of the regular VAT under Section 102 (a) dependent on the
generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating
payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes Section 102 (a) as
a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a
voluntary contribution.
When Section 102 (b) (2) stipulates payment in "acceptable foreign currency" under BSP rules, the law clearly
envisions the payer-recipient of services to be doing business outside the Philippines. Only those not doing business in
the Philippines can be required under BSP rules 20 to pay in acceptable foreign currency for their purchase of goods or
services from the Philippines. In a domestic transaction, where the provider and recipient of services are both doing
business in the Philippines, the BSP cannot require any party to make payment in foreign currency.
Services covered by Section 102 (b) (1) and (2) are in the nature of export sales since the payer-recipient of services is
doing business outside the Philippines. Under BSP rules, 21 the proceeds of export sales must be reported to
the Bangko Sentral ng Pilipinas. Thus, there is reason to require the provider of services under Section 102 (b) (1) and
(2) to account for the foreign currency proceeds to the BSP. The same rationale does not apply if the provider and
recipient of the services are both doing business in the Philippines since their transaction is not in the nature of an
export sale even if payment is denominated in foreign currency.
Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls
squarely under Section 102 (a) governing domestic sale or exchange of services. Indeed, this is a purely local sale or
exchange of services subject to the regular VAT, unless of course the transaction falls under the other provisions of
Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "[s]ervices other than those mentioned in the preceding
subparagraph," the legislative intent is that only the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the recipient of services is doing business outside
the Philippines, remain the same under both subparagraphs.
Significantly, the amended Section 108 (b) 22 [previously Section 102 (b)] of the present Tax Code clarifies this
legislative intent. Expressly included among the transactions subject to 0% VAT are "[s]ervices other than those
mentioned in the [first] paragraph [of Section 108 (b)] rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP." ASDCaI
In this case, the payer-recipient of respondent's services is the Consortium which is a joint-venture doing business in
the Philippines. While the Consortium's principal members are non-resident foreign corporations, the Consortium
itself is doing business in the Philippines. This is shown clearly in BIR Ruling No. 023-95 which states that the
contract between the Consortium and NAPOCOR is for a 15-year term, thus:
This refers to your letter dated January 14, 1994 requesting for a clarification of the tax implications
of a contract between a consortium composed of Burmeister & Wain Scandinavian Contractor A/S
("BWSC"), Mitsui Engineering & Shipbuilding, Ltd. (MES), and Mitsui & Co., Ltd. ("MITSUI"), all referred
to hereinafter as the "Consortium", and the National Power Corporation ("NAPOCOR") for the
operation and maintenance of two 100-Megawatt power barges ("Power Barges")
acquired by NAPOCOR for a 15-year term. 23 (Emphasis supplied)
Considering this length of time, the Consortium's operation and maintenance of NAPOCOR's power barges cannot
be classified as a single or isolated transaction. The Consortium does not fall under Section 102 (b) (2) which
requires that the recipient of the services must be a person doing business outside the Philippines. Therefore,
respondent's services to the Consortium, not being supplied to a person doing business outside the Philippines,
cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR's power barges in the Philippines.
NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly remitted. In
turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with
BSP rules. This payment scheme does not entitle respondent to 0% VAT. As the Court held in Commissioner of Internal

Revenue v. American Express International, Inc. (Philippine Branch), 24 the place of payment is immaterial, much less
is the place where the output of the service is ultimately used. An essential condition for entitlement to 0% VAT under
Section 102 (b) (1) and (2) is that the recipient of the services is a person doing business outside the Philippines. In
this case, the recipient of the services is the Consortium, which is doing business not outside, but within
the Philippines because it has a 15-year contract to operate and maintain NAPOCOR's two 100-megawatt
power barges in Mindanao.
The Court recognizes the rule that the VAT system generally follows the "destination principle" (exports are zero-rated
whereas imports are taxed). However, as the Court stated in American Express, there is an exception to this
rule. 25 This exception refers to the 0% VAT on services enumerated in Section 102 and performed in the Philippines.
For services covered by Section 102 (b) (1) and (2), the recipient of the services must be a person doing business
outside the Philippines. Thus, to be exempt from the destination principle under Section 102 (b) (1) and (2), the
services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines; and (c) paid
in acceptable foreign currency accounted for in accordance with BSP rules. ITESAc
Respondent's reliance on the ruling in American Express 26 is misplaced. That case involved a recipient of services,
specifically American Express International, Inc. (Hongkong Branch), doing business outside the Philippines. There, the
Court stated:
Respondent [American Express International, Inc. (Philippine Branch)] is a VAT-registered person that
facilitates the collection and payment of receivables belonging to its non-resident foreign
client [American Express International, Inc. (Hongkong Branch)], for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in accordance with BSP rules and
regulations. . . . 27 (Emphasis supplied)
In contrast, this case involves a recipient of services the Consortium which is doing business in the
Philippines. Hence, American Express' services were subject to 0% VAT, while respondent's services should be
subject to 10% VAT.
Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-99, 28 which
reconfirmed BIR Ruling No. 023-95 29 "insofar as it held that the services being rendered by BWSCMI is subject to VAT
at zero percent (0%)." Respondent's reliance on these BIR rulings binds petitioner.
Petitioner's filing of his Answer before the CTA challenging respondent's claim for refund effectively serves as a
revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given retroactive
effect since it will prejudice respondent. Changing respondent's status will deprive respondent of a refund of a
substantial amount representing excess output tax. 30 Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will
prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section
246 of the Tax Code for the retroactive application of such revocation.
However, upon the filing of petitioner's Answer dated 2 March 2000 before the CTA contesting respondent's claim for
refund, respondent's services shall be subject to the regular 10% VAT. 31 Such filing is deemed a revocation of VAT
Ruling No. 003-99 and BIR Ruling No. 023-95.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.
Quisumbing, Carpio-Morales, Tinga and Velasco, Jr., JJ., concur.
||| (Commr. v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007)

THIRD DIVISION
[G.R. No. 152609. June 29, 2005.]
COMMISSIONER
OF
INTERNAL
REVENUE, petitioner, vs.
INTERNATIONAL, INC. (PHILIPPINE BRANCH), respondent.

AMERICAN

EXPRESS

DECISION
PANGANIBAN, J p:
As a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT law itself
provides for a clear exception, under which the supply of service shall be zero-rated when the following requirements
are met: (1) the service is performed in the Philippines; (2) the service falls under any of the categories provided in
Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign currency that is accounted for in accordance
with the regulations of the Bangko Sentral ng Pilipinas. Since respondent's services meet these requirements, they are
zero-rated. Petitioner's Revenue Regulations that alter or revoke the above requirements are ultra vires and invalid.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the February 28, 2002 Decision 2 of
the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. The assailed
decision of the Court of Tax Appeals (CTA) is AFFIRMED in toto." 3
The Facts
Quoting the CTA, the CA narrated the undisputed facts as follows:
"[Respondent] is a Philippine branch of American Express International, Inc., a corporation duly
organized and existing under and by virtue of the laws of the State of Delaware, U.S.A., with office in
the Philippines at the Ground Floor, ACE Building, corner Rada and de la Rosa Streets, Legaspi
Village, Makati City. It is a servicing unit of American Express International, Inc.-Hongkong Branch
(Amex-HK) and is engaged primarily to facilitate the collections of Amex-HK receivables from card
members situated in the Philippines and payment to service establishments in the Philippines.
"Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District Office
No. 47 (East Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was issued VAT
Registration Certificate No. 088445 bearing VAT Registration No. 32A-3-004868. For the period
January 1, 1997 to December 31, 1997, [respondent] filed with the BIR its quarterly VAT returns as
follows:
Exhibit Period Covered Date Filed
D 1997 1st Qtr. April 18, 1997
F 2nd Qtr. July 21, 1997
G 3rd Qtr. October 2, 1997
H 4th Qtr. January 20, 1998
"On March 23, 1999, however, [respondent] amended the aforesaid returns and declared the
following:

Taxable Output Zero-rated Domestic Input

Exh 1997 Sales VAT Sales Purchases VAT
I 1st qtr P59,597.20 P5,959.72 P17,513,801.11 P6,778,182.30 P677,818.23
J 2nd qtr 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
K 3rd qtr 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
L 4th qtr 67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21

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

"On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess
input taxes in the amount of P3,751,067.04, which amount was arrived at after deducting from its
total input VAT paid of P3,763,060.43 its applied output VAT liabilities only for the third and fourth
quarters of 1997 amounting to P5,193.66 and P6,799.43, respectively. [Respondent] cites as basis
therefor, Section 110 (B) of the 1997 Tax Code, to state:
'Section 110. Tax Credits.
xxx xxx xxx
'(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds
the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds
the output tax, the excess shall be carried over to the succeeding quarter or quarters. Any
input tax attributable to the purchase of capital goods or to zero-rated sales by a VATregistered person may at his option be refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112.'
"There being no immediate action on the part of the [petitioner], [respondent's] petition was filed on
April 15, 1999. ECcDAH
"In support of its Petition for Review, the following arguments were raised by [respondent]:
A. Export sales by a VAT-registered person, the consideration for which is paid for in
acceptable foreign currency inwardly remitted to the Philippines and accounted for in
accordance with existing regulations of the Bangko Sentral ng Pilipinas, are subject to [VAT]
at zero percent (0%). According to [respondent], being a VAT-registered entity, it is subject to
the VAT imposed under Title IV of the Tax Code, to wit:
'Section 102.(sic) Value-added tax on sale of services. (a) Rate and base of
tax. There shall be levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in the sale of services.
The phrase "sale of services" means the performance of all kinds of services for
others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors: stock, real estate, commercial,
customs and immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; and similar services regardless of
whether o[r] not the performance thereof calls for the exercise or use of the physical
or mental faculties: Provided That the following services performed in the Philippines
by VAT-registered persons shall be subject to 0%:
(1) . . .

(2) Services other than those mentioned in the preceding subparagraph, the
consideration is paid for in acceptable foreign currency which is remitted
inwardly to the Philippines and accounted for in accordance with the rules
and regulations of the BSP. . . .'
In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent
portion of which reads as follows:
'In Reply, please be informed that, as a VAT registered entity whose service is paid
for in acceptable foreign currency which is remitted inwardly to the Philippines and
accounted for in accordance with the rules and regulations of the Central [B]ank of
the Philippines, your service income is automatically zero rated effective January 1,
1998. [Section 102(a)(2) of the Tax Code as amended]. 4 For this, there is no need to
file an application for zero-rate.'
B. Input taxes on domestic purchases of taxable goods and services related to zero-rated
revenues are available as tax refund in accordance with Section 106 (now Section 112) of the
[Tax Code] and Section 8(a) of [Revenue] Regulations [(RR)] No. 5-87, to state:
'Section 106. Refunds or tax credits of input tax.
(A) Zero-rated or effectively Zero-rated Sales. Any VAT-registered person, except
those covered by paragraph (a) above, whose sales are zero-rated or are effectively
zero-rated, may, within two (2) years after the close of the taxable quarter when
such sales were made, apply for the issuance of tax credit certificate or refund of the
input taxes due or attributable to such sales, to the extent that such input tax has
not been applied against output tax. . . . [Section 106(a) of the Tax Code]' 5
'Section 8. Zero-rating. (a) In general. A zero-rated sale is a taxable
transaction for value-added tax purposes. A sale by a VAT-registered person of goods
and/or services taxed at zero rate shall not result in any output tax. The input tax on
his purchases of goods or services related to such zero-rated sale shall be available
as tax credit or refundable in accordance with Section 16 of these Regulations. . . .'
[Section 8(a), [RR] 5-87].' 6
"[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and Affirmative Defenses
that:
7. The claim for refund is subject to investigation by the Bureau of Internal Revenue;
8. Taxes paid and collected are presumed to have been made in accordance with laws and
regulations, hence, not refundable. Claims for tax refund are construed strictly against the
claimant as they partake of the nature of tax exemption from tax and it is incumbent upon
the [respondent] to prove that it is entitled thereto under the law and he who claims
exemption must be able to justify his claim by the clearest grant of organic or statu[t]e law.
An exemption from the common burden [cannot] be permitted to exist upon vague
implications;
9. Moreover, [respondent] must prove that it has complied with the governing rules with
reference to tax recovery or refund, which are found in Sections 204(c) and 229 of the Tax
Code, as amended, which are quoted as follows:
'Section 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. The Commissioner may . . .
(C) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his discretion, redeem or change
unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless
the taxpayer files in writing with the Commissioner a claim for credit or refund within
two (2) years after payment of the tax or penalty: Provided, however, That a return
filed with an overpayment shall be considered a written claim for credit or
refund.' IAcTaC

'Section 229. Recovery of tax erroneously or illegally collected. No suit or

proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax, penalty or sum has
been paid under protest or duress.

In any case, no such suit or proceeding shall be begun (sic) after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment:Provided, however, That the
Commissioner may, even without written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.'
"From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a
decision 7 in favor of the herein respondent holding that its services are subject to zero-rate
pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue
Regulations 5-96, the decretal portion of which reads as follows:
'WHEREFORE, in view of all the foregoing, this Court finds the [petition] meritorious and in
accordance with law. Accordingly, [petitioner] is hereby ORDERED to REFUND to
[respondent] the amount of P3,352,406.59 representing the latter's excess input VAT paid for
the year 1997.'" 8
Ruling of the Court of Appeals
In affirming the CTA, the CA held that respondent's services fell under the first type enumerated in Section 4.102-2(b)
(2) of RR 7-95, as amended by RR 5-96. More particularly, its "services were not of the same class or of the same
nature as project studies, information, or engineering and architectural designs" for non-resident foreign clients;
rather, they were "services other than the processing, manufacturing or repacking of goods for persons doing business
outside the Philippines." The consideration in both types of service, however, was paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring that respondent's
services be consumed abroad in order to be zero-rated, petitioner went beyond the sphere of interpretation and into
that of legislation. Even granting that it is valid, the ruling cannot be given retroactive effect, for it will be harsh and
oppressive to respondent, which has already relied upon VAT Ruling No. 080-89 for zero rating.
Hence, this Petition. 9
The Issue
Petitioner raises this sole issue for our consideration:
"Whether or not the Court of Appeals committed reversible error in holding that respondent is
entitled to the refund of the amount of P3,352,406.59 allegedly representing excess input VAT for the
year 1997." 10
The Court's Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code 11 provides:

"Sec. 102. Value-added tax on sale of services and use or lease of properties. (a) Rate and base of
tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of services . . .
"The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by . . . persons engaged in milling, processing, manufacturing or repacking goods for
others; . . . services of banks, non-bank financial intermediaries and finance companies; . . . and
similar services regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include:
xxx xxx xxx
'(3) The supply of . . . commercial knowledge or information;
'(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a
means of enabling the application or enjoyment of . . . any such knowledge or information as
is mentioned in subparagraph (3);
xxx xxx xxx
'(6) The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any . . . commercial undertaking, venture, project
or scheme;
xxx xxx xxx
"The term 'gross receipts' means the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits and advanced payments actually or constructively
received during the taxable quarter for the services performed or to be performed for another
person, excluding value-added tax. STIcaE
"(b) Transactions subject to zero percent (0%) rate. The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:]
'(1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
'(2) Services other than those mentioned in the preceding subparagraph, the consideration
for which is paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the [BSP];'"
xxx xxx xxx
Zero Rating of
"Other" Services
The law is very clear. Under the last paragraph quoted above, services performed by VAT-registered persons in the
Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the
Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the collection and payment of receivables belonging to its nonresident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in
conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines is not in the same
category as "processing, manufacturing or repacking of goods" and should, therefore, be zero-rated. In reply to a
query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent earned from its parent
company's regional operating centers (ROCs) was automatically zero-rated effective January 1, 1988. 12

Service has been defined as "the art of doing something useful for a person or company for a fee" 13 or "useful labor
or work rendered or to be rendered by one person to another." 14 For facilitating in the Philippines the collection and
payment of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in duly accounted
acceptable foreign currency, respondent renders service falling under the category of zero rating. Pursuant to the Tax
Code, a VAT of zero percent should, therefore, be levied upon the supply of that service. 15
The Credit Card System
and Its Components
For sure, the ancillary business of facilitating the said collection is different from the main business of issuing credit
cards. 16Under the credit card system, the credit card company extends credit accommodations to its card holders for
the purchase of goods and services from its member establishments, to be reimbursed by them later on upon proper
billing. Given the complexities of present-day business transactions, the components of this system can certainly
function as separate billable services.
Under RA 8484, 17 the credit card that is issued by banks 18 in general, or by non-banks in particular, refers to "any
card . . . or other credit device existing for the purpose of obtaining . . . goods . . . or services . . . on credit;" 19 and is
being used "usually on a revolving basis." 20 This means that the consumer-credit arrangement that exists between
the issuer and the holder of the credit card enables the latter to procure goods or services "on a continuing basis as
long as the outstanding balance does not exceed a specified limit." 21 The card holder is, therefore, given "the power
to obtain present control of goods or service on a promise to pay for them in the future." 22
Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit card
company to avoid the risk of uncollectible accounts from their customers. Under this system, the establishments do
not deposit in their bank accounts the credit card drafts 23 that arise from the credit sales. Instead, they merely record
their receivables from the credit card company and periodically send the drafts evidencing those receivables to the
latter.
The credit card company, in turn, sends checks as payment to these business establishments, but it does not redeem
the drafts at full price. The agreement between them usually provides for discounts to be taken by the company upon
its redemption of the drafts. 24 At the end of each month, it then bills its credit card holders for their respective drafts
redeemed during the previous month. If the holders fail to pay the amounts owed, the company sustains the loss. 25
In the present case, respondent's role in the consumer credit 26 process described above primarily consists of
gathering the bills and credit card drafts of different service establishments located in the Philippines and forwarding
them to the ROCs outside the country. Servicing the bill is not the same as billing. For the former type of service alone,
respondent already gets paid.
The parent company to which the ROCs and respondent belong takes charge not only of redeeming the drafts
from the ROCs and sending the checks to the service establishments, but also of billing the credit card holders for their
respective drafts that it has redeemed. While it usually imposes finance charges 27 upon the holders, none may be
exacted by respondent upon either the ROCs or the card holders.

Branch and Home Office

By designation alone, respondent and the ROCs are operated as branches. This means that each of them is a unit, "an
offshoot, lateral extension, or division" 28 located at some distance from the home office 29 of the parent company;
carrying separate inventories; incurring their own expenses; and generating their respective incomes. Each may
conduct sales operations in any locality as an extension of the principal office. 30
The extent of accounting activity at any of these branches depends upon company policy, 31 but the financial reports
of the entire business enterprise the credit card company to which they all belong must always show its financial
position, results of operation, and changes in its financial position as a single unit. 32 Reciprocal accounts are
reconciled or eliminated, because they lose all significance when the branches and home office are viewed as a single
entity. 33 In like manner, intra-company profits or losses must be offset against each other for accounting
purposes. TCaEIc
Contrary to petitioner's assertion, 34 respondent can sell its services to another branch of the same parent
company. 35 In fact, the business concept of a transfer price allows goods and services to be sold between and among
intra-company units at cost or above cost. 36 A branch may be operated as a revenue center, cost center, profit
center or investment center, depending upon the policies and accounting system of its parent

company. 37 Furthermore, the latter may choose not to make any sale itself, but merely to function as a control
center, where most or all of its expenses are allocated to any of its branches. 38
Gratia argumenti that the sending of drafts and bills by service establishments to respondent is equivalent to the act
of sending them directly to its parent company abroad, and that the parent company's subsequent redemption of
these drafts and billings of credit card holders is also attributable to respondent, then with greater reason should the
service rendered by respondent be zero-rated under our VAT system. The service partakes of the nature of export sales
as applied to goods, 39especially when rendered in the Philippines by a VAT-registered person 40 that gets paid in
acceptable foreign currency accounted for in accordance with BSP rules and regulations.
VAT Requirements for
the Supply of Service
The VAT is a tax on consumption 41 "expressed as a percentage of the value added to goods or
services" 42 purchased by the producer or taxpayer. 43 As an indirect tax 44 on services, 45 its main object is the
transaction 46 itself or, more concretely, the performance of all kinds of services 47 conducted in the course of trade
or business in the Philippines. 48 These services must be regularly conducted in this country; undertaken in "pursuit of
a commercial or an economic activity;" 49 for a valuable consideration; and not exempt under the Tax Code, other
special laws, or any international agreement. 50
Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all these requirements.
First, respondent regularly renders in the Philippines the service of facilitating the collection and payment of
receivables belonging to a foreign company that is a clearly separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained period of time; on a significant scale; with a
reasonable degree of frequency; and not at random, fortuitous or attenuated.
Third, for this service, respondent definitely receives consideration in foreign currency that is accounted for in
conformity with law.
Finally, respondent is not an entity exempt under any of our laws or international agreements.
Services Subject to
Zero VAT
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the
tax. 51 Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated,
while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of service with
theconsumption of its output abroad. In the present case, the facilitation of the collection of receivables is different
from theutilization or consumption of the outcome of such service. While the facilitation is done in the Philippines,
the consumption is not. Respondent renders assistance to its foreign clients the ROCs outside the country by
receiving the bills of service establishments located here in the country and forwarding them to the ROCs abroad.
The consumption contemplated by law, contrary to petitioner's administrative interpretation, 52 does not imply that
the service be done abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it." 53 Applied to services, the term means the
performance or "successful completion of a contractual duty, usually resulting in the performer's release from any past
or future liability . . ." 54 The services rendered by respondent are performed or successfully completed upon its
sending to its foreign client the drafts and bills it has gathered from service establishments here. Its services, having
been performed in the Philippines, are therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined.
Instead, there can only be a "predetermined end of a course" 55 when determining the service "location or
position . . . for legal purposes." 56 Respondent's facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines. Under the destination principle, as petitioner asserts,
such service is subject to VAT at the rate of 10 percent.
Respondent's Services Exempt
from the Destination Principle

