Cases

Case Number 2
COMMISSIONER OF INTERNAL REVENUE,

Petitioner,
G.R. No. 178697

Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,*
PERALTA,
ABAD, and
MENDOZA, JJ.
- versus -
SONY PHILIPPINES, INC.,

Respondent.
Promulgated:
November 17, 2010
X ---------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:
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 CTAFirst Division[2] which, 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 Sonys 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
7,958,700.00
Interest up to 3-31-2000
Compromise
3,157,314.41
25,000.00
Deficiency VAT Due
3,182,314.41
P
11,141,014.41
1,416,976.90
DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)

(Assessment No. ST-EWT-97-0125-2000)
Basic Tax Due
Add: Penalties
Compromise
550,485.82
25,000.00
Deficiency EWT Due
575,485.82
P
1,992,462.72
DEFICIENCY OF VAT ON ROYALTY PAYMENTS

(Assessment No. ST-LR1-97-0126-2000)
Basic Tax Due
Add: Penalties
Surcharge
359,177.80
87,580.34
Compromise
16,000.00
Penalties Due
462,758.14
P
462,758.14
LATE REMITTANCE OF FINAL WITHHOLDING TAX

Basic Tax Due
Add: Penalties
Surcharge
Compromise
Penalties Due
LATE REMITTANCE OF INCOME PAYMENTS
1,729,690.71
508,783.07
50,000.00
2,288,473.78
P
2,288,473.78

Basic Tax Due
Add: Penalties
25 % Surcharge
Compromise
8,865.34
58.29
2,000.00
10,923.60
Penalties Due
10,923.60
GRAND TOTAL
15,895,632.65[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
CTA-First Division maintained the deficiency EWT assessment on Sonys 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 Sonys branches.[8] In sum, the CTA-First Division
partly granted Sonys petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT
assessment as well as the penalties. Thus, the dispositive portion reads:
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 ofP1,269,593.90:
1.
2.
3.
VAT on Royalty P 429,242.07

Withholding Tax on Royalty 831,428.20
EWT of Petitioners Branches 8,923.63
Total P 1,269,593.90
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;
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 CIRs petition on
May 17, 2007. CIRs 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
CTA-First 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 RESPONDENTS 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.
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 Sonys 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. x x x [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.
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 CIRs
argument, that Sonys 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 Sonys 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, Sonys
deficiency VAT assessment stemmed from the CIRs 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 CIRs 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 Sonys protest filed before it:
The fact that due to adverse economic conditions, Sony-Singapore has granted to our client a
subsidy equivalent to the latters 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]
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 Sonys advertising expense
for it was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was only equivalent to the
latters (Sonys) 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 latters advertising expense but never received any goods, properties or service from Sony.
Regarding the deficiency EWT assessment, more particularly Sonys 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, Sonys 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:
(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:
x x x, 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
ofP10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate LOA specifying the
coverage, the CIRs 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.
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.
WHEREFORE, the petition is DENIED.
SO ORDERED.
Case Number 4
KEPCO PHILIPPINES CORPORATION,
G.R. No. 181858
Petitioner,
Present:
CARPIO, J., Chairperson,