However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for
services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the [BSP]." 57 Thus, for the supply of service to be zero-rated as an
exception, the law merely requires thatfirst, 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. IASTDE
Indeed, these three requirements for exemption from the destination principle are met by respondent. Its facilitation
service is performed in the Philippines. It falls under the second category found in Section 102(b) of the Tax Code,
because it is a service other than "processing, manufacturing or repacking of goods" as mentioned in the provision.
Undisputed is the fact that such service meets the statutory condition that it be paid in acceptable foreign currency
duly accounted for in accordance with BSP rules. Thus, it should be zero-rated.
Performance of Service versus
Product Arising from Performance
Again, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not be tacked in as
part of the cost of goods exported. 58 The law neither imposes such requirement nor associates services with
exported goods. It simply states that the services performed by VAT-registered persons in the Philippines services
other than the processing, manufacturing or repacking of goods for persons doing business outside this country if
paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are
zero-rated. The service rendered by respondent is clearly different from the product that arises from the rendition of
such service. The activity that creates the income must not be confused with the main business in the course of which
that income is realized. 59
Tax Situs of a
Zero-Rated Service
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under
this criterion, the place where the service is rendered determines the jurisdiction 60 to impose the VAT. 61 Performed
in the Philippines, such service is necessarily subject to its jurisdiction, 62 for the State necessarily has to have "a
substantial connection" 63 to it, in order to enforce a zero rate. 64 The place of payment is immaterial; 65 much less
is the place where the output of the service will be further or ultimately used.
Statutory Construction
or Interpretation Unnecessary
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory construction or
interpretation is needed. Neither can conditions or limitations be introduced where none is provided for. Rewriting the
law is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt. 66 "[W]here the law speaks in clear and categorical
language, there is no room for interpretation. There is only room for application." 67 The Court has no choice but to
"see to it that its mandate is obeyed." 68
No Qualifications
Under RR 5-87
In implementing the VAT provisions of the Tax Code, RR 5-87 provides for the zero rating of services other than the
processing, manufacturing or repacking of goods in general and without qualifications when paid for by the
person to whom such services are rendered in acceptable foreign currency inwardly remitted and duly accounted for in
accordance with the BSP (then Central Bank) regulations. Section 8 of RR 5-87 states:

"SECTION 8. Zero-rating. (a) In general. A zero-rated sale is a taxable transaction for valueadded tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate
shall not result in any output tax. The input tax on his purchases of goods or services related to such
zero-rated sale shall be available as tax credit or refundable in accordance with Section 16 of these
Regulations.
xxx xxx xxx

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

persons are zero-rated:
'(1) Services in connection with the processing, manufacturing or repacking of goods
for persons doing business outside the Philippines, where such goods are actually
shipped out of the Philippines to said persons or their assignees and the services are
paid for in acceptable foreign currency inwardly remitted and duly accounted for
under the regulations of the Central Bank of the Philippines.
xxx xxx xxx
'(3) Services performed in the Philippines other than those mentioned in
subparagraph (1) above which are paid for by the person or entity to whom the
service is rendered in acceptable foreign currency inwardly remitted and duly
accounted for in accordance with Central Bank regulations. Where the contract
involves payment in both foreign and local currency, only the service corresponding
to that paid in foreign currency shall enjoy zero-rating. The portion paid for in local
currency shall be subject to VAT at the rate of 10%.'"
RR 7-95
Broad Enough
RR 7-95, otherwise known as the "Consolidated VAT Regulations," 69 reiterates the above-quoted provision and further
presents as examples only the services performed in the Philippines by VAT-registered hotels and other service
establishments. Again, the condition remains that these services must be paid in acceptable foreign currency inwardly
remitted and accounted for in accordance with the rules and regulations of the BSP. The term "other service
establishments" is obviously broad enough to cover respondent's facilitation service. Section 4.102-2 of RR 7-95
provides thus:
"SECTION 4.102-2 Zero-Rating. (a) In general. A zero-rated sale by a VAT registered person,
which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input
tax on his purchases of goods, properties or services related to such zero-rated sale shall be
available as tax credit or refund in accordance with these regulations.
"(b) Transaction subject to zero-rate. The following services performed in the Philippines by VATregistered persons shall be subject to 0%:
'(1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations
of the BSP; DaEATc
'(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered
by hotels and other service establishments, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations
of the BSP;'"
xxx xxx xxx
Meaning of "as well as"
in RR 5-96
Section 4.102-2(b)(2) of RR 7-95 was subsequently amended by RR 5-96 to read as follows:
"Section 4.102-2(b)(2) 'Services other than processing, manufacturing or repacking for other
persons doing business outside the Philippines for goods which are subsequently exported, as well as
services by a resident to a non-resident foreign client such as project studies, information services,
engineering and architectural designs and other similar services, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP.'"
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the amendment introduced
by RR 5-96 further enumerates specific services entitled to zero rating. Although superfluous, these sample services

are meant to be merely illustrative. In this provision, the use of the term "as well as" is not restrictive. As a
prepositional phrase with an adverbial relation to some other word, it simply means "in addition to, besides, also or
too." 70
Neither the law nor any of the implementing revenue regulations aforequoted categorically defines or limits the
services that may be sold or exchanged for a fee, remuneration or consideration. Rather, both merely enumerate the
items of service that fall under the term "sale or exchange of services." 71
Ejusdem Generis
Inapplicable
The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does not apply to
Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words, followed by the
general phrase "and other similar services," such words do not constitute a readily discernible class and are patently
not of the same kind. 72 Project studies involve investments or marketing; information services focus on data
technology; engineering and architectural designs require creativity. Aside from calling for the exercise or use of
mental faculties or perhaps producing written technical outputs, no common denominator to the exclusion of all others
characterizes these three services. Nothing sets them apart from other and similar general services that may involve
advertising, computers, consultancy, health care, management, messengerial work to name only a few.
Second, there is the regulatory intent to give the general phrase "and other similar services" a broader
meaning. 73 Clearly, the preceding phrase "as well as" is not meant to limit the effect of "and other similar services."
Third, and most important, the statutory provision upon which this regulation is based is by itself not restrictive. The
scope of the word "services" in Section 102(b)(2) of the Tax Code is broad; it is not susceptible of narrow
interpretation. 74
VAT Ruling
Nos. 040-98 and 080-89
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative level, 75 rendered
by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the VAT law. As correctly held by
the CA, when this ruling states that the service must be "destined for consumption outside of the Philippines" 76 in
order to qualify for zero rating, it contravenes both the law and the regulations issued pursuant to it. 77 This portion of
VAT Ruling No. 040-98 is clearlyultra vires and invalid. 78
Although "[i]t is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is
to enforce it, is entitled to great respect by the courts," 79 this interpretation is not conclusive and will have to be
"ignored if judicially found to be erroneous" 80 and "clearly absurd . . . or improper." 81 An administrative issuance
that overrides the law it merely seeks to interpret, instead of remaining consistent and in harmony with it, will not be
countenanced by this Court. 82
In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly recognizes its zero rating.
Changing this status will certainly deprive respondent of a refund of the substantial amount of excess input taxes to
which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such revocation could not be
given retroactive effect if the application of the latter ruling would only be prejudicial to respondent. 83 Section 246 of
the Tax Code categorically declares that "[a]ny revocation . . . of . . . any of the rulings . . . promulgated by the
Commissioner shall not be given retroactive application if the revocation . . . will be prejudicial to the taxpayers." 84
It is also basic in law that "no . . . rule . . . shall be given retrospective effect 85 unless explicitly stated." 86 No
indication of such retroactive application to respondent does the Court find in VAT Ruling No. 040-98. Neither do the
exceptions enumerated in Section 246 87 of the Tax Code apply.
Though vested with the power to interpret the provisions of the Tax Code 88 and not bound by predecessors' acts or
rulings, the BIR commissioner may render a different construction to a statute 89 only if the new interpretation is in
congruence with the law. Otherwise, no amount of interpretation can ever revoke, repeal or modify what the law
says. AaCcST

"Consumed Abroad"
Not Required by Legislature
Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the legislators not to
impose the condition of being "consumed abroad" in order for services performed in the Philippines by a VAT-registered
person to be zero-rated. We quote the relevant portions of the proceedings:
"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly
explain to me I am referring to the lower part of the first paragraph with the 'Provided'. Section
102. 'Provided that the following services performed in the Philippines by VAT registered persons
shall be subject to zero percent.' There are three here. What is the difference between the three here
which is subject to zero percent and Section 103 which is exempt transactions, to being with?
"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking goods
for persons doing business outside the Philippines which are subsequently exported, and where the
services are paid for in acceptable foreign currencies inwardly remitted, this is considered as subject
to 0%. But if these conditions are not complied with, they are subject to the VAT.
"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the other
one that he indicated are exempted from the very beginning. These three enumerations under
Section 102 are zero-rated provided that these conditions indicated in these three paragraphs are
also complied with. If they are not complied with, then they are not entitled to the zero ratings. Just
like in the export of minerals, if these are not exported, then they cannot qualify under this provision
of zero rating.
"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it is
required that the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in Chicago or Washington and they send the
payment inwardly to the Philippines in foreign currency, and that is, of course, zero-rated.
"Now, when we say 'services other than those mentioned in the preceding subsection[,'] may I have
some examples of these?
"Senator Herrera: Which portion is the Gentleman referring to?
"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages something here and he sends it abroad and they
pay him, that is covered. That is clear to me. The second paragraph says 'Services other than those
mentioned in the preceding subparagraph, the consideration of which is paid for in acceptable
foreign currency. . . .'
"One example I could immediately think of I do not know why this comes to my mind tonight is
for tourism or escort services. For example, the services of the tour operator or tour escort just a
good name for all kinds of activities is made here at the Midtown Ramada Hotel or at the
Philippine Plaza, but the payment is made from outside and remitted into the country.
"Senator Herrera: What is important here is that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.
"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the services
of a woman or a tourist guide, it is zero-rated when it is remitted here.
"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also be
considered as among the professionals. If they earn more than P200,000, they should be covered.
xxx xxx xxx
Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT, and
I am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?

"Senator Herrera: This provision applies to a VAT-registered person. When he performs services in
the Philippines, that is zero-rated.
"Senator Maceda: That is right." 90
Legislative Approval
By Reenactment
Finally, upon the enactment of RA 8424, which substantially carries over the particular provisions on zero rating of
services under Section 102(b) of the Tax Code, the principle of legislative approval of administrative interpretation by
reenactment clearly obtains. This principle means that "the reenactment of a statute substantially unchanged is
persuasive indication of the adoption by Congress of a prior executive construction." 91
The legislature is presumed to have reenacted the law with full knowledge of the contents of the revenue regulations
then in force regarding the VAT, and to have approved or confirmed them because they would carry out the legislative
purpose. The particular provisions of the regulations we have mentioned earlier are, therefore, re-enforced. "When a
statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its
enforcement and the [l]egislature thereafter [reenacts] the provisions [without] substantial change, such action is to
some extent confirmatory that the ruling carries out the legislative purpose." 92
In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the former's entitlement to
the refund as determined by the appellate court. Moreover, there is no conflict between the decisions of the CTA and
CA. This Court respects the findings and conclusions of a specialized court like the CTA "which, by the nature of its
functions, is dedicated exclusively to the study and consideration of tax cases and has necessarily developed an
expertise on the subject."93
Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely freed from the
VAT, because the seller is entitled to recover, by way of a refund or as an input tax credit, the tax that is included in
the cost of purchases attributable to the sale or exchange. 94 "[T]he tax paid or withheld is not deducted from the tax
base." 95 Having been applied for within the reglementary period, 96 respondent's refund is in order.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No pronouncement as to
costs. TcHCDISO ORDERED.Sandoval-Gutierrez, Corona, Carpio Morales and Garcia, JJ., concur.
| (Commr. v.
American Express Int'l. Inc., G.R. No. 152609, June 29, 2005)

FIRST DIVISION
[G.R. No. 184823. October 6, 2010.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. AICHI FORGING COMPANY OF ASIA,
INC.,respondent.
DECISION
DEL CASTILLO, J p:
A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive
in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In
both cases, a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due
process as non-observance of the prescriptive periods within which to file the administrative and the judicial claims
would result in the denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008
Decision 1 and the October 6, 2008 Resolution 2 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the
Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its byproducts. 3 It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity 4 and its
products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments (BOI)
as a pioneer status. 5

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to
September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR),
through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center. 6 cAaDHT
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review 7 with the CTA for the refund/credit of the same input VAT. The
case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it generated and
recorded zero-rated sales in the amount of P131,791,399.00, 8 which was paid pursuant to Section 106 (A) (2) (a) (1),
(2) and (3) of the National Internal Revenue Code of 1997 (NIRC); 9 that for the said period, it incurred and paid input
VAT amounting to P3,912,088.14 from purchases and importation attributable to its zero-rated sales; 10 and that in its
application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it
only claimed the amount of P3,891,123.82. 11
In response, petitioner filed his Answer 12 raising the following special and affirmative defenses, to wit:
4. Petitioner's alleged claim for refund is subject to administrative investigation by the Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in question;
6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a),
and 108(B) (1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section
229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for refund; and
9. Claims for refund are construed strictly against the claimant for the same partake of the nature of
exemption from taxation. 13
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially granting
respondent's claim for refund/credit. Pertinent portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of
the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: . . .
Pursuant to the above provision, petitioner must comply with the following requisites: (1) the
taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VATregistered; (3) the claim must be filed within two years after the close of the taxable quarter when
such sales were made; and (4) the creditable input tax due or paid must be attributable to such
sales, except the transitional input tax, to the extent that such input tax has not been applied
against the output tax.
The Court finds that the first three requirements have been complied [with] by petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices
(Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is engaged in sales
which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration with OCN
1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for refund on
September 30, 2004 (Exhibit "N") and the present Petition for Review on September 30, 2004, both
within the two (2) year prescriptive period from the close of the taxable quarter when the sales were
made, which is from September 30, 2002.
As regards the fourth requirement, the Court finds that there are some documents and claims of
petitioner that are baseless and have not been satisfactorily substantiated.
xxx xxx xxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit
certificate representing unutilized excess input VAT payments for the period July 1, 2002 to
September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the
reduced amount of P3,239,119.25, computed as follows:
Amount of Claimed Input VAT P3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37

Net Creditable Input VAT P3,850,103.45

Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT P3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED.
Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in
favor of petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE
THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS (P3,239,119.25), representing the
unutilized input VAT incurred for the months of July to September 2002.
SO ORDERED. 14
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial Reconsideration, 15 insisting that the
administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for
under Sections 112 (A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the
claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29,
2004. 16 He cited as basis Article 13 of the Civil Code, 17 which provides that when the law speaks of a year, it is
equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial
claims contravenes Sections 112 and 229 of the NIRC. 18 According to the petitioner, a prior filing of an administrative
claim is a "condition precedent" 19 before a judicial claim can be filed. He explained that the rationale of such
requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the CTA is
an appellate body which exercises the power of judicial review over administrative actions of the BIR. 20
The Second Division of the CTA, however, denied petitioner's Motion for Partial Reconsideration for lack of merit.
Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review. 21
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Division's Decision allowing the partial tax refund/credit in
favor of respondent. However, as to the reckoning point for counting the two-year period, the CTA En Banc ruled:
Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by
law and hence, the honorable Court has no jurisdiction over the same. In addition, petitioner further
contends that respondent's filing of the administrative and judicial [claims] effectively eliminates the
authority of the honorable Court to exercise jurisdiction over the judicial claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax.

(A) In General. Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25)
days following the close of each taxable quarter prescribed for each taxpayer: Provided,
however, That VAT-registered persons shall pay the value-added tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each
taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts. In
the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September 30,
2002. Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within which to
file its quarterly return for its gross sales or receipts [with] which it complied when it filed its VAT
Quarterly Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC
should start from the payment of tax subject claim for refund. As stated above, respondent filed its
VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus, respondent's
administrative and judicial claims for refund filed on September 30, 2004 were filed on time because
AICHI has until October 20, 2004 within which to file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the
previous filing of an administrative claim for refund prior to the judicial claim. This should not be the
case as the law does not prohibit the simultaneous filing of the administrative and judicial claims for
refund. What is controlling is that both claims for refund must be filed within the two-year
prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled
out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second
Division. What the instant petition seeks is for the Court En Banc to view and appreciate the
evidence in their own perspective of things, which unfortunately had already been considered and
passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack
of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second
Division in CTA Case No. 7065 entitled,"AICHI Forging Company of Asia, Inc. petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby AFFIRMEDin toto.
SO ORDERED. 22
Petitioner sought reconsideration but the CTA En Banc denied 23 his Motion for Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether respondent's judicial and administrative
claims for tax refund/credit were filed within the two-year prescriptive period provided in Sections 112 (A) and 229 of
the NIRC. 24
Petitioner's Arguments
Petitioner maintains that respondent's administrative and judicial claims for tax refund/credit were filed in violation of
Sections 112 (A) and 229 of the NIRC. 25 He posits that pursuant to Article 13 of the Civil Code, 26 since the year
2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year
period, which expired on September 29, 2004. 27
Petitioner further argues that the CTA En Banc erred in applying Section 114 (A) of the NIRC in determining the start of
the two-year period as the said provision pertains to the compliance requirements in the payment of VAT. 28 He
asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically provides for
the period within which a claim for tax refund/credit should be made. 29
Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA
were filed on the same day. 30 He opines that the simultaneous filing of the administrative and the judicial claims

contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim. 31 He insists that such
procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact that the CTA is
an appellate body exercising judicial review over administrative actions of the CIR. 32
Respondent's Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July 1, 2002
to September 30, 2002 as a matter of right because it has substantially complied with all the requirements provided by
law. 33Respondent likewise defends the CTA En Banc in applying Section 114 (A) of the NIRC in computing the
prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112 (A) of the NIRC must be
read together with Section 114 (A) of the same Code. 34
As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an
administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it
filed a judicial claim with the CTA. 35 To prove this, respondent points out that its Claimant Information Sheet No.
49702 36 and BIR Form No. 1914 for the third quarter of 2002, 37 which were filed with the DOF, were attached as
Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA. 38 Respondent further contends that
the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112 (D)
is not fatal because what is important is that both claims are filed within the two-year prescriptive period. 39 In
support thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc. 40 where it was ruled
that "[i]f, however, the [CIR] takes time in deciding the claim, and the period of two years is about to end, the suit or
proceeding must be started in the [CTA] before the end of the two-year period without awaiting the decision of the
[CIR]." 41 Lastly, respondent argues that even if the period had already lapsed, it may be suspended for reasons of
equity considering that it is not a jurisdictional requirement. 42
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two
years after the close of the taxable quarter when
the sales were made
In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division
of the CTA applied Section 112 (A) of the NIRC, which states:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are 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
zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt
sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on
the basis of the volume of sales. (Emphasis supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following
the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VATregistered persons shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall file a return
and pay the tax due thereon within twenty-five (25) days from the date of cancellation of
registration: Provided, That only one consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches.

xxx xxx xxx

SEC. 229. Recovery of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized
input VAT should start from the date of payment of tax and not from the close of the taxable quarter when the sales
were made. 43
The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been
resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, 44 where we ruled that Section 112 (A)
of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of
unutilized input VAT, and that Sections 204 (C) and 229 of the NIRC are inapplicable as "both provisions apply only to
instances of erroneous payment or illegal collection of internal revenue taxes." 45 We explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized
input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter when the relevant sales
were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA
aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period
commences from the close of the taxable quarter when the sales were made and not from the time
the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated
VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year
to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame
would always be the end of the quarter when the pertinent sales or transaction was made,
regardless when the input VAT was paid. Be that as it may, and given that the last creditable input
VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996
ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for
said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30,
1998. Consequently, MPC's claim for refund or tax credit filed on December 10, 1999 had already
prescribed.
Reckoning for prescriptive period under
Secs. 204 (C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which,
for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for
the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. The Commissioner may
xxx xxx xxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.

xxx xxx xxx

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum alleged to have been excessively or
in any manner wrongfully collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment
of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions
apply only to instances of erroneous payment or illegal collection of internal revenue
taxes.
MPC's creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be
shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the
taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client,
resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the
taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal,
or wrongful payment angle does not enter the equation.
xxx xxx xxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a twoyear prescriptive period reckoned from the close of the taxable quarter when the
relevant sales or transactions were made pertaining to the creditable input VAT, applies
to the instant case, and not to the other actions which refer to erroneous payment of
taxes. 46 (Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114 (A) and 229 of the NIRC in
computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112
of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned
from the close of the taxable quarter when the sales were made.
The administrative claim was timely filed
Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.
Relying on Article 13 of the Civil Code, 47 which provides that a year is equivalent to 365 days, and taking into
account the fact that the year 2004 was a leap year, petitioner submits that the two-year period to file a claim for tax
refund/ credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 2004. 48
We do not agree.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc., 49 we said that as between the Civil Code,
which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is
composed of 12 calendar months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat
priori. 50 Thus:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of
1987 deal with the same subject matter the computation of legal periods. Under the Civil Code, a
year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative

Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the
Administrative Code of 1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of computing legal periods under the
Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter
VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation
of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the twoyear prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14,
1998) consisted of 24 calendar months, computed as follows:
Year 1 1st calendar month April 15, 1998 to May 14, 1998
2nd calendar month May 15, 1998 to June 14, 1998
3rd calendar month June 15, 1998 to July 14, 1998
4th calendar month July 15, 1998 to August 14, 1998
5th calendar month August 15, 1998 to September 14, 1998
6th calendar month September 15, 1998 to October 14, 1998
7th calendar month October 15, 1998 to November 14, 1998
8th calendar month November 15, 1998 to December 14, 1998
9th calendar month December 15, 1998 to January 14, 1999
10th calendar month January 15, 1999 to February 14, 1999
11th calendar month February 15, 1999 to March 14, 1999
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar month April 15, 1999 to May 14, 1999
14th calendar month May 15, 1999 to June 14, 1999
15th calendar month June 15, 1999 to July 14, 1999
16th calendar month July 15, 1999 to August 14, 1999
17th calendar month August 15, 1999 to September 14, 1999
18th calendar month September 15, 1999 to October 14, 1999
19th calendar month October 15, 1999 to November 14, 1999
20th calendar month November 15, 1999 to December 14, 1999
21st calendar month December 15, 1999 to January 14, 2000
22nd calendar month January 15, 2000 to February 14, 2000
23rd calendar month February 15, 2000 to March 14, 2000
24th calendar month March 15, 2000 to April 14, 2000
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the
24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed
within the reglementary period. 51
Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to
September 30, 2002 expired on September 30, 2004. Hence, respondent's administrative claim was timely filed.
The filing of the judicial claim was premature
However, notwithstanding the timely filing of the administrative claim, we are constrained to deny respondent's claim
for tax refund/credit for having been filed in violation of Section 112 (D) of the NIRC, which provides that:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx xxx xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied.)

Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit]," within which to grant or deny the claim. In
case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax
refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously,
respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing
of the judicial claim with the CTA premature.
Respondent's assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim as
long as both the administrative and the judicial claims are filed within the two-year prescriptive period 52 has no legal
basis.
There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of the said provision states
that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2) years . . . apply for
the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states
that the CIR has "120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the NIRC, which
already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The
second paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR
before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances,
the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in
filing an appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. 53 relied upon by respondent, we find
the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC. And as
already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case.
In fine, the premature filing of respondent's claim for refund/credit of input VAT before the CTA warrants a dismissal
inasmuch as no jurisdiction was acquired by the CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008
Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second
Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.
SO ORDERED.
Corona, C.J., Velasco, Jr., Leonardo-de Castro and Perez, JJ., concur.
||| (Commr. v. Aichi Forging Co. of Asia, Inc., G.R. No. 184823, October 06, 2010)

SECOND DIVISION
[G.R. No. 179961. January 31, 2011.]
KEPCO
PHILIPPINES
REVENUE, respondent.

CORPORATION, petitioner, vs.

DECISION

COMMISSIONER

OF

INTERNAL

MENDOZA, J p:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the May 17, 2007
Decision 1 of the Court of Tax Appeals En Banc (CTA), in C.T.A. E.B. No. 186 entitled "KEPCO Philippines Corporation v.
Commissioner of Internal Revenue," which denied petitioner's claim for refund or issuance of tax credit certificate for
the unapplied input value-added taxes attributable to zero-rated sales of services for taxable year 1999, as well as its
Resolution, dated September 28, 2007, which denied the motion for reconsideration of the said decision.
THE FACTS
Petitioner Kepco Philippines Corporation (Kepco) is a domestic corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines. It is a value-added tax (VAT) registered taxpayer engaged in the
production and sale of electricity as an independent power producer. It sells its electricity to the National Power
Corporation (NPC). Kepco filed with respondent Commissioner of Internal Revenue (CIR) an application for effective
zero-rating of its sales of electricity to the NPC.
Kepco alleged that for the taxable year 1999, it incurred input VAT in the amount of P10,527,202.54 on its domestic
purchases of goods and services that were used in its production and sale of electricity to NPC for the same period. In
its 1999 quarterly VAT returns filed with the Bureau of Internal Revenue (BIR) on March 30, 2000, Kepco declared the
said input VAT as follows:

INPUT TAX

Exhibit

1999

Carried-over from

This quarter

previous quarter

Carried over

to next quarter

1st qtr

100,564,209.14

4,804,974.70

105,369,183.84

2nd qtr

105,369,183.84

1,461,960.38

106,831,144.22

3rd qtr

106,831,144.22

2,563,288.00

109,394,432.22

4th qtr

109,394,432.22

1,696,979.46

111,091,411.68

TOTAL

P10,527,202.54:

===========

Thus, on January 29, 2001, Kepco filed an administrative claim for refund corresponding to its reported unutilized input
VAT for the four quarters of 1999 in the amount of P10,527,202.54. Thereafter, on April 24, 2001, Kepco filed a petition
for review before the CTA pursuant to Section 112 (A) of the 1997 National Internal Revenue Code (NIRC), which grants
refund of unutilized input taxes attributable to zero-rated or effectively zero-rated sales. This was docketed as CTA
Case No. 6287. IDASHa

On August 31, 2005, the CTA Second Division rendered a decision 3 denying Kepco's claim for refund for failure to
properly substantiate its effectively zero-rated sales for the taxable year 1999 in the total amount of P860,340,488.96,
with the alleged input VAT of P10,527,202.54 directly attributable thereto. The tax court held that Kepco failed to
comply with the invoicing requirements in clear violation of Section 4.108-1 of Revenue Regulations (R.R.) No. 7-95,
implementing Section 108 (B) (3) in conjunction with Section 113 of the 1997 NIRC.
In view of the denial of its motion for reconsideration, Kepco filed an appeal via petition for review before the CTA En
Banc, on the ground that the CTA Second Division erred in not considering the amount of P10,514,023.92 as
refundable tax credit and in failing to appreciate that it was exclusively selling electricity to NPC, a tax exempt entity.
On May 17, 2007, the CTA En Banc dismissed the petition, reasoning out that Kepco's failure to comply with the
requirement of imprinting the words "zero-rated" on its official receipts resulted in non-entitlement to the benefit of
VAT zero-rating and denial of its claim for refund of input tax. The decision reads in part:
In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled
out in the assailed August 31, 2005 Decision and May 4, 2006 Resolution of the CTA Second Division.
What the instant petition seeks is for the Court En Banc to view and appreciate the evidence in their
own perspective of things, which unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition is hereby DENIED DUE COURSE and DISMISSED for lack of
merit.
SO ORDERED. 4
Presiding Justice Ernesto D. Acosta agreed with the majority that services rendered by a VAT-registered entity to the
NPC, a tax-exempt entity, were effectively zero-rated. He was likewise of the view that Kepco's claim could not be
granted because it presented official receipts which were not in sequence indicating, that it might have sold electricity
to entities other than NPC. But, he strongly dissented on the outright rejection of Kepco's refund claim for failure to
comply with the imprinting requirements. His dissenting opinion states in part:
However, I dissent to the majority's finding that imprinting the term "zero-rated" as well as the BIR
authority to print or BIR Permit marker on duly registered Value Added Tax (VAT) official
receipts/invoices is necessary such that non-compliance would result to the outright denial of
petitioner's claim. HcaDTE
xxx xxx xxx
Clearly, the applicable provisions of the Tax Code does not require the word "zero-rated" or the other
information required by the majority in the invoice/official receipt. The "requirement" of imprinting
the questioned information on the VAT invoice or receipt can be found in Section 4.108-1 of Revenue
Regulations No. 7-95 (The Implementing Rules and Regulations of the VAT law). Then again, the said
provision is merely a regulation created for the sole and limited purpose of implementing an
otherwise very exact law.
Moreover, granting for the sake of argument that the Revenue Regulations above cited may validly
impose such requirements, no provision allows the outright rejection of a refund claim as penalty for
a tax-payer's failure to abide by the requirements laid down in the said regulations. 5
Kepco filed a motion for reconsideration of the decision but it was denied for lack of merit by the CTA En Banc in its
Resolution 6 dated September 28, 2007.
Hence, Kepco interposes this petition praying for the reversal and setting aside of the May 17, 2007 CTA Decision
anchored on the following:
GROUNDS:
(I)
THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR OF LAW WHEN IT
RULED THAT PETITIONER'S FAILURE TO IMPRINT THE WORDS "ZERO-RATED" ON ITS VAT
OFFICIAL RECEIPTS ISSUED TO NPC IS FATAL TO ITS CLAIM FOR REFUND OF UNUTILIZED
INPUT TAX CREDITS.

(II)
PETITIONER HAS SUFFICIENTLY PROVEN THAT IT IS RIGHTFULLY ENTITLED TO A REFUND
OR ISSUANCE OF TAX CREDIT CERTIFICATE IN THE AMOUNT OF PHP10,514,023.92. 7
From the foregoing arguments, the principal issue to be resolved is whether Kepco's failure to imprint the words "zerorated" on its official receipts issued to NPC justifies an outright denial of its claim for refund of unutilized input tax
credits. DEcSaI
Kepco contends that the provisions of the 1997 Tax Code, specifically Section 113 in relation to Section 237, do not
mention the mandatory requirement of imprinting the words "zero-rated" to purchases covering zero-rated
transactions. The only provision which requires the imprinting of the word "zero-rated" on VAT invoice or official receipt
is Section 4.108-1 of R.R. No. 7-95. Kepco argues that the condition imposed by the said administrative issuance
should not be controlling over Section 113 of the 1997 Tax Code, "considering the long-settled rule that administrative
rules and regulations cannot expand the letter and spirit of the law they seek to enforce."
Kepco further argues that there is no law or regulation which imposes automatic denial of taxpayer's refund claim for
failure to comply with the invoicing requirements. No jurisprudence sanctions the same, not even
the Atlas case, 8 cited by the CTAEn Banc. According to Kepco, although it agrees with the CTA ruling that
administrative issuances, like BIR regulations, requiring an imprinting of "zero-rated" on zero-rating transactions
should be strictly complied with, it opposes the outright denial of refund claim for non-compliance thereof. It insists
that such automatic denial is too harsh a penalty and runs counter to the doctrine of solutio indebiti under Article 2154
of the New Civil Code.
The CIR, in his Comment, 9 counters that Kepco is not entitled to a tax refund because it was not able to substantiate
the amount of P10,514,023.92 representing zero-rated transactions for failure to submit VAT official receipts and
invoices imprinted with the wordings "zero-rated" in violation of Section 4.108-1 of R.R. 7-95.
The petition is bereft of merit.
The pertinent laws governing the present case is Section 108 (B) (3) of the NIRC of 1997 in relation to Section 13 of
Republic Act (R.A.) No. 6395 (The Revised NPC Charter), as amended by Presidential Decree (P.D.) Nos. 380 and 938,
which provide as follows:
Sec. 108.Value-added Tax on Sale of Services and Use or Lease of Properties.
(A)Rate and Base of Tax. . . .
(B)Transactions Subject to Zero Percent (0%) Rate. The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(3)Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate; IDSaEA
xxx xxx xxx
Sec. 13.Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its return 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
One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the
payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings.
Based on the afore-quoted provisions, there is no doubt that NPC is an entity with a special charter and exempt from
payment of all forms of taxes, including VAT. As such, services rendered by any VAT-registered person/entity, like
Kepco, to NPC are effectively subject to zero percent (0%) rate.

For the effective zero rating of such services, however, the VAT-registered taxpayer must comply with invoicing
requirements under Sections 113 and 237 of the 1997 NIRC as implemented by Section 4.108-1 of R.R. No. 7-95, thus:
Sec. 113.Invoicing and Accounting Requirements for VAT-Registered Persons.
(A)Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or
receipt. In addition to the information required under Section 237, the following information shall be
indicated in the invoice or receipt:
(1)A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number; and
(2)The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax.
(B)Accounting Requirements. Notwithstanding the provisions of Section 233, all persons subject to
the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records
required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales
and purchases are recorded. The subsidiary journals shall contain such information as may be
required by the Secretary of Finance. 10 (Emphasis supplied) cEDaTS
Sec. 237.Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an
internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at
Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices,
prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of
merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers
in the amount of One Hundred Pesos (P100.00) or more, or regardless of amount, where the sale or
transfer is made by a person liable to value-added tax to another person also liable to value-added
tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations
or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client; Provided, further, That where the purchaser is a VATregistered person, in addition to the information herein required, the invoice or receipt shall further
show the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time
the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep
and preserve the same in his place of business for a period of three (3) years from the close of the
taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and
preserved by the issuer, also in his place of business, for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax
from compliance with the provisions of this Section. 11
Section 4.108-1.Invoicing Requirements. All VAT-registered persons shall, for every sale or
lease of goods or properties or services, issue duly registered receipts or sales or commercial
invoices which must show:
1.The name, TIN and address of seller;
2.Date of transaction;
3.Quantity, unit cost and description of merchandise or nature of service;
4.The name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5.The word "zero-rated" imprinted on the invoice covering zero-rated sales;
6.The invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market value is higher than
the actual consideration, the VAT shall be separately indicated in the invoice or receipt. aIAcCH

Only VAT-registered persons are required to print their TIN followed by the word "VAT" in
their invoices or receipts and this shall be considered as "VAT Invoice." All purchases
covered by invoices other than "VAT Invoice" shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue separate invoices or
receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of
goods, properties or services subject to VAT imposed in Sections 100 and 102 of the code.
The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer
and the duplicate to be retained by the seller as part of his accounting records. (Emphases supplied)
Also, as correctly noted by the CTA En Banc, in Kepco's approved Application/Certificate for Zero Rate issued by the CIR
on January 19, 1999, the imprinting requirement was likewise specified, viz.:
Valid only for sale of services from Jan. 19, 1999 up to December 31, 1999 unless sooner revoked.
Note: Zero-Rated Sales must be indicated in the invoice/receipt. 12
Indeed, it is the duty of Kepco to comply with the requirements, including the imprinting of the words "zero-rated" in its
VAT official receipts and invoices in order for its sales of electricity to NPC to qualify for zero-rating.
It must be emphasized that the requirement of imprinting the word "zero-rated" on the invoices or receipts under
Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc, citing Tropitek International, Inc. v.
Commissioner of Internal Revenue. 13 In Kepco Philippines Corporation v. Commissioner of Internal Revenue, 14 the
CTA En Banc explained the rationale behind such requirement in this wise:
The imprinting of "zero-rated" is necessary to distinguish sales subject to 10% VAT, those that are
subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to
properly implement and enforce the other provisions of the 1997 NIRC on VAT, namely:
1.Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)];
2.Exempt transactions [Sec. 109] in relation to Sec. 112(A);
3.Tax Credits [Sec. 110]; and
4.Refunds or tax credits of input tax [Sec. 112]
xxx xxx xxx
Records disclose, as correctly found by the CTA that Kepco failed to substantiate the claimed zero-rated sales of
P10,514,023.92. The wordings "zero-rated sales" were not imprinted on the VAT official receipts presented by Kepco
(marked as Exhibits S to S-11) for taxable year 1999, in clear violation of Section 4.108-1 of R.R. No. 7-95 and the
condition imposed under its approved Application/Certificate for Zero-rate as well. STaCcA
Kepco's claim that Section 4.108-1 of R.R. 7-95 expanded the letter and spirit of Section 113 of 1997 Tax Code, is
unavailing. Indubitably, said revenue regulation is merely a precautionary measure to ensure the effective
implementation of the Tax Code. It was not used by the CTA to expound the meaning of Sections 113 and 237 of the
NIRC. As a matter of fact, the provision of Section 4.108-1 of R.R. 7-95 was incorporated in Section 113 (B)(2)(c) of R.A.
No. 9337, 15 which states that "if the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale'
shall be written or printed prominently on the invoice or receipt." This, in effect, and as correctly concluded by the CIR,
confirms the validity of the imprinting requirement on VAT invoices or official receipts even prior to the enactment
of R.A. No. 9337 under the principle of legislative approval of administrative interpretation by reenactment.
Quite significant is the ruling handed down in the case of Panasonic Communications Imaging Corporation of the
Philippines v. Commissioner of Internal Revenue, 16 to wit:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of
Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement
of the tax code and of course its amendments. The requirement is reasonable and is in accord with
the efficient collection of VAT from the covered sales of goods and services. As aptly explained by the
CTA's First Division, the appearance of the word "zero-rated" on the face of invoices covering zero-

rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful claim for input VAT is made, the government would
be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to
10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices,
petitioner Panasonic has been unable to substantiate its claim for refund.
To bolster its claim for tax refund or credit, Kepco cites the case of Intel Technology Philippines, Inc. v. Commissioner of
Internal Revenue. 17 Kepco's reliance on the said case is misplaced because the factual milieu there is quite different
from that of the case at bench. In the Intel case, the claim for tax refund or issuance of a tax credit certificate was
denied due to the taxpayer's failure to reflect or indicate in the sales invoices the BIR authority to print. The Court held
that the BIR authority to print was not one of the items required by law or BIR regulation to be indicated or reflected in
the invoices or receipts, hence, the BIR erred in denying the claim for refund. In the present case, however, the
principal ground for the denial was the absence of the word "zero-rated" on the invoices, in clear violation of the
invoicing requirements under Section 108 (B) (3) of the 1997 NIRC, in conjunction with Section 4.108-1 of R.R. No. 795. SEIacA
Regarding Kepco's contention, that non-compliance with the requirement of invoicing would only subject the noncomplying taxpayer to penalties of fine and imprisonment under Section 264 of the Tax Code, and not to the outright
denial of the claim for tax refund or credit, must likewise fail. Section 264 categorically provides for penalties in case of
"Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations related to the Printing of such Receipts
or Invoices and Other Violations," but not to penalties for failure to comply with the requirement of invoicing. As
recently held in Kepco Philippines Corporation v. Commissioner of Internal Revenue, 18 "Section 264 of the 1997 NIRC
was not intended to excuse the compliance of the substantive invoicing requirement needed to justify a claim for
refund on input VAT payments."
Thus, for Kepco's failure to substantiate its effectively zero-rated sales for the taxable year 1999, the claimed
P10,527,202.54 input VAT cannot be refunded.
Indeed, in a string of recent decisions on this matter, to wit: Panasonic Communications Imaging Corporation of the
Philippines v. Commissioner of Internal Revenue, 19 J.R.A. Philippines, Inc. v. Commissioner of Internal
Revenue, 20 Hitachi Global Storage Technologies Philippines Corp. (formerly Hitachi Computer Products (Asia)
Corporations) v. Commissioner of Internal Revenue, 21 and Kepco Philippines Corporation v. Commissioner of Internal
Revenue, 22 this Court has consistently held that failure to print the word "zero-rated" on the invoices or receipts is
fatal to a claim for refund or credit of input VAT on zero-rated sales.
Contrary to Kepco's view, the denial of its claim for refund of input tax is not a harsh penalty. The invoicing
requirement is reasonable and must be strictly complied with, as it is the only way to determine the veracity of its
claim.
Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the nature of a claim for
exemption and the law is construed in strictissimi juris against the taxpayer. The pieces of evidence presented entitling
a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven. 23
WHEREFORE, the petition is DENIED.
SO ORDERED.
Carpio, Nachura, Peralta and Abad, JJ., concur.
Footnotes
||| (Kepco Philippines Corp. v. Commr., G.R. No. 179961, January 31, 2011)

FIRST DIVISION
[G.R. No. 179085. January 21, 2010.]
TAMBUNTING
PAWNSHOP,
REVENUE, respondent.

INC., petitioner, vs.

COMMISSIONER

OF

INTERNAL

DECISION
CARPIO MORALES, J p:
The Commissioner of Internal Revenue (respondent) sent the Tambunting Pawnshop, Inc. (petitioner) an assessment
notice dated January 15, 2003 for P3,055,564.34 deficiency value-added tax (VAT), P406,092.50 deficiency
documentary stamp tax on pawn tickets, P67,201.55 deficiency withholding tax on compensation, and P21,723.75
deficiency expanded withholding tax, all inclusive of interests and surcharges for the taxable year 1999. 1 EICDSA
Petitioner protested the assessment. 2 As the protest merited no response, it filed a Petition for Review 3 with the
Court of Tax Appeals (CTA) pursuant to Section 228 of the National Internal Revenue Code, 4 raising the following
arguments:
A. Pawnshops are not subject to Value Added Tax pursuant to Section 108 of the National
Internal Revenue Code. 5
B. Petitioner properly withheld and remitted to the respondent the correct amount of
expanded withholding tax for taxable year 1999. 6
C. Petitioner has already paid the assessed amount of P14,398.38 [sic], representing
deficiency withholding tax on compensation, thus, assessment on withholding on
compensation must be cancelled. 7
D. Petitioner's pawn tickets are not subject to documentary stamp tax pursuant to
existing laws andjurisprudence. 8 (emphasis and underscoring in the original)

The First Division of the CTA ruled that petitioner is liable for VAT and documentary stamp tax but not for withholding
tax on compensation and expanded withholding tax. 9 Thus it disposed:
WHEREFORE, premises considered, the Petition for Review is PARTIALLY GRANTED. Respondent's
assessments for deficiency Expanded Withholding Tax and Withholding Tax on Compensation for the
taxable year 1999, in the amounts ofTwenty One Thousand Seven Hundred Twenty Three and
75/100 Pesos (P21,723.75) and Sixty Seven Thousand Two Hundred One and 55/100
Pesos (P67,201.55), respectively, are hereby CANCELLED and SET ASIDE. However, the
assessments for deficiency Value-Added Tax and Documentary Stamp Tax are hereby AFFIRMED.
Accordingly, petitioner is ORDERED TO PAY the respondent the amount of Three Million Fifty
Five Thousand Five Hundred Sixty Four and 34/100 Pesos (P3,055,564.34) and Four
Hundred Six Thousand Ninety Two and 500/100 Pesos (P406,092.50) representing deficiency
Value-Added Tax and Documentary Stamp Tax, respectively, for the taxable year 1999, plus 20%
delinquency interest from February 18, 2003 up to the time such amount is fully paid pursuant to
Section 249 (c) of the 1997 NIRC. acHCSD
SO ORDERED. 10 (emphasis in the original; underscoring supplied)
Petitioner's Motion for Partial Reconsideration 11 having been denied, 12 it filed a Petition for Review 13 before the
CTA En Banc which dismissed 14 it as it did petitioner's Motion for Reconsideration. 15
Hence, the present Petition for Review on Certiorari. 16
To petitioner, a pawnshop is not enumerated as one of those engaged in "sale or exchange of services" 17 in Section
108 of the National Internal Revenue Code. 18 Citing Commissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshops, Inc., 19 it contends that the nature of the business of pawnshops does not fall under "service" as defined
under the Legal Thesaurus of William C. Burton, viz.:
accommodate, administer to, advance, afford, aid, assist, attend, be of use, care for, come to the aid
of, commodere, comply, confer a benefit, contribute to, cooperate, deservire, discharge one's duty,
do a service, do one's bidding, fill an office, forward, furnish aid, furnish assistance, give help, lend,
aid, minister to, promote, render help, servire, submit, succor, supply aid, take care of, tend, wait on,
work for. 20
The petition is in part meritorious.
On the issue of whether pawnshops are liable to pay VAT, the Court, in First Planters Pawnshop, Inc. v. Commissioner
of Internal Revenue, 21 held:
In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were treated as lending
investors subject to lending investor's tax. Subsequently, with the Court's ruling
in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of
"sale or exchange of services" under Section 108 (A) of the Tax Code of 1997, as amended. R.A. No.
9238 [which was passed in 2004] finally classified pawnshops as Other Non-bank Financial
Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial intermediaries from
the very beginning, subject to the appropriate taxes provided by law, thus
Under the National Internal Revenue Code of 1977, pawnshops should have been levied the 5%
percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under
Section 119 (now Section 121 of the Tax Code of 1997); CDAEHS
With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops should have been
subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial
institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);
This was restated by R.A. No. 8241, 24 which amended R.A. No. 7716, although the levy, collection
and assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not performing quasi-banking functions, were
made effective January 1, 1998;