- versus -
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
COMMISSIONER OF INTERNAL
Promulgated:
REVENUE,
Respondent.
November 24, 2010
x --------------------------------------------------------------------------------------------------------x
DECISION
MENDOZA, J.:
This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court seeking reversal of the February
20, 2008 Decision[2] of the Court of Tax Appeals En Banc (CTA) in C.T.A. EB No. 299, which ruled that in order for petitioner
to be entitled to its claim for refund/issuance of tax credit certificate representing unutilized input VAT attributable to its
zero-rated sales for taxable year 2002, it must comply with the substantiation requirements under the appropriate Revenue
Regulations.
Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered independent power producer engaged in
the business of generating electricity. It exclusively sells electricity to National Power Corporation (NPC), an entity exempt
from taxes under Section 13 of Republic Act No. 6395 (RA No. 6395).[3]
Records show that on December 4, 2001, Kepco filed an application for zero-rated sales with the Revenue District
Office (RDO) No. 54 of the Bureau of Internal Revenue (BIR). Kepcos application was approved under VAT Ruling 6401. Accordingly, for taxable year 2002, it filed four Quarterly VAT Returns declaring zero-rated sales in the aggregate
amount of P3,285,308,055.85 itemized as follows:
Exhibit
Quarter Involved
Zero-Rated Sales
1st Quarter
P651,672,672.47
2nd Quarter
725,104,468.99
3rd Quarter
952,053,527.29
4th Quarter
956,477,387.10
________________
Total
P3,285,308,055.85[4]
In the course of doing business with NPC, Kepco claimed expenses reportedly sustained in connection with
the production and sale of electricity with NPC. Based on Kepcos calculation, it paid input VAT amounting
toP11,710,868.86 attributing the same to its zero-rated sales of electricity with NPC. The table shows the purchases
and corresponding input VAT it paid.
Exhibit
Quarter Involved
Purchases
Input VAT
1st Quarter
P6,063,184.90
P606,318.49
2nd Quarter
18,410,193.20
1,841,019.32
3rd Quarter
16,811,819.21
1,681,181.93
4th Quarter
75,823,491.20
7,582,349.12
P117,108,688.51
P11,710,868.86[5]
Thus, on April 20, 2004, Kepco filed before the Commissioner of Internal Revenue (CIR) a claim for tax refund
covering unutilized input VAT payments attributable to its zero-rated sales transactions for taxable year 2002.[6]Two
days later, on April 22, 2004, it filed a petition for review before the CTA. The case was docketed as C.T.A. Case No.
6965.[7]
In its Answer,[8] respondent CIR averred that claims for refund were strictly construed against the taxpayer as it was similar
to a tax exemption. It asserted that the burden to show that the taxes were erroneous or illegal lay upon the taxpayer. Thus,
failure on the part of Kepco to prove the same was fatal to its cause of action because it was its duty to prove the legal basis
of the amount being claimed as a tax refund.
During the hearing, Kepco presented court-commissioned Independent Certified Public Accountant, Victor O.
Machacon, who audited their bulky documentary evidence consisting of official receipts, invoices and vouchers, to
prove its claim for refund of unutilized input VAT.[9]
On February 26, 2007, the CTA Second Division ruled that out of the total declared zero-rated sales
of P3,285,308,055.85, Kepco was only able to properly substantiate P1,451,788,865.52 as its zero-rated sales. After
factoring, only 44.19% of the validly supported input VAT payments being claimed could be considered. [10] The CTA
Division used the following computation in determining Kepcos total allowable input VAT:
Substantiated zero-rated sales to NPC

Divided by the total declared zero-rated sales
P1,451,788,865.52
3,285,308,055.85
Rate of substantiated zero-rated sales
44.19%[11]
Total Input VAT Claimed
P11,710,868.86
Less:Disallowance
(a) Per verification of the independent
P125,556.40
CPA
(b) Per Courts verification
Validly Supported Input VAT
5,045,357.80
5,170,914.20
P6,539,954.66
44.19%
Multiply by Rate of Substantiated ZeroRated Sales