 R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise imposed a 10% VAT under Section 108 but
the levy, collection and assessment thereof were again deferred until December 31, 1999;
The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until
December 31, 2000, and by R.A. No. 9010, until December 31, 2002;
With no further deferments given by law, the levy, collection and assessment of the 10% VAT on
banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not
performing quasi-banking functions were finally made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank
financial intermediaries, finance companies, and other financial intermediaries not performing quasibanking functions were specifically exempted from VAT, 28 and the 0% to 5% percentage tax on
gross receipts on other non-bank financial intermediaries was reimposed under Section
122 of the Tax Code of 1997. cEAHSC
At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to
10% VAT under the general provision on "sale or exchange of services" as defined under Section 108
(A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the performance of
all kinds of services in the Philippines for others for a fee, remuneration or
consideration . . . ." Instead, due to the specific nature of its business, pawnshops were then subject
to 10% VAT under the category of non-bank financial intermediaries[.]
Coming now to the issue at hand Since petitioner is a non-bank financial intermediary, it is subject
to l0% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT
from non-bank financial intermediaries being specifically deferred by law, then petitioner is not
liable for VAT during these tax years. But with the full implementation of the VAT system on
non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for
said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no
longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as
the case may be. (emphasis and underscoring supplied)
In light of the foregoing ruling, since the imposition of VAT on pawnshops, which are non-bank financial intermediaries,
was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999.
In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues that such tickets are neither
securities nor printed evidence of indebtedness. 22 The argument fails.
Section 195 of the National Internal Revenue Code provides:
Section 195. On every mortgage or pledge of lands, estate or property, real or personal, heritable or
movable, whatsoever, where the same shall be made as a security for the payment of any definite
and certain sum of money lent at the time or previously due and owing or forborne to be paid, being
payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or
otherwise converted into money which shall be and intended only as security, either by express
stipulation or otherwise, there shall be collected a documentary stamp tax . . . . (underscoring
supplied)
Construing this provision vis a vis pawn tickets, the Court held in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner
of Internal Revenue:
. . . A D[ocumentary] S[tamp] T[ax] is an excise tax on the exercise of a right or privilege to transfer
obligations, rights or properties incident thereto. . . . HISAET
xxx xxx xxx
Pledge is among the privileges, the exercise of which is subject to DST . A pledge may be defined as
an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to
the creditor or to a third person movable property as security for the performance of the principal
obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories,
shall be returned to the debtor or to the third person. This is essentially the business of pawnshops
which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as
persons or entities engaged in lending money on personal property delivered as security for loans.

xxx xxx xxx

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a printed
evidence of indebtedness."
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for
purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of
concluding a contract of pledge. There is therefore no basis in petitioner's assertion that a DST is
literally a tax on a document and that no tax may be imposed on a pawn ticket. 23 (emphasis and
underscoring supplied)
With respect to petitioner's argument against liability for surcharges and interest that it was in good faith in not
paying documentary stamp taxes, it having relied on the rulings of respondent CIR and the CTA that pawn tickets are
not subject to documentary stamp taxes 24 the Court finds the same meritorious.
It is settled that good faith and honest belief that one is not subject to tax on the basis of previous interpretations of
government agencies tasked to implement the tax law are sufficient justification to delete the imposition of surcharges
and interest. 25 cHATSI
WHEREFORE, the petition is IN PART GRANTED. The May 24, 2007 Decision of the Court of Tax Appeals
is AFFIRMED with theMODIFICATION that the assessment deficiency value-added taxes for the taxable year 1999
and for surcharges and delinquency interest on deficient Value-Added Tax and Documentary Income Tax are SET
ASIDE.
SO ORDERED.
Puno, C.J., Leonardo-de Castro, Bersamin and Villarama, Jr., JJ., concur.
||| (Tambunting Pawnshop, Inc. v. Commr., G.R. No. 179085, January 21, 2010)

SECOND DIVISION
[G.R. No. 141973. June 28, 2005.]
PHILIPPINE PHOSPHATE FERTILIZER CORPORATION, petitioner, vs.
INTERNAL REVENUE,respondent.

COMMISSIONER

OF

DECISION
AUSTRIA-MARTINEZ, J p:
Once more, we stand by our ruling that:
If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it
apply the same standard against itself in refunding excess payments. When it is undisputed that a
taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not
belonging to it. No one, not even the State, should enrich oneself at the expense of another. 1
The antecedents of this case are as follows:
Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic corporation registered with the Export Processing
Zone Authority (EPZA). It manufactures fertilizers for domestic and international distribution and as such, utilizes fuel,
oil and other petroleum products which it procures locally from Petron Philippines Corporation (Petron). Petron initially
pays the Bureau of Internal Revenue (BIR) and the Bureau of Customs the taxes and duties imposed upon the
petroleum products. Petron is then reimbursed by petitioner when Petron sells such petroleum products to the
petitioner. In a letter dated August 28, 1995, petitioner sought a refund of specific taxes paid on the purchases of

petroleum products from Petron for the period of September 1993 to December 1994 in the total amount of
P602,349.00 which claim is pursuant to the incentives it enjoyed by virtue of its EPZA registration. Since the two-year
period within which petitioner could file a case for tax refund before the Court of Tax Appeals (CTA) was about to expire
and no action had been taken by the BIR, petitioner instituted a petition for review before the CTA against the
Commissioner of Internal Revenue (CIR). 2 During the trial, to prove that the duties imposed upon the petroleum
products delivered to petitioner by Petron had been duly paid for by petitioner, petitioner presented a Certification
from Petron dated August 17, 1995; a schedule of petroleum products sold and delivered to petitioner detailing the
volume of sales and the excise taxes paid thereon; photocopies of Authority to Accept Payment for Excise Taxes issued
by the CIR pertaining to petroleum products purchased; as well as the testimony of Sylvia Osorio, officer of Petron, to
attest to the summary and certification presented. 3 The CIR did not present any evidence to controvert the ones
presented by petitioner nor did it file an opposition to petitioner's formal offer of evidence. 4
On August 11, 1998, the CTA promulgated its Decision finding that while petitioner is exempt from the payment of
excise taxes, it failed to sufficiently prove that it is entitled to refund in this particular case since it did not submit
invoices to support the summary of petroleum products sold and delivered to it by Petron. 5 The CTA rationalized thus:
. . . [P]etitioner, as an EPZA registered enterprise is exempted from the payment of excise
taxes, and if said taxes were passed on by the supplier to EPZA registered enterprise like
the petitioner, tax credit shall be granted to the latter. The fact that it was not the
petitioner who had paid the taxes directly to the Bureau of Internal Revenue does not
have an adverse effect on petitioner's action for refund. The law granting the exemption
makes no distinction as to the circumstances when the law shall apply. Since the law makes no
distinction, neither should we. The exemption is so broad as to cover the present situation. Since an
export processing zone is not considered to be covered by Philippine customs and
internal revenue laws, the taxes paid by the petitioner on the petroleum products should
be refunded or credited in its favor. Thus, the only thing left for us to do is to determine
whether or not petitioner is entitled to the amount claimed for refund. After a careful
scrutiny of the evidence presented, however, there appears to be a dispute with respect to the
amount claimed. Petitioner submitted in evidence a certification issued by Petron to prove that the
duties imposed upon the petroleum products delivered to petitioner by Petron had been duly paid for
by petitioner (Exhibit "A", p. 71, CTA records). Petitioner likewise presented a schedule of petroleum
products sold and delivered to petitioner detailing the volume of sales and the excise taxes paid
thereon (Exhibits "A-1" to "A-1a", pp. 72-73, CTA records). However, to show that Petron had
previously paid the excise taxes on these petroleum products, petitioner presented photocopies of
Authority to Accept Payment for Excise Taxes issued by respondent pertaining to petroleum products
purchased (Exhibits "A-2" to "A-80), pp. 74-152, CTA records). STECDc
Although these Authority to Accept Payment for Excise Taxes reflect therein the amount of excise
taxes paid by Petron to respondent, this Court cannot verify the exact amount of excise taxes
which correspond to the petroleum products delivered to petitioner. This Authority to
Accept Payment for Excise Taxes only proves the payment of millions of pesos in excise taxes made
by Petron during the period covered by the claim but they fail to show to this Court which part of this
huge amount actually represents the excise taxes paid on the petroleum products actually delivered
to herein petitioner. Petitioner merely presented a summary of petroleum products sold and
delivered by Petron during the period covered by the claim. We cannot, by the summary
alone, ascertain the veracity of the amount being claimed neither can it prove the
existence of the invoices being referred to therein. Petitioner should have submitted the
invoices supporting the schedules of petroleum products sold and delivered to it by
Petron. These invoices would reveal whether or not the amount claimed for refund by
petitioner is correct. . . .
In an action for refund/credits the taxpayer has the burden of showing that the taxes paid are
erroneously collected and that failure to meet such a burden is fatal to his cause. Tax refunds partake
of the nature of the tax exemptions and therefore cannot be allowed unless granted in the most
explicit and categorical language. The grant of refund privileges must be strictly construed against
the taxpayer and liberally in favor of the government. (citations omitted)
Petitioner has the burden to prove the material allegations in its petition as well as the truth of its
claim. 6 (Emphasis supplied)
disposing of the case as follows:
WHEREFORE, in view of the foregoing, the claim of refund of petitioner in the amount of P602,349.00
is hereby DENIED for lack of merit. 7

On August 31, 1998, petitioner filed a motion for reconsideration alleging that it failed to submit invoices because it
thought that the presentation of said invoices was not necessary to prove the claim for refund, since petitioner's
previous claims, in CTA Case Nos. 4654, 4993 and 4994, 8 involving similar facts, were granted by the CTA even
without the presentation of invoices. It then prayed that the CTA decision be reconsidered and its claim for refund be
allowed, or in the alternative, allow petitioner to present and offer the invoices in evidence to present its claim. 9
The CTA denied the motion for reconsideration on January 6, 1999, explaining as follows:
It is important to note at the outset that Petitioner's reliance on CTA Case Nos. 4994, 4654 and 4993
is misplaced because during the hearings of these cases up to the time of formal offer of evidence,
CTA Circular No. 1-95 was not yet in effect. The nature and presentation of evidence involving
voluminous documents prior to the effectivity of CTA Circular No. 1-95 differ from that which is
required by this Court from the effectivity of said Circular beginning January 25, 1995. In the instant
case, the Petition for Review was filed on September 1, 1995. It is obviously clear that the provisions
of CTA Circular 1-95 already applied to Petitioner's presentation of evidence. Quoted hereunder are
portions of CTA Circular 1-95:
1. The party who desires to introduce as evidence such voluminous documents must present:
(a) Summary containing the total amount/s of the tax account or tax paid for the period
involved and a chronological or numerical list of the numbers, dates and amounts covered by
the invoices or receipts; and (b) a Certification of an independent Certified Public Accountant
attesting to the correctness of the contents of the summary after making an examination
and evaluation of the voluminous receipts and invoices. Such summary and certification
must properly be identified by a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt or invoice or other
documents for marking, identification and comparison with the originals thereof need not be
done before the Court or the Commissioner anymore after the introduction of the summary
and CPA certification. It is enough that the receipts, invoices and other documents covering
the said accounts or payments must be pre-marked by the party concerned and submitted to
the Court in order to be made accessible to the adverse party whenever she/he desires to
check and verify the correctness of the summary and CPA certification. However, the
originals of the said receipts, invoices or documents should be ready for verification and
comparison in case doubts on the authenticity of the particular documents presented is
raised during the hearing of the case.
It can be revealed from the evidence presented by the Petitioner that it failed to present
a certification of an independent Certified Public Accountant, as well as the invoices
supporting the schedules of petroleum products sold and delivered to it by Petron. From
this perspective alone, the claim for refund was correctly denied. Now that an
unfavorable decision has been rendered by this Court, Petitioner belatedly seeks to
present the invoices as additional evidence.

The prayer to present additional evidence partakes of the nature of a motion for new trial under
Section 1 Rule 37 of the 1997 Rules of Civil Procedure. It has already been emphasized in several
cases that failure to present evidence already existing at the time of trial does not warrant the grant
of a new trial because said evidence can no longer be considered newly discovered but is more in
the nature of forgotten evidence. Neither can such inadvertence on the part of the counsel to
present said evidence qualify as excusable negligence. 10 (Emphasis supplied)
CTA Presiding Judge Ernesto D. Acosta dissented with the view that in the interest of justice, petitioner should be given
a chance to prove its case by allowing it to present the invoices of its purchases. 11 He reasoned that:
. . . A review of the schedule of invoices, Exhibits "A-1" "A-1-a", reveals that there are only about
ninety four (94) invoices which does not need the assistance of an independent CPA. It can easily be
presented before this Court or before a Clerk of Court for markings and comparison. DEacIT
The reason advanced by the Petitioner was that they thought the presentation by the Manager of
Petron Corporation of a duly notarized certification (supporting the schedules of invoices), coupled
with testimonies of witness, Mrs. Sylvia Osorio of Petron Corporation, are enough to prove their case.
Respondent did not even controvert said exhibits and testimonies. It is this Court that raised doubts
on the veracity of the claim in view of the absence of the invoices. This ground could easily fall under
the phrase "mistake or excusable negligence" as a ground for new trial under Sec. 1(a) of Rule 37

and notunder the phrase "newly discovered evidence" as stated in our said resolution. The denial of
this motion is too harsh considering that this case is only civil in nature, govern (sic) merely by the
rule on preponderance of evidence. 12
On January 25, 1999, petitioner filed another motion for reconsideration with motion for new trial praying that it be
allowed to present an additional witness and to have invoices and receipts pre-marked in accordance with CTA Circular
No. 1-95. 13The CTA denied the same for the reason that it found no convincing reason to reverse its earlier decision
and the motion for new trial was filed beyond the period prescribed by Sec. 1, Rule 37 of the Rules of Court as well as
for appeals as provided under Sec. 4, Rule 43. 14
Petitioner then went to the Court of Appeals (CA) which issued the herein assailed Resolution dismissing the petition
for review, to wit:
Considering that the "AFFIDAVIT OF NON-FORUM SHOPPING" was executed by petitioner's counsel,
when under Adm. Circular No. 04-94, the petitioner should be the one to certify as to the facts and
undertakings as required; and since any violation of the circular "shall be a cause for the dismissal"
of the petition, the petition for review is hereby DENIED DUE COURSE OUTRIGHT, and is DISMISSED.
SO ORDERED. 15
The motion for reconsideration was likewise denied. 16
Hence the present petition raising the following issues:
1. Whether or not the Court of Tax Appeals should have granted petitioner's claim for refund.
2. Whether or not the Court of Appeals should have given due course to the Petition for Review. 17
Anent the first issue, petitioner argues that: the CTA erred in denying its claim for refund for its failure to present
invoices and receipts; the evidence it adduced, which the CIR did not controvert nor contest, is sufficient to support
petitioner's claim for refund or tax credit; as opined by the Presiding Judge of the CTA in his dissenting opinion, the
failure of petitioner to present invoices and receipts is a minor infraction of CTA Circular No. 1-95 which should not
defeat petitioner's right to refund; there is nothing in said circular which will support the contention of the CTA that the
petitioner is mandated to present the invoices in the present case; the CTA, in its previous decisions involving the
petitioner, one of which was even affirmed by the CA, held that a refund may be granted solely on the basis of
certifications issued by Petron; 18 if it is the avowed purpose of CTA Circular No. 1-95 to ensure the speedy
administration of justice, it should not compel petitioner to present additional voluminous evidence which will require
the presentation of a Certified Public Accountant (CPA) for court examination aside from entailing additional costs to
petitioner; petitioner's counsel was of the honest belief that he was not required to adhere to what is provided in CTA
Circular No. 1-95; petitioner should not be burdened by the infraction of its counsel and should be given the fullest
opportunity to establish the merits of its action rather than for it to lose property on mere technicalities; it has also
been held that evidence not offered and formally presented in evidence during the trial may still be considered by a
court in the exercise of its discretion so as not to allow a mere technicality to overcome justice and fairness; petitioner
should be granted its claim for refund, or, in the alternative, be given an opportunity to present the pre-marked
invoices in accordance with CTA Circular No. 1-95. 19
As to the second issue, petitioner explains that: its counsel was of the belief that he was authorized to execute the
affidavit of non-forum shopping; in any event, its counsel immediately attached to the motion a copy of the affidavit of
non-forum shopping executed by petitioner's President, Ramon C. Avecilla as soon as he learned of his error; and
Supreme CourtAdministrative Circular No. 04-94 should be liberally construed following Maricalum Mining Corp. vs.
NLRC, 20 Loyola vs. Court of Appeals, 21 and Philippine Fishing Boat Officers and Engineers Union vs. Court of
Industrial Relations. 22
It then prayed that: the resolutions of the CA and the Decision of the CTA be reversed; and an order be issued to award
petitioner tax credit certificate/refund in the amount of P602,349.00 representing excise taxes paid for the period of
September 1993 to December 1994 or in the alternative to allow petitioner to adduce evidence before the CTA to
support its case. 23
The CIR, in his Comment, contends that: the burden of proving entitlement to the refund/credit rests upon petitioner;
the CTA was correct in requiring the submission of the invoices to support the schedules presented especially in this
case where the CTA cannot determine which part of the huge amount paid by Petron actually represents the excise
taxes paid on the petroleum products actually delivered to petitioner; the schedules are self-serving and if not
corroborated by evidence have no evidentiary weight; the CTA is not precluded from requiring other evidence which
will once and for all erase doubts to the claim for refund; claims for refund, partaking of the nature of tax exemptions,

are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; even setting aside
the requirements in CTA Circular No. 1-95, petitioner is still obliged to present the invoices in order to corroborate the
entries in the summary and to reveal whether or not the amount claimed for refund by petitioner is correct; petitioner's
Motion for Reconsideration and Motion for New Trial filed on January 25, 1999 were properly denied by the CTA for
having been filed out of time; and the CTA's decision must be respected on appeal since it has developed an expertise
on the subject. 24
Anent the second issue, respondent avers that the CA did not err in dismissing the petition for review on the ground
that the affidavit of non-forum shopping was executed by petitioner's counsel contrary to the requirements in Sec. 5,
Rule 7 of the Rules of Court; and that the denial of the motion for reconsideration was also proper since the failure to
comply with the requirements of non-forum shopping shall not be curable by mere amendment to the complaint. 25
For clarity, we shall first discuss the issue of whether or not the CA should have given due course to the petition for
review. aIcDCA
The primary question that has to be resolved is whether an Affidavit of Non-Forum Shopping, erroneously signed by
counsel, may be cured by subsequent compliance.
Generally, subsequent compliance with the requirement of affidavit of non-forum shopping does not excuse a party
from failure to comply in the first instance. 26
Supreme Court Administrative Circular No. 04-94 of Section 5, Rule 7 of the 1997 Rules of Civil Procedure which
requires the pleader to submit a certificate of non-forum shopping to be executed by the plaintiff or principal party is
mandatory. 27 A certification of the plaintiff's counsel will not suffice for the reason that it is petitioner, and not the
counsel, who is in the best position to know whether he actually filed or caused the filing of a petition. 28 A
certification against forum shopping signed by counsel is a defective certification that is equivalent to non-compliance
with the requirement and constitutes a valid cause for the dismissal of the petition. 29 Hence, strictly speaking, the CA
was correct in dismissing the petition.
There are instances, however, when we treated compliance with the rule with relative liberality, especially when there
are circumstances or compelling reasons making the strict application of the rule clearly unjustified. 30
In the case of Far Eastern Shipping Co. vs. Court of Appeals, 31 while we said that, strictly, a certification against
forum shopping by counsel is a defective certification, the verification, signed by petitioner's counsel in said case, is
substantial compliance inasmuch as it served the purpose of the Rules of informing the Court of the pendency of
another action or proceeding involving the same issues. 32 We then explained that procedural rules are instruments in
the speedy and efficient administration of justice which should be used to achieve such end and not to derail it. 33
In Damasco vs. NLRC, 34 the certifications against forum shopping were erroneously signed by petitioners' lawyers,
which, generally, would warrant the outright dismissal of their actions. 35 We resolved however that as a matter of
social justice, technicality should not be allowed to stand in the way of equitably and completely resolving the rights
and obligations of the parties. 36 In Cavile vs. Heirs of Clarita Cavile, 37 we likewise held that the merits of the
substantive aspects of the case may be deemed as "special circumstance" for the Court to take cognizance of a
petition although the certification against forum shopping was executed and signed by only one of the
petitioners. 38 Finally, in Sy Chin vs. Court of Appeals, 39 we categorically stated that while a petition may be flawed
as the certificate of non-forum shopping was signed only by counsel and not by the party, such procedural lapse may
be overlooked in the interest of substantial justice. 40
Here, the affidavit of non-forum shopping was signed by petitioner's counsel. Upon receipt of the resolution of the CA,
however, which dismissed its petition for non-compliance with the rules on affidavit of non-forum shopping, petitioner
submitted, together with its motion for reconsideration, an affidavit signed by petitioner's president in compliance with
the said rule. 41 We deem this to be sufficient especially in view of the merits of the case, which may be considered as
a special circumstance or a compelling reason that would justify tempering the hard consequence of the procedural
requirement on non-forum shopping. 42
Which brings us to the other issue of whether or not the CTA should have granted petitioner's claim for refund.
The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. 43 This is
because tax refunds are in the nature of tax exemptions, the statutes of which are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. 44 Taxes are the lifeblood of the nation, therefore statutes
that allow exemptions are construed strictly against the grantee and liberally in favor of the government. 45

In this case, there is no dispute that petitioner is entitled to exemption from the payment of excise taxes by virtue of
its being an EPZA registered enterprise. 46 As stated by the CTA, the only thing left to be determined is whether or not
petitioner is entitled to the amount claimed for refund. 47
Petitioner's entire claim for refund, however, was denied for petitioner's failure to present invoices allegedly in
violation ofCTA Circular No. 1-95. But nowhere in said Circular is it stated that invoices are required to be presented in
claiming refunds. What the Circular states is that:
1. The party who desires to introduce as evidence such voluminous documents must present: (a)
Summary containing the total amount/s of the tax account or tax paid for the period involved and a
chronological or numerical list of the numbers, dates and amounts covered by the invoices or
receipts; and (b) a Certification of an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an examination and evaluation of the
voluminous receipts and invoices. Such summary and certification must properly be identified by a
competent witness from the accounting firm. (Emphasis supplied)
The CTA in denying petitioner's motion for reconsideration, also mentioned for the first time that petitioner's failure to
present "a certification of an independent CPA" is another ground that justified the denial of its claim for
refund. HAEDCT
Again, we find such reasoning to be erroneous. The certification of an independent CPA is not another mandatory
requirement under the Circular which petitioner failed to comply with. It is rather a requirement that must accompany
the invoices should one decide to present invoices under the Circular. Since petitioner did not present invoices, on the
assumption that such were not necessary in this case, it logically did not present a certification because there was
nothing to certify.
The CTA also could not deny that in its previous decisions involving petitioner's claims for refund, invoices were not
deemed necessary to grant such claims. It merely said that in said decisions, CTA Circular No. 1-95 was not yet in
effect. 48 Since CTA Circular No. 1-95 did not make it mandatory to present invoices, coupled with the previous cases
of petitioner where the certifications issued by Petron sufficed, it is understandable that petitioner did not think it
necessary to present invoices and the accompanying certifications when it filed the present case for refund before the
CTA.
Even then, petitioner, in its motion for reconsideration, asked the CTA for an opportunity to present invoices to
substantiate its claims. But this was denied by the CTA explaining that its prayer to present additional evidence
partakes of the nature of a motion for new trial under Section 1, Rule 37 of the Rules of Court. The CTA held that under
such rule, failure to present evidence already existing at the time of trial does not warrant the grant of a new trial
because such evidence is not newly discovered but is more in the nature of forgotten evidence which is not
excusable. 49
On this point, we agree with the dissenting opinion of CTA Presiding Judge Ernesto D. Acosta who stated that:
The reason advanced by the Petitioner . . . that they thought the presentation by the Manager of
Petron Corporation of a duly notarized certification (supporting the schedules of invoices), coupled
with testimonies of witness, Mrs. Sylvia Osorio of Petron Corporation, are enough to prove their case .
. . could easily fall under the phrase "mistake or excusable negligence" as a ground for new trial
under Sec. 1(a) of Rule 37 and not under the phrase "newly discovered evidence" as stated in our
said resolution. The denial of this motion is too harsh considering that this case is only civil in nature,
govern (sic) merely by the rule on preponderance of evidence. 50
Sec. 1, Rule 37 of the Rules of Court provides as follows:
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. Within the
period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment
or final order and grant a new trial for one or more of the following causes materially affecting the
substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have
guarded against and by reason of which such aggrieved party has probably been impaired in his
rights; or
(b) Newly discovered evidence, which could not, with reasonable diligence, have discovered and
produced at the trial, and which if presented would probably alter the result.

xxx xxx xxx

It is true that petitioner could not move for new trial on the basis of newly discovered evidence because in order to
have a new trial on the basis of newly discovered evidence, it must be proved that: (a) the evidence was discovered
after the trial; (b) such evidence could not have been discovered and produced at the trial with reasonable diligence;
(c) it is material, not merely cumulative, corroborative or impeaching; and (d) it is of such weight that, if admitted, will
probably change the judgment. 51 This does not mean however, that petitioner is altogether barred from having a
new trial. As pointed out by Judge Acosta, the reasons put forth by petitioner could fall under mistake or excusable
negligence.
The "mistake" that is allowable in Rule 37 is one which ordinary prudence could not have guarded
against. 52 Negligence to be "excusable" must also be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party have probably been impaired. 53 The test of
excusable negligence is whether a party has acted with ordinary prudence while transacting important business. 54
In this case, it cannot be said that petitioner did not act with ordinary prudence in claiming its refund with the CTA, in
light of its previous cases with the CTA which did not require invoices and the non-mandatory nature of CTA Circular
No. 1-95.
Respondent also argues that petitioner's motion for new trial was filed out of time and should therefore be dismissed in
view of Sec. 1, Rule 37 and Sec. 4, Rule 43 of the Rules of Court.
Sec. 1, Rule 37 provides that:
Section 1. Grounds of and period for filing motion for new trial or reconsideration. Within the
period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment
or final order and grant a new trial. . . .
and Sec. 4, Rule 43 holds that:
Section 4. Period of appeal. The appeal shall be taken within fifteen (15) days from notice of the
award, judgment, final order or resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioner's motion for new trial or
reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only
one (1) motion for reconsideration shall be allowed. Upon proper motion and the payment of the full
amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may
grant an additional period of fifteen (15) days only within which to file the petition for review. No
further extension shall be granted except for the most compelling reason and in no case to exceed
fifteen (15) days. CTHaSD
It is borne by the records however that in its first motion for reconsideration duly filed on time, petitioner had already
prayed that it be allowed to present and offer the pieces of evidence deemed lacking by the CTA in its Decision dated
August 11, 1998. 55 Thus, while it named its pleading as a Motion for New Trial only in its motion dated January 25,
1999, petitioner should not be deemed to have moved for new trial only at such time.

We reiterate the fundamental principle that technical rules of procedure are not ends in themselves but are primarily
designed to aid in the administration of justice. 56 And in cases before tax courts, Rules of Court applies only by
analogy or in a suppletory character and whenever practicable and convenient shall be liberally construed in order to
promote its objective of securing a just, speedy and inexpensive disposition of every action and proceeding. 57 The
quest for orderly presentation of issues is not an absolute. 58 It should not bar the courts from considering undisputed
facts to arrive at a just determination of a controversy. 59 This is because, after all, the paramount consideration
remains the ascertainment of truth. 60 Section 8 ofR.A. No. 1125 creating the CTA also expressly provides that it shall
not be governed strictly by technical rules of evidence. 61
Since it is not disputed that petitioner is entitled to tax exemption, it should not be precluded from presenting
evidence to substantiate the amount of refund it is claiming on mere technicality especially in this case, where the
failure to present invoices at the first instance was adequately explained by petitioner.
As we pronounced in BPI-Family Savings Bank, Inc. vs. Court of Appeals: 62

. . . Technicalities and legalisms, however exalted, should not be misused by the government to keep
money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the
State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply
the same standard against itself in refunding excess payments of such taxes. Indeed, the State must
lead by its own example of honor, dignity and uprightness. 63
WHEREFORE, the petition is GRANTED. The assailed resolution is SET ASIDE and the case REMANDED to the Court of
Tax Appeals for the reception of evidence, particularly invoices supporting the schedules of petroleum products sold
and delivered to petitioner by Petron and the corresponding certification of an independent Certified Public Accountant,
for the proper and immediate determination of the amount to be refunded to petitioner.
SO ORDERED.
Puno, Callejo, Sr., Tinga and Chico-Nazario, JJ., concur.
||| (Philippine Phosphate Fertilizer Corp. v. Commr., G.R. No. 141973, June 28, 2005)

EN BANC
[G.R. No. 187485. February 12, 2013.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SAN ROQUE POWER
CORPORATION, respondent.
[G.R. No. 196113. February 12, 2013.]
TAGANITO MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
[G.R. No. 197156. February 12, 2013.]
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
CARPIO, J p:
The Cases
G.R. No. 187485 is a petition for review 1 assailing the Decision 2 promulgated on 25 March 2009 as well as the
Resolution 3promulgated 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 Decision 4 as well as the 11 July 2008 Resolution 5 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 review 6 assailing the Decision 7 promulgated on 8 December 2010 as well as the
Resolution 8promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB reversed the
8 January 2010 Decision 9 as well as the 7 April 2010 Resolution 10 of the CTA Second Division and granted the CIR's
petition for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining
Corporation's (Taganito) judicial claim for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review 11 assailing the Decision 12 promulgated on 3 December 2010 as well as the
Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July 2009
Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA
Second Division denied, due to prescription, Philex Mining Corporation's (Philex) judicial claim for P23,956,732.44 tax
refund or credit.
On 3 August 2011, the Second Division of this Court resolved 14 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 EB's narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act
upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue
("BIR") National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was
incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate

power-generating plants and related facilities pursuant to and under contract with the Government
of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
government-owned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy. DCESaI
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
P559,709,337.54 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
P559,709,337.54, 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 P560,200,283.14. Consequently, [San
Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate
amount of P560,200,283.14.
[CIR's] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with
the Court [of Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision. 15
The Court of Tax Appeals' Ruling: Division
The CTA Second Division initially denied San Roque's claim. In its Decision 16 dated 8 March 2006, it cited the
following as bases for the denial of San Roque's claim: lack of recorded zero-rated or effectively zero-rated sales;
failure to submit documents specifically identifying the purchased goods/services related to the claimed input VAT
which were included in its Property, Plant and Equipment account; and failure to prove that the related construction
costs were capitalized in its books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following requirements of Section 112
(B) ofRepublic 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
P560,200,823.14 is already net of the P11,509.09 output tax declared by [San Roque] in its amended
VAT return for the first quarter of 2001. Moreover, the entire amount of P560,200,823.14 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 P560,200,823.14 did not form part of the excess input taxes of
P83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding
quarters. Further, [San Roque's] claim for refund/tax credit certificate of excess input VAT was filed

within the two-year prescriptive period reckoned from the dates of filing of the corresponding
quarterly VAT returns. SETaHC
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,
2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N").
These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the
other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10,
2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of 2001,
respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters
on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April
10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT returns for the
first, second, third and fourth quarters of 2001, the administrative claims for refund (original and
amended) and the Petition for Review fall within the two-year prescriptive period. 18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended
Decision,19 the CTA Second Division found legal basis to partially grant San Roque's claim. The CTA Second Division
ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of P483,797,599.65,
which represents San Roque's unutilized input VAT on its purchases of capital goods and services for the taxable year
2001. The CTA based the adjustment in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related
purchases are in the nature of capital goods; and the purchases pertain to capital goods. Moreover, the reduction of
claims was based on the following: the difference between San Roque's claim and that appearing on its books; the
official receipts covering the claimed input VAT on purchases of local services are not within the period of the claim;
and the amount of VAT cannot be determined from the submitted official receipts and invoices. The CTA Second
Division denied San Roque's claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated or
effectively zero-rated sales because San Roque had no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Division's 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roque's] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Court's Decision promulgated on March 8, 2006 in the instant case is hereby
MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT
CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million
Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos
(P483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for
the taxable year 2001.
SO ORDERED. 20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division issued a
Resolution dated 11 July 2008 which denied the CIR's motion for lack of merit.
The Court of Tax Appeals' Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque's claim for refund
or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July
2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIR's petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc. 21 and Revenue Memorandum Circular No.
49-03, 22as its bases for ruling that San Roque's judicial claim was not prematurely filed. The pertinent portions of the
Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the
present case. However, what the petitioner failed to consider is Section 112(A) of
the same provision. The respondent is also covered by the two (2) year prescriptive
period. We have repeatedly held that the claim for refund with the BIR and the subsequent
appeal to the Court of Tax Appeals must be filed within the two-year period. ATCaDE

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. 422003, 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. CSaITD
If the CTA is able to release its decision ahead of the evaluation of the
administrative agency, the latter shall cease from processing the claim. On the
other hand, if the administrative agency is able to process the claim of the taxpayer ahead of
the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must
file a motion to withdraw the claim with the CTA. 23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR

The Facts
The CTA Second Division's narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by
virtue of the laws of the 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 byproducts 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. EP88-306.
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:

Nature of

Exhibit(s)

Quarter

the Return

Mode of Filing

Filing Date

L to L-4

Original

Electronic

15-Apr-05

M to M-3

Amended

Electronic

20-Jul-05

N to N-4

Amended

Electronic

18-Oct-06

Original

Electronic

20-Jul-05

Amended

Electronic

18-Oct-06

Original

Electronic

19-Oct-05

Amended

Electronic

18-Oct-06

Original

Electronic

20-Jan-06

Amended

Electronic

18-Oct-06

Q to Q-3

1st

2nd

R to R-4

U to U-4

3rd

V to V 4

Y to Y-4

Z to Z-4

4th

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

Zero-Rated Sales

Covered

Input VAT on

Input VAT on

Total Input

Domestic

Domestic

VAT

Purchases and

Purchases and

Importations

Importations

of Goods

of Capital

and Services

01/01/05-

P551,179,871.58

P1,491,880.56

Goods

P239,803.22

P1,731,683.78

03/31/05-

04/01/05-

64,677,530.78

204,364.17

5,811,130.73

6,015,494.90

480,784,287.30

144,887.67

144,887.67

350,212,345.02

473,598.03

473,598.03

06/30/05-

07/01/05-

09/30/05-

10/01/05-

12/31/05-

TOTAL

P1,446,854,034.68

P2,314,730.43

P6,050,933.95

P8,365,664.38

===============

============

===========

============

On November 14, 2006, [Taganito] filed with [the CIR], through BIR's 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 amounting to P8,365,664.38 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. AaEcHC
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 P8,365,664.38 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.
In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
4.[Taganito's] alleged claim for refund is subject to administrative investigation/examination
by the Bureau of Internal Revenue (BIR);
5.The amount of P8,365,664.38 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;
6.[Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of theNational Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;

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 merepro-forma, 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 thesubmission 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,
[Taganito's] 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.
xxx xxx xxx
(D)Period within which refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred (120) days from the date of
submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof. ADaECI
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 P8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not
to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganito's] "Memorandum" filed on January 19,
2009 and [the CIR's] "Memorandum" filed on December 19, 2008. 24
The Court of Tax Appeals' Ruling: Division

The CTA Second Division partially granted Taganito's claim. In its Decision 25 dated 8 January 2010, the CTA Second
Division found that Taganito complied with the requirements of Section 112 (A) of RA 8424, as amended, to be entitled
to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated sales. 26
The pertinent portions of the CTA Second Division's Decision read:
Finally, records show that [Taganito's] administrative claim filed on November 14, 2006, which was
amended on November 29, 2006, and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter
covering the period January 1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of
P8,249,883.33 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 Resolution 28 dated 7 April 2010, the CTA Second Division denied the CIR's motion. The CTA Second Division ruled
that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in isolation
from Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice versa. The CTA Second Division applied
the mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to claims for refund or
tax credit under Section 112.
The Court of Tax Appeals' Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010 Decision
and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganito's entire claim for refund be denied.
In its 8 December 2010 Decision, 29 the CTA EB granted the CIR's petition for review and reversed and set aside the
challenged decision and resolution. IHAcCS
The CTA EB declared that Section 112 (A) and (B) of the 1997 Tax Code both set forth the reckoning of the two-year
prescriptive period for filing a claim for tax refund or credit over input VAT to be the close of the taxable quarter when
the sales were made. The CTA EB also relied on this Court's rulings in the cases of Commissioner of Internal Revenue
v. Aichi Forging Company of Asia, Inc. (Aichi) 30 and Commissioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant). 31Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input VAT arising from
zero-rated sales should be reckoned from the close of the taxable quarter when the sales were made. Aichi further
emphasized that the failure to await the decision of the Commissioner or the lapse of 120-day period prescribed in
Section 112 (D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the period
prescribed under Section 112 (A) and (B) of the 1997 Tax Code. However, the CTA EB found that Taganito's judicial
claim was prematurely filed. Taganito filed its Petition for Review before the CTA Second Division on 14 February 2007.
The judicial claim was filed after the lapse of only 92 days from the filing of its administrative claim before the CIR, in
violation of the 120-day period prescribed in Section 112 (D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January
8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are hereby
REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in
CTA Case No. 7574 for having been prematurely filed.
SO ORDERED. 32

In his dissent, 33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the CTA. Justice
Bautista read Section 112 (C) of the 1997 Tax Code (Period within which Refund or Tax Credit of Input Taxes shall be
Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally Collected). Justice Bautista also relied
on this Court's ruling in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
(Atlas), 34 which stated that refundable or creditable input VAT and illegally or erroneously collected national internal
revenue tax are the same, insofar as both are monetary amounts which are currently in the hands of the government
but must rightfully be returned to the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund
or tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of
the denial of its claim, or after the lapse of the 120-day period in the event of inaction by the
Commissioner, provided that both administrative and judicial remedies must be undertaken within
the 2-year period. 35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26
January 2011. The CTA EB denied for lack of merit Taganito's motion in a Resolution 36 dated 14 March 2011. The CTA
EB did not see any justifiable reason to depart from this Court's rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EB's narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines,
which is principally engaged in the mining business, which includes the exploration and operation of
mine properties and commercial production and marketing of mine products, with office address at
27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.EACTSH
[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 P23,956,732.44 with
the One Stop Shop Center of the Department of Finance. However, due to [the CIR's] failure to act on
such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4.Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;
5.The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;
6.[Philex] should prove its legal basis for claiming for the amount being refunded. 37
The Court of Tax Appeals' Ruling: Division
The CTA Second Division, in its Decision dated 20 July 2009, denied Philex's claim due to prescription. The CTA Second
Division ruled that the two-year prescriptive period specified in Section 112 (A) of RA 8424, as amended, applies not
only to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim with the CTA. Since
Philex's claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while
its judicial claim filed on 17 October 2007 was filed late and therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex's Motion for Reconsideration.
The Court of Tax Appeals' Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10
November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA EB, in its Decision 38 dated 3 December 2010, denied Philex's petition and affirmed the CTA Second Division's
Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philex's] administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that
on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of P23,956,732.44 with the One Stop Shop Center of the Department of Finance, per
Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day
period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund
to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426 days
way beyond the 30-day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for
Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for Review
was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA in
Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE,
and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for
Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10, 2009 denying
[Philex's] Motion for Reconsideration are hereby AFFIRMED, with modification that the dismissal is
based on the ground that the Petition for Review in CTA Case No. 7687 was filed way beyond the 30day prescribed period to appeal. ASIETa
SO ORDERED. 39
The Issues
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:
I.The Court of Tax Appeals En Banc erred in holding that [San Roque's] claim for refund was not
prematurely filed.
II.The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax
Appeals (Second Division) granting [San Roque's] claim for refund of alleged unutilized input VAT
on its purchases of capital goods and services for the taxable year 2001 in the amount of
P483,797,599.65. 40
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
I.The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in
violation of [Taganito's] right to due process.