Total Allowed Input VAT
P2,890,005.96[12]
The CTA Second Division likewise disallowed the P5,170,914.20 of Kepcos claimed input VAT due to its
failure to comply with the substantiation requirement. Specifically, the CTA Second Division wrote:
[i]nput VAT on purchases supported by invoices or official receipts stamped with TIN-VAT
shall be disallowed because these purchases are not supported by VAT Invoices under the contemplation
of the aforequoted invoicingrequirement. To be considered a VAT Invoice, the TIN-VAT must be printed,
and not merely stamped. Consequently, purchases supported by invoices or official receipts, wherein the
TIN-VAT are not printed thereon, shall not give rise to any input VAT. Likewise, input VAT on purchases
supported by invoices or official receipts which are not NON-VAT are disallowed because these invoices
or official receipts are not considered as VAT Invoices. Hence, the claims for input VAT on purchases
referred to in item (e) are properly disallowed.[13]
Accordingly, the CTA Second Division partially granted Kepcos claim for refund of unutilized input VAT for taxable
year 2002. The dispositive portion of the decision[14] of the CTA Second Division reads:
WHEREFORE, petitioners claim for refund is hereby PARTIALLY GRANTED. Accordingly, respondent is
ORDERED to REFUND petitioner the reduced amount of TWO MILLION EIGHT HUNDRED NINETY
THOUSAND FIVE PESOS AND 96/100 (P2,890,005.96) representing unutilized input value-added tax for
taxable year 2002.
SO ORDERED.[15]
Kepco moved for partial reconsideration, but the CTA Second Division denied it in its June 28,
2007 Resolution.[16]
On appeal to the CTA En Banc,[17] Kepco argued that the CTA Second Division erred in not considering P8,691,873.81 in
addition to P2,890,005.96 as refundable tax credit for Kepcos zero-rated sales to NPC for taxable year 2002.
On February 20, 2008, the CTA En Banc dismissed the petition[18] and ruled that in order for Kepco to be entitled
to its claim for refund/issuance of tax credit certificate representing unutilized input VAT attributable to its zero-rated sales
for taxable year 2002, it must comply with the substantiation requirements under the appropriate Revenue Regulations,
i.e. Revenue Regulations 7-95.[19] Thus, it concluded that the Court in Division was correct in disallowing a portion of Kepcos
claim for refund on the ground that input taxes on Kepcos purchase of goods and services were not supported by invoices
and receipts printed with TIN-VAT.[20]
CTA Presiding Justice Ernesto Acosta concurred with the majority in finding that Kepcos claim could not be allowed for lack
of proper substantiation but expressed his dissent on the denial of certain claims,[21] to wit:
[I] dissent with regard to the denial of the amount P4,720,725.63 for nothing in the law allows
the automatic invalidation of official receipts/invoices which were not imprinted with TIN-VAT; and
further reduction of petitioners claim representing input VAT on purchase of goods not supported by
invoices in the amount of P64,509.50 and input VAT on purchase of services not supported by official
receipts in the amount of P256,689.98, because the law makes use of invoices and official receipts
interchangeably. Both can validly substantiate petitioners claim.[22]
Hence, this petition alleging the following errors:
ASSIGNMENT OF ERRORS
I.
THE COURT OF TAX APPEALS EN BANC GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION WHEN IT HELD THAT NON-COMPLIANCE WITH THE INVOICING
REQUIREMENT SHALL RESULT IN THE AUTOMATIC DENIAL OF THE CLAIM.
II.
THE COURT OF TAX APPEALS EN BANC GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK
OF EXCESS OF JURISDICTION WHEN IT DISALLOWED PETITIONERS CLAIM ON THE GROUND
THAT TIN-VAT IS NOT IMPRINTED ON THE INVOICES AND OFFICIAL RECEIPTS.
III.
THE COURT OF TAX APPEALS EN BANC GRAVELY ABUSED ITS DISCRETION WHEN IT MADE A
DISTINCTION BETWEEN INVOICES AND OFFICIAL RECEIPTS AS SUPPORTING DOCUMENTS TO
CLAIM FOR AN INPUT VAT REFUND.[23]
At the outset, the Court has noticed that although this petition is denominated as Petition for Review
on Certiorari under Rule 45 of the Rules of Court, Kepco, in its assignment of errors, impugns against the CTA En Banc grave
abuse of discretion amounting to lack or excess of jurisdiction, which are grounds in a petition for certiorari under Rule 65
of the Rules of Court. Time and again, the Court has emphasized that there is a whale of difference between a Rule 45
petition (Petition for Review on Certiorari) and a Rule 65 petition (Petition for Certiorari.) A Rule 65 petition is an original
action that dwells on jurisdictional errors of whether a lower court acted without or in excess of its jurisdiction or with
grave abuse of discretion.[24] A Rule 45 petition, on the other hand, is a mode of appeal which centers on the review on the
merits of a judgment, final order or award rendered by a lower court involving purely questions of law.[25] Thus, imputing
jurisdictional errors against the CTA is not proper in this Rule 45 petition. Kepco failed to follow the correct procedure. On
this point alone, the Court can deny the subject petition outright.
At any rate, even if the Court would disregard this procedural flaw, the petition would still fail.
Kepco argues that the 1997 National Internal Revenue Code (NIRC) does not require the imprinting of the word zero-rated
on invoices and/or official receipts covering zero-rated sales.[26] It claims that Section 113 in relation to Section 237 of the
1997 NIRC does not mention the requirement of imprinting the words zero-rated to purchases covering zero-rated