II.The Court of Tax Appeals committed serious error and acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in erroneously interpreting the provisions of Section 112
(D). 41
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:
I.The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the
petition was filed with the CTA within the period set by prevailing court rulings at the time it was
filed.
II.The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this
instant case. 42
The Court's Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the present cases:
Section 105:
Persons Liable. Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of
this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No. 7716.
xxx xxx xxx
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 zerorated 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. EaSCAH
Section 112: 44
Sec. 112.Refunds or Tax Credits of Input Tax.
(A)Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, 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 beenexcessively 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. ADCTac
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid.
(All emphases supplied)
I.Application of the 120+30 Day Periods
a.G.R. No. 187485 CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March
2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather two
crucial facts: first,San Roque did not wait for the 120-day period to lapse before filing its judicial claim; second, San
Roque filed its judicial claim more than four (4) years before the Atlas 45 doctrine, which was promulgated by the
Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the
Commissioner to decide whether to grant or deny San Roque's application for tax refund or credit. It is indisputable
that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting period, originally

fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273, which took effect on 1
January 1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform
Act of 1997. Thus, the waiting period has been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the
effect that the CTA does not acquire jurisdiction over the taxpayer's petition. Philippine jurisprudence is replete with
cases upholding and reiterating these doctrinal principles. 46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the Commissioner of
Internal Revenue in cases involving . . . refunds of internal revenue taxes." 47 When a taxpayer prematurely files a
judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no
"decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the
appeal. The charter of the CTA also expressly provides that if the Commissioner fails to decide within " a specific
period" required by law, such "inaction shall be deemed a denial" 48 of the application for tax refund or credit. It
is the Commissioner's decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review.
Without a decision or an "inaction . . . deemed a denial" of the Commissioner, the CTA has no jurisdiction over a
petition for review. 49
San Roque's failure to comply with the 120-day mandatory period renders its petition for review with the
CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity." San Roque's void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be
legitimized "except when the law itself authorizes [its] validity." There is no law authorizing the petition's validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or
acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This
doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the rights of others." 50 For violating a mandatory
provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition.
Thus, San Roque's petition with the CTA is a mere scrap of paper. DaHSIT
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. Noncompliance with mandatory periods, non-observance of prescriptive periods, and non-adherence to exhaustion of
administrative remediesbar a taxpayer's claim for tax refund or credit, whether or not the Commissioner questions the
numerical correctness of the claim of the taxpayer. This Court should not establish the precedent that non-compliance
with mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in claims
for tax refunds or credit. Such precedent will render meaningless compliance with mandatory and jurisdictional
requirements, for then every tax refund case will have to be decided on the numerical correctness of the amounts
claimed, regardless of non-compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed its
petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did
not exist at the time San Roque failed to comply with the 120-day period. Thus, San Roque cannot invoke
the Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine
merely stated that the two-year prescriptive period should be counted from the date of payment of the output VAT, not
from the close of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine does
not interpret, expressly or impliedly, the 120+30 52 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 Mirant 54 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

Date of Filing

Date of Filing

Period Covered

& Payment of Tax

Administrative Claim

Petition with CTA

2nd Quarter, 1990

20 July 1990

21 August 1990

20 July 1992

18 October 1990

21 November 1990

9 October 1992

20 January 1991

19 February 1991

14 January 1993

Close of Quarter

30 June 1990

3rd Quarter, 1990

Close of Quarter

30 September 1990

4th Quarter, 1990

Close of 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 two-year 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
difference 55 between the Atlas doctrine and the later Mirant doctrine is not material to San Roque's
claim for tax refund. aTADCE

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 Roque's 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 twoyear prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. However,
San Roque's fatal mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory
period whether the Atlas or theMirant 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 taxpayer's claim. The
law is clear, plain, and unequivocal: ". . . the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxeswithin one hundred twenty (120) days from the date of submission of complete documents."
Following the verba legisdoctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner's decision within the 120day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or
"deemed a denial" decision of the Commissioner for the CTA to review. In San Roque's case, it filed its petition with the
CTA a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly
violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112 (C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
. . . the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes,
appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or
if the Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to
the CTA within 30 days from the expiration of the 120-day period.
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 Atlasdoctrine.
However, Taganito can invoke BIR Ruling No. DA-489-03 57 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 twoyear 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 Philex's claim. Since the Commissioner did not act on Philex's
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: HDCTAc
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; . . . 58 (Emphasis supplied)
Unlike San Roque and Taganito, Philex's case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after
the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in
fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence before,
during, or after the Atlas case, Philex's judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were made
following the Mirant and Aichi doctrines, Philex's judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philex's claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex's claim. Philex had
30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex's failure to do so
rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional
right. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for
its exercise. 59 Philex failed to comply with the statutory conditions and must thus bear the consequences.
II.Prescriptive Periods under Section 112 (A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive
period, as long as the administrative claim is filed within the two-year prescriptive period.
First, Section 112 (A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years after
the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with
the Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus,
the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year
prescriptive period and it will still strictly comply with the law. The 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 . . . 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),60 then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the twoyear 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. IEDHAT
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 VATregistered seller 61 of goods, properties or services used as input by another VAT-registered person in the sale of his
own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as
part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one who
applies the input VAT as credit for his own output VAT. 62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person the taxpayer who is legally liable and who is
deemed to have legally paid for the input VAT who can ask for a tax refund or credit under Section 229 as an
ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no
input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110 (B) and Section 112 (A), the input VAT is not
"excessively" collected as understood under Section 229. At the time of payment of the input VAT the amount paid is
the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is "excessively"
collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT
cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input
VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively
collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim
for refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of
the tax "erroneously, . . . illegally, . . . 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. AHCaES
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, . . .
illegally, . . . 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 Atlasdoctrine, 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 theverba legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The
language of Section 112 (C) is plain, clear, and unambiguous. When Section 112 (C) states that "the Commissioner
shall grant a refund or issue the tax credit within one hundred twenty (120) days from the date of submission of
complete documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer's claim.
Resort to the courts prior to the expiration of the 120-day period is a patent violation of the doctrine of exhaustion of
administrative remedies, a ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is awash
with cases affirming and reiterating the doctrine of exhaustion of administrative remedies. 65 Such doctrine is basic
and elementary. cHDaEI
When Section 112 (C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision
denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just because the law
uses the word "may." The word "may" simply means that the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period.
Certainly, by no stretch of the imagination can the word "may" be construed as making the 120+30 day periods
optional, allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.
The old rule 66 that the taxpayer may file the judicial claim, without waiting for the Commissioner's decision if the
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of
the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the
VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts
only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always
available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without
waiting for the Commissioner to decide until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One
of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a
claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period from the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted,
which again reinstated the 120+30 day periods as mandatory and jurisdictional.
V.Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day
period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes the BIR to continue processing
the administrative claim even after the taxpayer has filed its judicial claim, without saying that the taxpayer can file its
judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases where the taxpayer has filed a
'Petition for Review' with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative
agency (either the Bureau of Internal Revenue or the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center of the Department of Finance), the administrative agency and the court may act on the case separately." Thus,
if the taxpayer files its judicial claim before the expiration of the 120-day period, the BIR will nevertheless continue to
act on the administrative claim because such premature filing cannot divest the Commissioner of his statutory power
and jurisdiction to decide the administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after the 120-day period, the Commissioner can still continue
to evaluate the administrative claim. There is nothing new in this because even after the expiration of the 120-day
period, the Commissioner should still evaluate internally the administrative claim for purposes of opposing the
taxpayer's judicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayer's
judicial claim. The internal administrative evaluation of the taxpayer's claim must necessarily continue to enable the
BIR to oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the
judicial claim, resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the
Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory
period, unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly
recognized in Section 246 of the Tax Code. 67 aCTHEA
VI.BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code. BIR
Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review." Prior to this ruling, the
BIR held, as shown by its position in the Court of Appeals, 68 that the expiration of the 120-day period is mandatory
and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular
taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under Section
4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTA's assumption of jurisdiction over such claim since
equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the power to
interpret tax laws, thus:
Sec. 4.Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax
laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this Court.
Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely
prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides
as follows:
Sec. 246.Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules
and regulationspromulgated 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. DAEaTS
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 69 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. in the later cases
of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega
Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.), Inc.,
and Commissioner of Internal Revenue v. Court of Appeals.The rule is that the BIR rulings have
no retroactive effect where a grossly unfair deal would result to the prejudice of the
taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIR's own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer's
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers
or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop
Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency
mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the
agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development,
Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are mandatory and jurisdictional.
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an
erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was mandatory
and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that

it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim
for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on
10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot
claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was
issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as applied and
administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the
benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the
Commissioner. HCTaAS
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for
the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR
Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
Philex's situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR Ruling
No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because
Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the
expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.
VII.Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing dates of
the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
The effect of the claim of the dissenting opinions is that San Roque's failure to wait for the 120-day mandatory period
to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit. However, the five cases cited by
the dissenting opinions do not support even remotely the claim that this Court had already made such a ruling. None
of these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory
period is inconsequential as long as the administrative and judicial claims are filed within the two-year
prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc., 71 the issue was whether any output VAT was actually passed on
to Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued that "although
Toshiba may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The Commissioner cited
Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods shall be allowed only to the
extent that such capital goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the
issue still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of its input VAT
on its purchases of capital goods and services, to which this Court answers in the affirmative." Nowhere in this case did
the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as
long as they are within the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR, 72 the Court stated: "The issues to be resolved in the instant case are (1)
whether the absence of the BIR authority to print or the absence of the TIN-V in petitioner's export sales invoices
operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated sales;
and (2) whether petitioner's failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax
credit certification." Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR, 73 the Court stated: ". . . the CTA First Division, conceding
that petitioner's transactions fall under the classification of zero-rated sales, nevertheless denied petitioner's claim 'for
lack of substantiation,' . . . ." 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: ". . . the CTA En Banc, . . . affirmed . . . the CTA First Division," and "petitioner's motion for
reconsideration having been denied . . ., the present petition for review was filed." Clearly, the sole issue in this case is
whether petitioner complied with the substantiation requirements in claiming for tax refund or credit. Again, nowhere
in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation, 74 the Court put the issue in this manner: "Simply put, the
sole issue the petition raises is whether or not the CTA erred in granting respondent Ironcon's application for refund of
its excesscreditable 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. IEHDAT
In CIR v. Cebu Toyo Corporation, 75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance with
the 120-day period was never an issue in Cebu Toyo. As the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and
local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC.
Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on
input taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95,
notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax
credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years
from August 7, 1995 making it exempt from income tax but not from other taxes such as
VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary
to petitioner's claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was
able to establish through a report certified by an independent Certified Public Accountant that the
input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its
export sales. Since it did not have any output tax against which said input taxes may be offset, it had
the option to file a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of
merit.
Petitioner's contention that respondent is not entitled to refund for being exempt from
VAT is untenable. This argument turns a blind eye to the fiscal incentives granted to PEZAregistered 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 ofBautista vs. Fajardo, supra, can have no binding force in the
interpretation of the question presented here. 76 (Emphasis supplied) ITaESD
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an
issue by any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute
binding precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing dates
of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive
period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court or the public. That
is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA decisions as the facts
and the law may warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine
legal system. 77 As held by this Court inThe Philippine Veterans Affairs Office v. Segundo: 78
. . . 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). . .
(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 sub-paragraphs (a) and (b) hereof. In case of full or
partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from receipt of the decision denying

the claim or after the expiration of the sixty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals. ICDcEA
Revenue Regulations No. 7-95 (1996)
Section 4.106-2.Procedures for claiming refunds or tax credits of input tax. (a) . . .
xxx xxx xxx
(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.
xxx xxx xxx
1997 Tax Code
Section 112.Refunds or Tax Credits of Input Tax.
(A)

...

xxx xxx xxx

(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. HIaAED
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day
period isdeemed a denial of the claim. Thus, Section 4.106-2 (c) states that "if no action on the claim for tax

refund/credit has been taken by the Commissioner after the sixty (60) day period," the taxpayer "may" already file
the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA 7716,
the taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act
on the claim. 80 With the amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is
about to expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day period is
deemed a denial of the claim. This is the meaning of the phrase "but before the lapse of the two (2) year
period" in Section 4.106-2 (c). As Section 4.106-2 (c) reiterates that the judicial claim can be filed only "after the
sixty (60) day period," this period remains mandatory and jurisdictional. Clearly, Section 4.106-2 (c) did not amend
Section 106 (d) but merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2 (c) of Revenue Regulations No. 7-95, an administrative
issuance, amended Section 106 (d) of the Tax Code to make the period given to the Commissioner non-mandatory, still
the 1997 Tax Code, a much later law, reinstated the original intent and provision of Section 106 (d) by extending the
60-day period to 120 days and re-adopting the original wordings of Section 106 (d). Thus, Section 4.106-2 (c), a
mere administrative issuance, becomes inconsistent with Section 112 (D), a later law. Obviously, the later law prevails
over a prior inconsistent administrative issuance.
Section 112 (D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act
on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the
Commissioner partially or fully denies the claim within the 120-day period, or (2) only within thirty days from
the expiration of the 120-day periodif the Commissioner does not act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five
years before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120-day
period is mandatory and jurisdictional. San Roque's claim, having been filed administratively on 28 March 2003, is
governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of
the 120-day mandatory and jurisdictional period, San Roque's claim cannot prosper.
San Roque cannot also invoke Section 4.106-2 (c), which expressly provides that the taxpayer can only file the judicial
claim"after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed its judicial
claim just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim on 10 April
2003, a mere 13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now
Section 4.106-2 (c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit
because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in
Section 4.106-2 (c). In short, San Roque does not even comply with Section 4.106-2 (c). A claim for tax refund or
credit is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions
for granting the tax refund or credit. San Roque did not comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency
collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic
adversities arising from poor tax collections, forcing the government to continue borrowing to fund the budget deficits.
This Court cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not comply
with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a pittance.
Many other companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its head
the well-settled doctrine that tax refunds are strictly construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R.
No. 187485 to DENYthe 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. HDITCS
SO ORDERED.
Leonardo-de Castro, Brion, Peralta, Bersamin, Abad, Villarama, Jr., Perez and Reyes, JJ., concur.
Sereno, C.J., I join the dissent of J. Velasco; but I partly digress (see separate dissenting opinion).
Velasco, Jr., J., I dissent: (please see dissenting opinion).
Del Castillo, J., I join J. Leonen in his separate opinion.
Mendoza and Perlas-Bernabe, JJ., join the dissent of J. Velasco.
Leonen, J., see separate opinion
|

THIRD DIVISION

[G.R. No. 184145. December 11, 2013.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. DASH ENGINEERING PHILIPPINES,
INC., respondent.
DECISION
MENDOZA, J p:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure,
assailing the July 17, 2008 Decision 1 and the August 12, 2008 Resolution 2 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) entitled "Commissioner of Internal Revenue v. Dash Engineering
Philippines, Inc."
The Facts
Respondent Dash Engineering Philippines, Inc. (DEPI) is a corporation duly registered with the Securities and Exchange
Commission, authorized to do business in the Philippines and listed with the Philippine Economic Zone Authority as an
ecozone IT export enterprise. 3 It is also a VAT-registered entity engaged in the export sales of computer-aided
engineering and design. 4
Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from January 1, 2003 to June
30, 2003. 5 On August 9, 2004, it filed a claim for tax credit or refund in the amount of P2,149,684.88 representing
unutilized input VAT attributable to its zero-rated sales. 6 Because petitioner Commissioner of Internal
Revenue (CIR) failed to act upon the said claim, respondent was compelled to file a petition for review with the CTA on
May 5, 2005. 7 SECcIH
On October 4, 2007, the Second Division of the CTA rendered its Decision 8 partially granting respondent's claim for
refund or issuance of a tax credit certificate in the reduced amount of P1,147,683.78. On the matter of the timeliness
of the filing of the judicial claim, the Tax Court found that respondent's claims for refund for the first and second
quarters of 2003 were filed within the two-year prescriptive period which is counted from the date of filing of the return
and payment of the tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of
2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition for review with
the CTA on April 26, 2005 9 was within the prescriptive period. 10 Petitioner moved for reconsideration but the same
was denied in a Resolution dated January 3, 2008. 11
Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed to show that (1) its
purchases of goods and services were made in the course of its trade and business, (2) the said purchases were
properly supported by VAT invoices and/or official receipts and other documents, and (3) that the claimed input VAT
payments were directly attributable to its zero-rated sales. Petitioner also averred that the petition for review was filed
out of time. 12 AcHaTE
The CTA En Banc in its Decision, 13 dated July 17, 2008, upheld the decision of the CTA Second Division, ruling that the
judicial claim was filed on time because the use of the word "may" in Section 112 (D) (now subparagraph C) of the
National Internal Revenue Code (NIRC) indicates that judicial recourse within thirty (30) days after the lapse of the 120day period is only directory and permissive and not mandatory and jurisdictional, as long as the petition was filed
within the two-year prescriptive period. The Tax Court further reiterated that the two-year prescriptive period applies
to both the administrative and judicial claims. Petitioner's motion for reconsideration was denied in the August 12,
2008 Resolution of the CTA. 14
Hence, this petition.
The Issues
Petitioner raises the following grounds for the allowance of the petition:
I
The Court of Tax Appeals En Banc erred in holding that respondent's judicial claim for
refund was filed within the prescriptive period provided under the Tax Code.
II

The Court of Tax Appeals En Banc erred in partially granting respondent's claim for
refund despite the failure of the latter to substantiate its claim by sufficient
documentary proof. 15 ADaSEH
The Court's Ruling
As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent failed to comply
with the 30-day period referred to in Section 112 (D) (now subparagraph C) of the NIRC, citing the case
of Commissioner of Internal Revenue v. Aichi 16 where the Court categorically held that compliance with the
prescribed periods in Section 112 is mandatory and jurisdictional. Respondent filed its administrative claim for refund
on August 9, 2004. The 120-day period within which the CIR should act on the claim expired on December 7, 2004
without any action on the part of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or
until January 6, 2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5,
2005. 17 Petitioner further posits that the 30-day period within which to file an appeal with the CTA is jurisdictional and
failure to comply therewith would bar the appeal and deprive the CTA of its jurisdiction to entertain the same. 18
Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in keeping with the two-year
prescriptive period provided for in Sections 204 (c) and 229 of the NIRC. 19 DEPI interprets Section 112, in relation to
Section 229, to mean that the 120-day period is the time given to the CIR to decide the case. The taxpayer, on the
other hand, has the option of either appealing to the CTA the denial by the CIR of the claim for refund within thirty (30)
days from receipt of such denial and within the two-year prescriptive period, or appealing an unacted claim to the CTA
anytime after the expiration of the 120-day period given to the CIR to resolve the administrative claim for as long as
the judicial claim is made within the two-year prescriptive period. 20 Following respondent's reasoning, its filing of the
judicial claim on April 26, 2005 was filed on time because it was made after the lapse of the 120-day period and within
the two-year period referred to in Section 229.
The petition is meritorious. EDISaA
Sec. 229 is inapplicable; two-year period in
Sec. 112 refers only to administrative claims
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:
Sec. 204.Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The
Commissioner may
xxx xxx xxx
(C)Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit
for use and refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the payment of the tax or
penalty: Provided, however, That a return filed showing an overpayment shall be considered as a
written claim for credit or refund.
Sec. 229.Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, 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. AScHCD
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 . . . . (Emphases supplied)
This Court has previously made a pronouncement as to the inapplicability of Section 229 of the NIRC to claims for
excess input VAT. In the recently decided case of Commissioner of Internal Revenue v. San Roque Power
Corporation, 21 the Court made a lengthy disquisition on the nature of excess input VAT, clarifying that "input VAT is
not 'excessively' collected as understood under Section 229 because at the time the input VAT is collected the amount

paid is correct and proper." 22Hence, respondent cannot advance its position by referring to Section 229 because
Section 112 is the more specific and appropriate provision of law for claims for excess input VAT.
Section 112 (A) also provides for a two-year period for filing a claim for refund, to wit:
Sec. 112.Refunds or Tax Credits of Input Tax.
(A)Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are 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 DIEAHc
xxx xxx xxx
As explained in San Roque, however, the two-year prescriptive period referred to in Section 112 (A) applies only to the
filing of administrative claims with the CIR and not to the filing of judicial claims with the CTA. In other words, for as
long as the administrative claim is filed with the CIR within the two-year prescriptive period, the 30-day period given to
the taxpayer to file a judicial claim with the CTA need not fall in the same two-year period.
At any rate, respondent's compliance with the two-year prescriptive period under Section 112 (A) is not an issue. What
is being questioned in this case is DEPI's failure to observe the requisite 120+30-day period as mandated by Section
112 (C) of the NIRC.
120+30 day period under Sec. 112 is
mandatory and jurisdictional
Section 112 (D) (now subparagraph C) of the NIRC provides that:
Sec. 112.Refunds or Tax Credits of Input Tax.
xxx xxx xxx
(D)Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of complete documents in
support of the application filed in accordance with Subsections (A) and (B) hereof. cEHSIC
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals. (emphasis supplied) ECAaTS
Petitioner is entirely correct in its assertion that compliance with the periods provided for in the abovequoted provision
is indeed mandatory and jurisdictional, as affirmed in this Court's ruling in San Roque, where the Court En Banc settled
the controversy surrounding the application of the 120+30-day period provided for in Section 112 of the NIRC and
reiterated theAichi doctrine that the 120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took
into account the issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled taxpayers
by explicitly stating that taxpayers may file a petition for review with the CTA even before the expiration of the 120day period given to the CIR to decide the administrative claim for refund. Even though observance of the periods in
Section 112 is compulsory and failure to do so will deprive the CTA of jurisdiction to hear the case, such a strict
application will be made from the effectivity of the Tax Reform Act of 1997 on January 1, 1998 until the present, except
for the period from December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the
promulgation of Aichi), during which taxpayers need not wait for the lapse of the 120+30-day period before filing their
judicial claim for refund.
The case at bench, however, does not involve the issue of premature filing of the petition for review with the CTA.
Rather, this petition seeks the denial of DEPI's claim for refund for having been filed late or after the expiration of the
30-day period from the denial by the CIR or failure of the CIR to make a decision within 120 days from the submission
of the documents in support of respondent's administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the 120+30-day
period. In denying the taxpayer's claim for refund, this Court explained that: CAaDSI
Unlike San Roque and Taganito, Philex's case is not one of premature filing but of late
filing. Philex did not file any petition with the CTA within the 120-day period. Philex did
not also file any petition with the CTA within 30 days after the expiration of the 120-day
period. Philex filed its judicial claim long after the expiration of the 120-day period, in
fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during or after the Atlas case, Philex's judicial claim will have to be rejected
because of late filing. Whether the two-year prescriptive period is counted from the date of
payment of the output VAT following the Atlas doctrine, or from the close of the taxable quarter
when the sales attributable to the input VAT were made following the Mirant andAichi doctrines,
Philex's judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex's claim during the 120-day period is, by express provision of
law, "deemed a denial" of Philex's claim. Philex had 30 days from the expiration of the
120-day period to file its judicial claim with the CTA. Philex's failure to do so rendered
the "deemed a denial" decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a
statutory privilege, not a constitutional right. The exercise of such statutory privilege
requires strict compliance with the conditions attached by the statute for its exercise .
Philex failed to comply with the statutory conditions and must thus bear the
consequences. 23 (Emphases supplied) DEScaT
Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for having been filed
late. Although respondent filed its administrative claim with the BIR on August 9, 2004 before the expiration of the
two-year period in Section 112 (A), it undoubtedly failed to comply with the 120+30-day period in Section 112 (D)
(now subparagraph C) which requires that upon the inaction of the CIR for 120 days after the submission of the
documents in support of the claim, the taxpayer has to file its judicial claim within 30 days after the lapse of the said
period. The 120 days granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days
therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought judicial
relief on May 5, 2005 when it belatedly filed its petition to the CTA, despite having had ample time to file the same,
almost four months after the period allowed by law. As a consequence of DEPI's late filing, the CTA did not properly
acquire jurisdiction over the claim.
The Court has held time and again that taxes are the lifeblood of the government and, consequently, tax laws must be
faithfully and strictly implemented as they are not intended to be liberally construed. 24 Hence, We are left with no
other recourse but to deny respondent's judicial claim for refund for non-compliance with the provisions of Section 112
of the NIRC.
WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008 Resolution of the CTA En
Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are hereby REVERSED and SET ASIDE. Respondent DEPI's judicial
claim for refund or tax credit through its petition for review before the CTA is DENIED.
SO ORDERED.
Velasco, Jr., Peralta, Abad and Leonen, JJ., concur.
||| (Commr. v. Dash Engineering Philippines, Inc., G.R. No. 184145, December 11, 2013)

FIRST DIVISION
[G.R. No. 149073. February 16, 2005.]
COMMISSIONER
OF
CORPORATION, respondent.

INTERNAL

REVENUE, petitioner, vs.

CEBU

TOYO

DECISION
QUISUMBING, J p:
In its Decision 1 dated July 6, 2001, the Court of Appeals, in CA-G.R. SP No. 60304, affirmed the Resolutions dated May
31, 2000 2 and August 2, 2000, 3 of the Court of Tax Appeals (CTA) ordering the Commissioner of Internal Revenue
(CIR) to allow a partial refund or, alternatively, to issue a tax credit certificate in favor of Cebu Toyo Corporation in the
sum of P2,158,714.46, representing the unutilized input value-added tax (VAT) payments.
The facts, as culled from the records, are as follows:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various optical
components used in television sets, cameras, compact discs and other similar devices. Its principal office is located at
the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a subsidiary of Toyo Lens Corporation, a nonresident corporation organized under the laws of Japan. Respondent is a zone export enterprise registered with the
Philippine Economic Zone Authority (PEZA), pursuant to the provisions of Presidential Decree No. 66. 4 It is also
registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer. 5
As an export enterprise, respondent sells 80% of its products to its mother corporation, the Japan-based Toyo Lens
Corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the
MEPZ.Inasmuch as both sales are considered export sales subject to Value-Added Tax (VAT) at 0% rate under Section
106(A)(2)(a) 6of the National Internal Revenue Code, as amended, respondent filed its quarterly VAT returns from April
1, 1996 to December 31, 1997 showing a total input VAT of P4,462,412.63. cTADCH
On March 30, 1998, respondent filed with the Tax and Revenue Group of the One-Stop Inter-Agency Tax Credit and
Duty Drawback Center of the Department of Finance, an application for tax credit/refund of VAT paid for the period
April 1, 1996 to December 31, 1997 amounting to P4,439,827.21 representing excess VAT input payments.
Respondent, however, did not bother to wait for the Resolution of its claim by the CIR. Instead, on June 26, 1998, it
filed aPetition for Review with the CTA to toll the running of the two-year prescriptive period pursuant to Section
230 7 of the Tax Code.
Before the CTA, the respondent posits that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0%
on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods
and services related to such zero-rated activities are available as tax credits or refunds.
The petitioner's position is that respondent was not entitled to a refund or tax credit since: (1) it failed to show that the
tax was erroneously or illegally collected; (2) the taxes paid and collected are presumed to have been made in
accordance with law; and (3) claims for refund are strictly construed against the claimant as these partake of the
nature of tax exemption.
Initially, the CTA denied the petition for insufficiency of evidence. 8 The tax court sustained respondent's argument
that it was a VAT-registered entity. It also found that the petition was timely, as it was filed within the prescription

period. The CTA also ruled that the respondent's sales to Toyo Lens Corporation and to certain establishments in the
Mactan Export Processing Zone were export sales subject to VAT at 0% rate. It found that the input VAT covered by
respondent's claim was not applied against any output VAT. However, the tax court decreed that the petition should
nonetheless be denied because of the respondent's failure to present documentary evidence to show that there were
foreign currency exchange proceeds from its export sales. The CTA also observed that respondent failed to submit the
approval by Bangko Sentral ng Pilipinas (BSP) of its Agreement of Offsetting with Toyo Lens Corporation and the
certification of constructive inward remittance.
Undaunted, respondent filed on February 21, 2000, a Motion for Reconsideration arguing that: (1) proof of its inward
remittance was not required by law; (2) BSP and BIR regulations do not require BSP approval on its Agreement of
Offsetting nor do they require certification on the amount constructively remitted; (3) it was not legally required to
prove foreign currency payments on the remaining sales to MEPZ enterprises; and (4) it had complied with the
substantiation requirements under Section 106(A)(2)(a) of the Tax Code. Hence, it was entitled to a refund of unutilized
VAT input tax.
On May 31, 2000, the tax court partly granted the motion for reconsideration in a Resolution, to wit:
WHEREFORE, finding the motion of petitioner to be meritorious, the same is hereby partially granted.
Accordingly, the Court hereby MODIFIES its decision in the above-entitled case, the dispositive
portion of which shall now read as follows:HCDAac
WHEREFORE, finding the petition for review partially meritorious, respondent is hereby
ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of
Petitioner in the amount of P2,158,714.46 representing unutilized input tax payments.
SO ORDERED. 9
In granting partial reconsideration, the tax court found that there was no need for BSP approval of the Agreement of
Offsetting since the same may be categorized as an inter-company open account offset arrangement. Hence, the
respondent need not present proof of foreign currency exchange proceeds from its sales to MEPZ enterprises pursuant
to Section 106(A)(2)(a) 10 of the Tax Code. However, the CTA stressed that respondent must still prove that there was
an actual offsetting of accounts to prove that constructive foreign currency exchange proceeds were inwardly remitted
as required under Section 106(A)(2)(a).
The CTA found that only the amount of 274,043,858.00 covering respondent's sales to Toyo Lens Corporation and
purchases from said mother company for the period August 7, 1996 to August 26, 1997 were actually offset against
respondent's related accounts receivable and accounts payable as shown by the Agreement for Offsetting dated
August 30, 1997. Resort to the respondent's Accounts Receivable and Accounts Payable subsidiary ledgers
corroborated the amount. The tax court also found that out of the total export sales for the period April 1, 1996 to
December 31, 1997 amounting to 700,654,606.15, respondent's sales to MEPZ enterprises amounted only to
136,473,908.05 of said total. Thus, allocating the input taxes supported by receipts to the export sales, the CTA
determined that the refund/credit amounted to only P2,158,714.46, 11computed as follows:
Total Input Taxes Claimed by respondent P4,439,827.21
Less: Exceptions made by SGV
a.) 1996 P651,256.17
b.) 1997 104,129.13 755,385.30

Validly Supported Input Taxes P3,684,441.91
Allocation:
Verified Zero-Rated Sales
a.) Toyo Lens Corporation 274,043,858.00
b.) MEPZ Enterprises 136,473,908.05 410,517,766.05

Divided by Total Zero-Rated Sales 700,654,606.15

Quotient 0.5859
Multiply by Allowable Input Tax P3,684,441.91

Amount Refundable P2,158,714.[52] 12

On June 21, 2000, petitioner Commissioner filed a Motion for Reconsideration arguing that respondent was not entitled
to a refund because as a PEZA-registered enterprise, it was not subject to VAT pursuant to Section 24 13 of Republic
Act No. 7916,14 as amended by Rep. Act No. 8748. 15 Thus, since respondent was not subject to VAT, the

Commissioner contended that the capital goods it purchased must be deemed not used in VAT taxable business and
therefore it was not entitled to refund of input taxes on such capital goods pursuant to Section 4.106-1 of Revenue
Regulations No. 7-95. 16
Petitioner filed a Motion for Reconsideration on June 21, 2000 based on the following theories: (1) that respondent
being registered with the PEZA as an ecozone enterprise is not subject to VAT pursuant to Sec. 24 of Rep. Act No.
7916; and (2) since respondent's business is not subject to VAT, the capital goods it purchased are considered not used
in a VAT taxable business and therefore is not entitled to a refund of input taxes. 17
The respondent opposed the Commissioner's Motion for Reconsideration and prayed that the CTA resolution be
modified so as to grant it the entire amount of tax refund or credit it was seeking. ESDcIA
On August 2, 2000, the Court of Tax Appeals denied the petitioner's motion for reconsideration. It held that the
grounds relied upon were only raised for the first time and that Section 24 of Rep. Act No. 7916 was not applicable
since respondent has availed of the income tax holiday incentive under Executive Order No. 226 or the Omnibus
Investment Code of 1987 pursuant to Section 23 18 of Rep. Act No. 7916. The tax court pointed out that E.O. No.
226 granted PEZA-registered enterprises an exemption from payment of income taxes for 4 or 6 years depending on
whether the registration was as a pioneer or as a non-pioneer enterprise, but subject to other national taxes including
VAT.
The petitioner then filed a Petition for Review with the Court of Appeals (CA), docketed as CA-G.R. SP No. 60304,
praying for the reversal of the CTA Resolutions dated May 31, 2000 and August 2, 2000, and reiterating its claim that
respondent is not entitled to a refund of input taxes since it is VAT-exempt.
On July 6, 2001, the appellate court decided CA-G.R. SP No. 60304 in respondent's favor, thus:
WHEREFORE, finding no merit in the petition, this Court DISMISSES it and AFFIRMS the Resolutions
dated May 31, 2000 and August 2, 2000 . . . of the Court of Tax Appeals.
SO ORDERED. 19
The Court of Appeals found no reason to set aside the conclusions of the Court of Tax Appeals. The appellate court held
as untenable herein petitioner's argument that respondent is not entitled to a refund because it is VAT-exempt since
the evidence showed that it is a VAT-registered enterprise subject to VAT at the rate of 0%. It agreed with the ruling of
the tax court that respondent had two options under Section 23 of Rep. Act No. 7916, namely: (1) to avail of an income
tax holiday under E.O. No. 226 and be subject to VAT at the rate of 0%; or (2) to avail of the 5% preferential tax
under P.D. No. 66 and enjoy VAT exemption. Since respondent availed of the incentives under E.O. No. 226, then the
0% VAT rate would be applicable to it and any unutilized input VAT should be refunded to respondent upon proper
application with and substantiation by the BIR.
Hence, the instant petition for review now before us, with herein petitioner alleging that:
I. RESPONDENT BEING REGISTERED WITH THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) AS
AN ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS NOT SUBJECT TO VAT PURSUANT TO
SECTION 24 OF Republic Act No. 7916IN RELATION TO SECTION 103 OF THE TAX CODE, AS
AMENDED BY RA No. 7716.
II. SINCE RESPONDENT'S BUSINESS IS NOT SUBJECT TO VAT, IT IS NOT ENTITLED TO REFUND OF
INPUT TAXES PURSUANT TO SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95. 20
In our view, the main issue for our resolution is whether the Court of Appeals erred in affirming the Court of Tax
Appeals resolution granting a refund in the amount of P2,158,714.46 representing unutilized input VAT on goods and
services for the period April 1, 1996 to December 31, 1997. aESIHT
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 21 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 22 of Revenue
Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7,
1995 making it exempt from income tax but not from other taxes such as VAT. Hence, according to respondent, its

export sales are not exempt from VAT, contrary to petitioner's claim, but its export sales is subject to 0% VAT.
Moreover, it argues that it was able to establish through a report certified by an independent Certified Public
Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its
export sales. Since it did not have any output tax against which said input taxes may be offset, it had the option to file
a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioner's contention that respondent is not entitled to refund for being exempt from VAT is untenable. This argument
turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916.
Note that under said statute, the respondent had two options with respect to its tax burden. It could avail of an income
tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not
from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including VAT
under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and
the Court of Tax Appeals found that respondent availed of the income tax holiday for four (4) years starting from
August 7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where respondent
specified that it was availing of 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 intaxable rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent
(10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax
paid on purchases and leases of goods, properties or services. 23
An exemption means that the sale of goods, properties 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. 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. Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not
entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt. 24
Now, having determined that respondent is engaged in taxable transactions subject to VAT, let us then proceed to
determine whether it is subject to 10% or zero (0%) rate of VAT. To begin with, it must be recalled that generally, sale
of goods and supply of services performed in the Philippines are taxable at the rate of 10%. However, export sales, or
sales outside the Philippines, shall be subject to value-added tax at 0% if made by a VAT-registered person. 25 Under
the value-added tax system, 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 purchase of goods, properties or services
related to such zero-rated sale shall be available as tax credit or refund. 26
In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction
completely from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free
of VAT. While the zero rating and the exemption are computationally the same, they actually differ in several aspects,
to wit: ASETHC
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted
transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed
as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on
his purchases despite the issuance of a VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to
register while registration is optional for VAT-exempt persons.
In this case, it is undisputed that respondent is engaged in the export business and is registered as a VAT taxpayer per
Certificate of Registration of the BIR. 27 Further, the records show that the respondent is subject to VAT as it availed of
the income tax holiday under E.O. No. 226. Perforce, respondent is subject to VAT at 0% rate and is entitled to a refund
or credit of the unutilized input taxes, which the Court of Tax Appeals computed at P2,158,714.46, but which we find
after recomputation should be P2,158,714.52.
The Supreme Court will not set aside lightly the conclusions reached by the Court of Tax Appeals which, by the very
nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an
expertise on the subject, unless there has been an abuse or improvident exercise of authority. 28 In this case, we find
no cogent reason to deviate from this well-entrenched principle. Thus, we are persuaded that indeed the Court of
Appeals committed no reversible error in affirming the assailed ruling of the Court of Tax Appeals.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated July 6, 2001 of the Court of Appeals,
in CA-G.R. SP No. 60304 is AFFIRMED with very slight modification. Petitioner is hereby ORDERED to REFUND or, in the
alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of respondent in the amount of P2,158,714.52 representing
unutilized input tax payments. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., concur.
||| (Commr. v. Cebu Toyo Corp., G.R. No. 149073, February 16, 2005)

FIRST DIVISION
[G.R. No. 172378. January 17, 2011.]
SILICON
PHILIPPINES,
INC.,
(Formerly
INTEL
PHILIPPINES
MANUFACTURING,
INC.), petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
DEL CASTILLO, J p:
The burden of proving entitlement to a refund lies with the claimant.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the September 30, 2005
Decision 1and the April 20, 2006 Resolution 2 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, is engaged in the business of designing, developing, manufacturing and exporting advance
and large-scale integrated circuit components or "IC's." 3 Petitioner is registered with the Bureau of Internal Revenue
(BIR) as a Value Added Tax (VAT) taxpayer 4 and with the Board of Investments (BOI) as a preferred pioneer
enterprise. 5
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through the One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), an application for
credit/refund of unutilized input VAT for the period October 1, 1998 to December 31, 1998 in the amount of
P31,902,507.50, broken down as follows:

Amount

Tax Paid on Imported/Locally Purchased

Capital Equipment

P15,170,082.00

Total VAT paid on Purchases per Invoices

Received During the Period for which

this Application is Filed

16,732,425.50

Amount of Tax Credit/Refund Applied For

P31,902,507.50

===========

Proceedings before the CTA Division

On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for Review with the CTA
Division, docketed as CTA Case No. 6212. Petitioner alleged that for the 4th quarter of 1998, it generated and recorded
zero-rated export sales in the amount of P3,027,880,818.42, paid to petitioner in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; 7 and that for the said
period, petitioner paid input VAT in the total amount of P31,902,507.50, 8 which have not been applied to any output
VAT. 9 THSaEC
To this, respondent filed an Answer 10 raising the following special and affirmative defenses, to wit:
8.The petition states no cause of action as it does not allege the dates when the taxes sought to be
refunded/credited were actually paid;
9.It is incumbent upon herein petitioner to show that it complied with the provisions of Section 229 of
the Tax Code as amended;
10.Claims for refund are construed strictly against the claimant, the same being in the nature of
exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric
Co. vs. Commissioner of Internal Revenue, 67 SCRA 35);
11.One who claims to be exempt from payment of a particular tax must do so under clear and
unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466;Union Garment
Co. vs. Court of Tax Appeals, 4 SCRA 304);
12.In an action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and
failure to sustain the same is fatal to the action for refund. Furthermore, as pointed out in the case
of William Li Yao vs. Collector (L-11875, December 28, 1963), amounts sought to be recovered or
credited should be shown to be taxes which are erroneously or illegally collected; that is to say, their
payment was an independent single act of voluntary payment of a tax believed to be due and
collectible and accepted by the government, which had therefor become part of the State moneys
subject to expenditure and perhaps already spent or appropriated; and
13.Taxes paid and collected are presumed to have been made in accordance with the law and
regulations, hence not refundable. 11
On November 18, 2003, the CTA Division rendered a Decision 12 partially granting petitioner's claim for refund of
unutilized input VAT on capital goods. Out of the amount of P15,170,082.00, only P9,898,867.00 was allowed to be

refunded because training materials, office supplies, posters, banners, T-shirts, books, and other similar items
purchased by petitioner were not considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR) No.
7-95 (Consolidated Value-Added Tax Regulations). 13 With regard to petitioner's claim for credit/refund of input VAT
attributable to its zero-rated export sales, the CTA Division denied the same because petitioner failed to present an
Authority to Print (ATP) from the BIR; 14 neither did it print on its export sales invoices the ATP and the word "zerorated." 15 Thus, the CTA Division disposed of the case in this wise:
WHEREFORE, in view of the foregoing the instant petition for review is hereby PARTIALLY GRANTED.
Respondent is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced
amount of P9,898,867.00 representing input VAT on importation of capital goods. However, the claim
for refund of input VAT attributable to petitioner's alleged zero-rated sales in the amount of
P16,732,425.50 is hereby DENIED for lack of merit.
SO ORDERED. 16
Not satisfied with the Decision, petitioner moved for reconsideration. 17 It claimed that it is not required to secure an
ATP since it has a "Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipts"
from the BIR.18 Petitioner further argued that because all its finished products are exported to its mother company,
Intel Corporation, a non-resident corporation and a non-VAT registered entity, the printing of the word "zero-rated" on
its export sales invoices is not necessary. 19
On its part, respondent filed a Motion for Partial Reconsideration 20 contending that petitioner is not entitled to a
credit/refund of unutilized input VAT on capital goods because it failed to show that the goods imported/purchased are
indeed capital goods as defined in Section 4.106-1 of RR No. 7-95. 21
The CTA Division denied both motions in a Resolution 22 dated August 10, 2004. It noted that:
[P]etitioner's request for Permit to Adopt Computerized Accounting Documents such as Sales Invoice
and Official Receipt was approved on August 31, 2001 while the period involved in this case was
October 31, 1998 to December 31, 1998 . . . . While it appears that petitioner was previously issued
a permit by the BIR Makati Branch, such permit was only limited to the use of computerized books of
account . . . . It was only on August 31, 2001 that petitioner was permitted to generate computerized
sales invoices and official receipts [provided that the BIR Permit Number is printed] in the header of
the document . . . .
xxx xxx xxx
Thus, petitioner's contention that it is not required to show its BIR permit number on the sales
invoices runs counter to the requirements under the said "Permit." This court also wonders why
petitioner was issuing computer generated sales invoices during the period involved (October 1998
to December 1998) when it did not have an authority or permit. Therefore, we are convinced that
such documents lack probative value and should be treated as inadmissible, incompetent and
immaterial to prove petitioner's export sales transaction. HcaDIA
xxx xxx xxx
ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion for Reconsideration
filed by petitioner as well as the Motion for Partial Reconsideration of respondent are
hereby DENIED for lack of merit. The pronouncement in the assailed decision is REITERATED.
SO ORDERED. 23
Ruling of the CTA En Banc
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review, 24 docketed as EB Case No. 23.
On September 30, 2005, the CTA En Banc issued the assailed Decision 25 denying the petition for lack of merit.
Pertinent portions of the Decision read:
This Court notes that petitioner raised the same issues which have already been thoroughly
discussed in the assailed Decision, as well as, in the Resolution denying petitioner's Motion for Partial
Reconsideration.

With regard to the first assigned error, this Court reiterates that, the requirement of [printing] the BIR
permit to print on the face of the sales invoices and official receipts is a control mechanism adopted
by the Bureau of Internal Revenue to safeguard the interest of the government.
This requirement is clearly mandated under Section 238 of the 1997 National Internal Revenue Code,
which provides that:
SEC. 238.Printing of Receipts or Sales or Commercial Invoice. All persons who are engaged
in business shall secure from the Bureau of Internal Revenue an authority to print receipts or
sales or commercial invoices before a printer can print the same.
The above mentioned provision seeks to eliminate the use of unregistered and double or multiple
sets of receipts by striking at the very root of the problem the printer (H. S. de Leon, The National
Internal Revenue Code Annotated, 7th Ed., p. 901). And what better way to prove that the required
permit to print was secured from the Bureau of Internal Revenue than to show or print the same on
the face of the invoices. There can be no other valid proof of compliance with the above provision
than to show the Authority to Print Permit number [printed] on the sales invoices and official
receipts.
With regard to petitioner's failure to print the word "zero-rated" on the face of its export sales
invoices, it must be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically
requires that all value-added tax registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered invoices which must show the word "zero-rated"
[printed] on the invoices covering zero-rated sales.
It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial
evidence. Well settled in our jurisprudence [is] that tax refunds are in the nature of tax exemptions
and as such, they are regarded as in derogation of sovereign authority (Commissioner of Internal
Revenue vs. Ledesma, 31 SCRA 95). Thus, tax refunds are construed in strictissimi juris against the
person or entity claiming the same (Commissioner of Internal Revenue vs. Procter & Gamble
Philippines Manufacturing Corporation, 204 SCRA 377; Commissioner of Internal Revenue vs. Tokyo
Shipping Co., Ltd., 244 SCRA 332).
In this case, not only should petitioner establish that it is entitled to the claim but it must most
importantly show proof of compliance with the substantiation requirements as mandated by law or
regulations. DHcESI
The rest of the assigned errors pertain to the alleged errors of the First Division: in finding that the
petitioner failed to comply with the substantiation requirements provided by law in proving its claim
for refund; in reducing the amount of petitioner's tax credit for input vat on importation of capital
goods; and in denying petitioner's claim for refund of input vat attributable to petitioner's zero-rated
sales.
It is petitioner's contention that it has clearly established its right to the tax credit or refund by way
of substantial evidence in the form of material and documentary evidence and it would be improper
to set aside with haste the claimed input VAT on capital goods expended for training materials, office
supplies, posters, banners, t-shirts, books and the like because Revenue Regulations No. 7-95 defines
capital goods as to include even those goods which are indirectly used in the production or sale of
taxable goods or services.
Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95,
refer "to goods or properties with estimated useful life greater than one year and which are treated
as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of
taxable goods or services."
Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and
the like) purchased by petitioner as reflected in the summary were not duly proven to have been
used, directly or indirectly[,] in the production or sale of taxable goods or services, the same cannot
be considered as capital goods as defined above[. Consequently,] the same may not . . . then [be]
claimed as such.
WHEREFORE, in view of the foregoing, this instant Petition for Review is hereby DENIED DUE
COURSE and herebyDISMISSED for lack of merit. This Court's Decision of November 18, 2003 and
Resolution of August 10, 2004 are herebyAFFIRMED in all respects.

SO ORDERED. 26
Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the Motion 27 in a
Resolution 28 dated April 20, 2006.
Issues
Hence, the instant Petition raising the following issues for resolution:
(1)whether the CTA En Banc erred in denying petitioner's claim for credit/ refund of input VAT
attributable to its zero-rated sales in the amount of P16,732,425.00 due to its failure:
(a)to show that it secured an ATP from the BIR and to indicate the same in its export sales
invoices; and
(b)to print the word "zero-rated" in its export sales invoices. 29
(2)whether the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can be classified
as input VAT paid on capital goods. 30
Petitioner's Arguments
Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable to its zero-rated
sales has no legal basis because the printing of the ATP and the word "zero-rated" on the export sales invoices are not
required under Sections 113 and 237 of the National Internal Revenue Code (NIRC). 31 And since there is no law
requiring the ATP and the word "zero-rated" to be indicated on the sales invoices, 32 the absence of such information
in the sales invoices should not invalidate the petition 33 nor result in the outright denial of a claim for tax
credit/refund. 34 To support its position, petitioner cites Intel Technology Philippines, Inc. v. Commissioner of Internal
Revenue, 35 where Intel's failure to print the ATP on the sales invoices or receipts did not result in the outright denial
of its claim for tax credit/refund. 36 Although the cited case only dealt with the printing of the ATP, petitioner submits
that the reasoning in that case should also apply to the printing of the word "zero-rated." 37 Hence, failure to print of
the word "zero-rated" on the sales invoices should not result in the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently proven through
testimonial and documentary evidence that all the goods purchased were used in the production and manufacture of
its finished products which were sold and exported. 38 aHDTAI
Respondent's Arguments
To refute petitioner's arguments, respondent asserts that the printing of the ATP on the export sales invoices, which
serves as a control mechanism for the BIR, is mandated by Section 238 of the NIRC; 39 while the printing of the word
"zero-rated" on the export sales invoices, which seeks to prevent purchasers of zero-rated sales or services from
claiming non-existent input VAT credit/refund, 40 is required under RR No. 7-95, promulgated pursuant to Section 244
of the NIRC. 41 With regard to the unutilized input VAT on capital goods, respondent counters that petitioner failed to
show that the goods it purchased/imported are capital goods as defined in Section 4.106-1 of RR No. 7-95. 42
Our Ruling
The petition is bereft of merit.
Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zero-rated sales under
Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on capital goods pursuant to Section 112 (B)
of the same Code.
Credit/refund of input VAT on zero-rated sales
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A) 43 of the NIRC lays down four
requisites, to wit:
1)the taxpayer must be VAT-registered;
2)the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;

3)the claim must be filed within two years after the close of the taxable quarter when such sales
were made; and
4)the creditable input tax due or paid must be attributable to such sales, except the transitional
input tax, to the extent that such input tax has not been applied against the output tax.
To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices, certifications of inward
remittance, export declarations, and airway bills of lading for the fourth quarter of 1998. The CTA Division, however,
found the export sales invoices of no probative value in establishing petitioner's zero-rated sales for the purpose of
claiming credit/refund of input VAT because petitioner failed to show that it has an ATP from the BIR and to indicate the
ATP and the word "zero-rated" in its export sales invoices. 44 The CTA Division cited as basis Sections
113, 45 237 46 and 238 47 of the NIRC, in relation to Section 4.108-1 of RR No. 7-95. 48
We partly agree with the CTA.
Printing the ATP on the invoices or receipts is not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue 49 that the ATP need not
be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. 50 Thus, in the
absence of such law or regulation, failure to print the ATP on the invoices or receipts should not result in the outright
denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. 51
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of the NIRC expressly
requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. Failure to do
so makes the person liable under Section 264 52 of the NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is required to present
proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts. TAECaD
We rule in the affirmative.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated.
To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the
ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly
registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts
would have no probative value for the purpose of refund. In the case of Intel, we emphasized that:
It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations
implementing them require entities engaged in business to secure a BIR authority to print invoices or
receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR
authority to print be reflected or indicated therein. Indeed, what is important with respect to
the BIR authority to print is that it has been secured or obtained by the taxpayer, and
that invoices or receipts are duly registered. 53 (Emphasis supplied)
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT
Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for credit/refund of
input VAT on zero-rated sales.
In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of Internal Revenue, 54 we upheld the denial of Panasonic's claim for
tax credit/refund due to the absence of the word "zero-rated" in its invoices. We explained that compliance with
Section 4.108-1 of RR 7-95, requiring the printing of the word "zero rated" on the invoice covering zero-rated sales, is
essential as this regulation proceeds from the rule-making authority of the Secretary of Finance under Section
244 55 of the NIRC.
All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or receipts are
fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in the sales invoices or
receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to print the word "zero-rated" on
its export sales invoices. Thus, we find no error on the part of the CTA in denying outright petitioner's claim for
credit/refund of input VAT attributable to its zero-rated sales.

Credit/refund of input VAT on capital goods

Capital goods are defined under Section 4.106-1 (b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B) 56 of the NIRC requires that:
1.the claimant must be a VAT registered person;
2.the input taxes claimed must have been paid on capital goods;
3.the input taxes must not have been applied against any output tax liability; and
4.the administrative claim for refund must have been filed within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
"Capital goods or properties" refer to goods or properties with estimated useful life greater that one
year and which are treated as depreciable assets under Section 29 (f), 57 used directly or indirectly
in the production or sale of taxable goods or services.
Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training materials,
office supplies, posters, banners, T-shirts, books, and the other similar items reflected in petitioner's Summary of
Importation of Goods are not capital goods. A reduction in the refundable input VAT on capital goods from
P15,170,082.00 to P9,898,867.00 is therefore in order.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30, 2005 and the Resolution
dated April 20, 2006 of the Court of Tax Appeals En Banc are hereby AFFIRMED. acAESC
SO ORDERED.
Corona, C.J., Velasco, Jr., Leonardo-de Castro and Perez, JJ., concur.
||| (Silicon Phil., Inc. v. Commr., G.R. No. 172378, January 17, 2011)

SECOND DIVISION
[G.R. No. 181136. June 13, 2012.]

WESTERN MINDANAO POWER CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL

REVENUE,respondent.
DECISION
SERENO, J p:
This is a Petition for Review under Rule 45 seeking the reversal of the 15 November 2007 Decision and 9 January 2008
Resolution of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 272, 1 which upheld the Court of Tax Appeals
Second Division's denial of the Petition for refund of unutilized input Value Added Tax (VAT) on the ground that the
Official Receipts of petitioner Western Mindanao Power Corporation (WMPC) did not contain the phrase "zero-rated," as
required under Revenue Regulations No. 7-95 (RR 7-95).
Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. It is registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer. Petitioner alleges that it sells electricity solely to the National
Power Corporation (NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees and imposts,
pursuant to Section 13 2 of Republic Act (R.A.) No. 6395 (An Act Revising the Charter of the National Power
Corporation). In view thereof and pursuant to Section 108 (B) (3) of the National Internal Revenue Code
(NIRC), 3 petitioner's power generation services to NPC is zero-rated.
Under Section 112 (A) of the NIRC, 4 a VAT-registered taxpayer may, within two years after the close of the taxable
quarter, apply for the issuance of a tax credit or refund of creditable input tax due or paid and attributable to zerorated or effectively zero-rated sales. Hence, on 20 June 2000 and 13 June 2001, WMPC filed with the Commissioner of
Internal Revenue (CIR) applications for a tax credit certificate of its input VAT covering the taxable 3rd and 4th quarters
of 1999 (amounting to P3,675,026.67) 5 and all the taxable quarters of 2000 (amounting to P5,649,256.81). 6 EacHSA
Noting that the CIR was not acting on its application, and fearing that its claim would soon be barred by prescription,
WMPC on 28 September 2001 filed with the Court of Tax Appeals (CTA) in Division a Petition for Review docketed as
C.T.A. Case No. 6335, seeking refund/tax credit certificates for the total amount of P9,324,283.30.
The CIR filed its Comment on the CTA Petition, arguing that WMPC was not entitled to the latter's claim for a tax refund
in view of its failure to comply with the invoicing requirements under Section 113 of the NIRC in relation to Section
4.108-1 of RR 7-95, which provides:
SECTION 4.108-1.Invoicing Requirements. All VAT-registered persons shall, for every sale or lease
of goods or properties or services, issue duly registered receipts or sales or commercial invoices
which must show:
1.the name, TIN and address of seller;
2.date of transaction;
3.quantity, unit cost and description of merchandise or nature of service;
4.the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5.the word "zero rated" imprinted on the invoice covering zero-rated sales; and
6.the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market value is higher than
the actual consideration, the VAT shall be separately indicated in the invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice
or receipts and this shall be considered as a "VAT Invoice." All purchases covered by invoices other
than "VAT" Invoice" shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue separate invoices or
receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of
goods, properties or services subject to VAT imposed in Sections 100 and 102 of the Code. DcTAIH
The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer
and the duplicate to be retained by the seller as part of his accounting records. (Underscoring
supplied.)
WMPC countered that the invoicing and accounting requirements laid down in RR 7-95 were merely "compliance
requirements," which were not indispensable to establish the claim for refund of excess and unutilized input VAT. Also,
Section 113 of the NIRC prevailing at the time the sales transactions were made did not expressly state that failure to

comply with all the invoicing requirements would result in the disallowance of a tax credit refund. 7 The express
requirement that "the term 'zero-rated sale' shall be written or printed prominently" on the VAT invoice or official
receipt for sales subject to zero percent (0%) VAT appeared in Section 113 of the NIRC only after it was amended by
Section 11 of R.A. 9337. 8 This amendment cannot be applied retroactively, considering that it took effect only on 1
July 2005, or long after petitioner filed its claim for a tax refund, and considering further that the RR 7-95 is punitive in
nature. Further, since there was no statutory requirement for imprinting the phrase "zero-rated" on official receipts
prior to 1 July 2005, the RR 7-95 constituted undue expansion of the scope of the legislation it sought to implement.
CTA Second Division Decision
On 1 September 2006, the CTA Second Division dismissed 9 the Petition. It held that while petitioner submitted in
evidence its Quarterly VAT Returns for the periods applied for, "the same do not reflect any zero-rated or effectively
zero-rated sales allegedly incurred during said periods. The spaces provided for such amounts were left blank, which
only shows that there existed no zero-rated or effectively zero-rated sales for the 3rd and 4th quarters of 1999 and the
four quarters of 2000." 10Moreover, it found that petitioner's VAT Invoices and Official Receipts did not contain on their
face the phrase "zero-rated," contrary to Section 4.108-1 of RR 7-95.
Petitioner moved for reconsideration, but the motion was denied by the CTA in Division in its Resolution dated 30
January 2007. 11 DEIHAa
CTA En Banc Decision
On 13 March 2007, WMPC appealed to the CTA En Banc, which on 15 November 2007 issued a Decision dismissing the
appeal and affirming the CTA ruling. The CTA En Banc held that the receipts and evidence presented by petitioner
failed to fully substantiate the existence of the latter's effectively zero-rated sales to NPC for the 3rd and 4th quarters
of taxable year 1999 and the four quarters of taxable year 2000. The CTA En Banc quoted the CTA Second Division
finding that the Quarterly VAT Returns that petitioner adduced in evidence did not reflect any zero-rated or effectively
zero-rated sales allegedly incurred during the said period, to wit:
Petitioner submitted in evidence its Quarterly Value Added Tax Returns for the 3rd and 4th quarters
of 1999 and the four quarters of 2000 to prove that it had duly reported the input taxes paid on its
domestic purchases of goods and services (Exhibits 'E' to 'J'). However, a closer examination of the
returns clearly shows that the same do not reflect any zero-rated or effectively zero-rated sales
allegedly incurred during the said periods. The spaces provided for such amounts were left blank,
which only shows that there existed no zero-rated or effectively zero-rated sales for the 3rd and 4th
quarters of 1999 and the four quarters of 2000.
In addition, the CTA En Banc noted that petitioner's Official Receipts and VAT Invoices did not have the word "zerorated" imprinted/stamped thereon, contrary to the clear mandate of Section 4.108-1 of RR 7-95.
CTA Presiding Justice Ernesto Acosta filed a Concurring and Dissenting Opinion. Justice Acosta disagreed with the
majority's view regarding the supposed mandatory requirement of imprinting the term "zero-rated" on official receipts
or invoices. He opined that Section 113 in relation to Section 237 12 of the NIRC does not require the imprinting of the
phrase "zero-rated" on an invoice or official receipt for the document to be considered valid for the purpose of claiming
a refund or an issuance of a tax credit certificate. Hence, the absence of the term "zero-rated" in an invoice or official
receipt does not affect its admissibility or competency as evidence in support of a refund claim. Also, assuming that
stamping the term "zero-rated" on an invoice or official receipt is a requirement of the current NIRC, the denial of a
refund claim is not the imposable penalty for failure to comply with that requirement.
Nevertheless, Justice Acosta agreed with the "decision to deny the claim due to petitioner's failure to prove the input
taxes it paid on its domestic purchases of goods and services during the period involved." EcDSHT
WMPC filed a Motion for Reconsideration, which was denied by the CTA En Banc in a Resolution dated 9 January
2008. 13
Hence, the present Petition.
Issue
Whether the CTA En Banc seriously erred in dismissing the claim of petitioner for a refund or tax credit on input tax on
the ground that the latter's Official Receipts do not contain the phrase "zero-rated".
Our Ruling
We deny the Petition.

Being a derogation of the sovereign authority, a statute granting tax exemption is strictly construed against the person
or entity claiming the exemption. When based on such statute, a claim for tax refund partakes of the nature of an
exemption. Hence, the same rule of strict interpretation against the taxpayer-claimant applies to the claim. 14
In the present case, petitioner's claim for a refund or tax credit of input VAT is anchored on Section 112 (A) of the
NIRC, viz.:
Section 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 zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales.
Thus, a taxpayer engaged in zero-rated or effectively zero-rated sale may apply for the issuance of a tax credit
certificate, or refund of creditable input tax due or paid, attributable to the sale. ACTIHa
In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under
substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit. 15 Hence, the mere fact that petitioner's application for zero-rating has
been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming the
refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well as by
revenue regulations implementing them. 16
Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt, 17 which may only be
considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This section
requires, among others, that "(i)f the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale'
shall be written or printed prominently on the invoice or receipt."
We are not persuaded by petitioner's argument that RR 7-95 constitutes undue expansion of the scope of the
legislation it seeks to implement on the ground that the statutory requirement for imprinting the phrase "zero-rated"
on VAT official receipts appears only in Republic Act No. 9337. This law took effect on 1 July 2005, or long after
petitioner had filed its claim for a refund.
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary of
Finance by the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic
Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, 18 we ruled that this
provision is "reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and
services." Moreover, we have held in Kepco Philippines Corporation v. Commissioner of Internal Revenue 19 that the
subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed the
validity of the imprinting requirement on VAT invoices or official receipts a case falling under the principle of
legislative approval of administrative interpretation by reenactment.
In fact, this Court has consistently held as fatal the failure to print the word "zero-rated" on the VAT invoices or official
receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior to the
effectivity of R.A. 9337. 20 Clearly then, the present Petition must be denied. cDCSTA
In addition, it is notable that the CTA Second Division and the CTA En Banc, including Presiding Justice Acosta in his
Concurring and Dissenting Opinion, both found that petitioner failed to sufficiently substantiate the existence of its
effectively zero-rated sales to NPC for the 3rd and 4th quarters of taxable year 1999, as well as all four quarters of
taxable year 2000. It must also be noted that the CTA is a highly specialized court dedicated exclusively to the study
and consideration of revenue-related problems, in which it has necessarily developed an expertise. 21 Hence, its
factual findings, when supported by substantial evidence, will not be disturbed on appeal. 22 We find no sufficient
reason to exempt the present case from this general rule.

WHEREFORE, premises considered, we DENY the Petition and AFFIRM the Decision dated 15 November 2007 and
Resolution dated 9 January 2008 of the Court of Tax Appeals En Banc in CTA EB No. 272.
SO ORDERED.
Carpio, Brion, Perez and Reyes, JJ., concur.

||| (Western Mindanao Power Corp. v. Commr., G.R. No. 181136, June 13, 2012)

SECOND DIVISION
[G.R. No. 178090. February 8, 2010.]
PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILIPPINES (formerly
MATSUSHITA BUSINESS MACHINE CORPORATION OF THE PHILIPPINES), petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
ABAD, J p:
This petition for review puts in issue the May 23, 2007 Decision 1 of the Court of Tax Appeals (CTA) en banc in CTA
EB 239, entitled "Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal
Revenue," which affirmed the denial of petitioner's claim for refund. HIAcCD
The Facts and the Case
Petitioner Panasonic Communications Imaging Corporation of the Philippines (Panasonic) produces and exports plain
paper copiers and their sub-assemblies, parts, and components. It is registered with the Board of Investments as a
preferred pioneer enterprise under the Omnibus Investments Code of 1987. It is also a registered value-added tax
(VAT) enterprise.
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic generated
export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of US$24,678,964.93.
Believing that these export sales were zero-rated for VAT under Section 106 (A) (2) (a) (1) of the 1997 National Internal
Revenue Code as amended by Republic Act (R.A.) 8424 (1997 NIRC), 2 Panasonic paid input VAT of P4,980,254.26 and
P4,388,228.14 for the two periods or a total of P9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999 petitioner
Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it
paid. When the BIR did not act on the same, Panasonic filed on December 16, 1999 a petition for review with the CTA,
averring the inaction of the respondent Commissioner of Internal Revenue (CIR) on its applications.
After trial or on August 22, 2006 the CTA's First Division rendered judgment, 3 denying the petition for lack of merit.
The First Division said that, while petitioner Panasonic's export sales were subject to 0% VAT under Section 106 (A) (2)
(a) (1) of the 1997 NIRC, the same did not qualify for zero-rating because the word "zero-rated" was not printed on
Panasonic's export invoices. This omission, said the First Division, violates the invoicing requirements of Section 4.1081 of Revenue Regulations (RR) 7-95.4
Its motion for reconsideration having been denied, on January 5, 2007 petitioner Panasonic appealed the First
Division's decision to the CTA en banc. On May 23, 2007 the CTA en banc upheld the First Division's decision and
resolution and dismissed the petition. Panasonic filed a motion for reconsideration of the en banc decision but this was
denied. Thus, petitioner filed the present petition in accordance with R.A. 9282. 5
The Issue Presented

The sole issue presented in this case is whether or not the CTA en banc correctly denied petitioner Panasonic's claim
for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their faces
that its sales were "zero-rated." acHETI
The Court's Ruling
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers.
Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or
outputs the VAT it paid on its purchases, inputs and imports. 6 For example, when a seller charges VAT on its sale, it
issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller
subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of
his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax paid to the
government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes 7 equal to the input
taxes 8 that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input
taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess
payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer. 9
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero.
When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax
chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax,
he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which
allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive. 10
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must comply
with invoicing requirements. 11 Interpreting these requirements, respondent CIR ruled that under Revenue
Memorandum Circular (RMC) 42-2003, the taxpayer's failure to comply with invoicing requirements will result in the
disallowance of his claim for refund. RMC 42-2003 provides:
A-13. Failure by the supplier to comply with the invoicing requirements on the documents
supporting the sale of goods and services will result to the disallowance of the claim for
input tax by the purchaser-claimant. DSEIcT
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer
but it fails to comply with the invoicing requirements in the issuance of sales invoices
(e.g., failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases
shall be denied considering that the invoice it is issuing to its customers does not depict
its being a VAT-registered taxpayer whose sales are classified as zero-rated sales.
Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge
the input taxes to the appropriate expense account or asset account subject to
depreciation, whichever is applicable. Moreover, the case shall be referred by the
processing office to the concerned BIR office for verification of other tax liabilities of the
taxpayer.
Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word "zero-rated,"
the Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.108-1 of RR 7-95)
the letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A. 9337. 12 Panasonic
argues that the 1997 NIRC, which applied to its payments specifically Sections 113 and 237 required the VATregistered taxpayer's receipts or invoices to indicate only the following information:
(1)A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN);
(2)The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax;
(3)The date of transaction, quantity, unit cost and description of the goods or properties
or nature of the service; and
(4)The name, business style, if any, address and taxpayer's identification number (TIN) of
the purchaser, customer or client.

Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word "zero-rated" for
zero-rated sales covered by its receipts or invoices. The BIR incorporated this requirement only after the enactment
of R.A. 9337on November 1, 2005, a law that did not yet exist at the time it issued its invoices.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the rule
that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations, which
the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the
printing of the word "zero-rated" on the invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC
on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from
regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the
enactment of that law. DaTEIc
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under Section
245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of course its
amendments. 13 The requirement is reasonable and is in accord with the efficient collection of VAT from the covered
sales of goods and services. As aptly explained by the CTA's First Division, the appearance of the word "zero-rated" on
the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases
when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would
be refunding money it did not collect. 14
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10% (now 12%)
VAT from those sales that are zero-rated. 15 Unable to submit the proper invoices, petitioner Panasonic has been
unable to substantiate its claim for refund.
Petitioner Panasonic's citation of Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue 16 is
misplaced. Quite the contrary, it strengthens the position taken by respondent CIR. In that case, the CIR denied the
claim for tax refund on the ground of the taxpayer's failure to indicate on its invoices the "BIR authority to print." But
Sec. 4.108-1 required only the following to be reflected on the invoice:
1.The name, taxpayer's identification number (TIN) and address of seller;
2.Date of transaction;
3.Quantity, unit cost and description of merchandise or nature of service;
4.The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or
client;
5.The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6.The invoice value or consideration.
This Court held that, since the "BIR authority to print" is not one of the items required to be indicated on the invoices
or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for denial of petitioner
Panasonic's claim for tax refund the absence of the word "zero-rated" on its invoices is one which is specifically
and precisely included in the above enumeration. Consequently, the BIR correctly denied Panasonic's claim for tax
refund. CDAEHS
This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is
dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject,
unless there has been an abuse or improvident exercise of authority. 17 Besides, statutes that grant tax exemptions
are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation
to the VAT are in the nature of such exemptions. The general rule is that claimants of tax refunds bear the burden of
proving the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the government. 18
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
Carpio, Brion, Del Castillo and Perez, JJ., concur.

||| (Panasonic Communications Imaging Corporation of the Philippines v. Commr., G.R. No. 178090, February 08, 2010)