transactions.[27] Only Section 4.108-1 of Revenue Regulation No. 7-95 (RR No. 7-95) required the imprinting of the word
zero-rated on the VAT invoice or receipt.[28] Thus, Section 4.108-1 of RR No. 7-95 cannot be considered as a valid legislation
considering the long settled rule that administrative rules and regulations cannot expand the letter and spirit of the law
they seek to enforce.[29]
The Court does not agree.
The issue of whether the word zero-rated should be imprinted on invoices and/or official receipts as part of the invoicing
requirement has been settled in the case of Panasonic Communications Imaging Corporation of the Philippines vs.
Commissioner of Internal Revenue[30] and restated in the later case of J.R.A. Philippines, Inc. v. Commissioner.[31] In the first
case, Panasonic Communications Imaging Corporation (Panasonic), a VAT-registered entity, was engaged in the production
and exportation of plain paper copiers and their parts and accessories. From April 1998 to March 31, 1999,
Panasonic generated export sales amounting to US$12,819,475.15 and US$11,859,489.78 totaling US$24,678,964.93. Thus,
it paid input VAT of P9,368,482.40 that it attributed to its zero-rated sales. It filed applications for refund or tax credit on
what it had paid. The CTA denied its application. Panasonics export sales were subject to 0% VAT under Section
106(A)(2)(a)(1) of the 1997 NIRC but it did not qualify for zero-rating because the word zero-rated was not printed on
Panasonics export
invoices. This omission, according to the CTA, violated the invoicing requirements of Section 4.108-1 of RR No. 795. Panasonic argued, 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 No. 7-95) the letter and
spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A. 9337.[32]Panasonic stressed that Sections
113 and 237 did not necessitate the imprinting of the word zero-rated for its zero-rated sales receipts or invoices. The BIR
integrated this requirement only after the enactment of R.A. No. 9337 onNovember 1, 2005, a law that was still inexistent
at the time of the transactions. Denying Panasonics claim for refund, the Court stated:
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 CTAs
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.[33]
Following said ruling, Section 4.108-1 of RR 7-95[34] neither expanded nor supplanted the tax code but merely
supplemented what the tax code already defined and discussed. In fact, the necessity of indicating zero-rated into VAT
invoices/receipts became more apparent when the provisions of this revenue regulation was later integrated into RA No.
9337,[35] the amendatory law of the 1997 NIRC. Section 113, in relation to Section 237 of the 1997 NIRC, as amended by RA
No. 9337, now reads:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. - A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services.
(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information
shall be indicated in the VAT invoice or VAT official receipt:
(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: Provided, That:
(a) The amount of the tax shall be shown as a separate item in the invoice or receipt;
(b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall
be written or printed prominently on the invoice or receipt;
(c) 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;
(d) If the sale involves goods, properties or services some of which are subject to
and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price between its taxable, exempt and zero-rated
components, and the calculation of the value-added tax on each portion of the sale shall be
shown on the invoice or receipt: Provided, That the seller may issue separate invoices or
receipts for the taxable, exempt, and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or properties or
nature of the service; and
(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale
or transfer is made to a VAT-registered person, the name, business style, if any, address and taxpayer
identification number (TIN) of the purchaser, customer or client.
(C) 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.
xxxx
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an
internal revenue tax shall, for each sale and transfer of merchandise or for services rendered valued at
Twenty-five pesos (P25.00) or more, issue duly registered receipts or sale 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 where the receipt is issued to cover payment
made as rentals, commissions, compensation 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.
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. [Emphases supplied]
Evidently, as it failed to indicate in its VAT invoices and receipts that the transactions were zero-rated, Kepco
failed to comply with the correct substantiation requirement for zero-rated transactions.
Kepco then argues that non-compliance of invoicing requirements should not result in the denial of the taxpayers
refund claim. Citing Atlas Consolidated Mining & Development Corporation vs. Commissioner of Internal Revenue,[36] it claims
that a party who fails to issue VAT official receipts/invoices for its sales should only be imposed penalties as provided under
Section 264 of the 1997 NIRC.[37]
The Court has read the Atlas decision, and has not come across any categorical ruling that refund should be
allowed for those who had not complied with the substantiation requirements. It merely recited Section 263 which
provided 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. It does not categorically say that the claimant should be
refunded. At any rate, Section 264 (formerly Section 263)[38] 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.
Furthermore, Kepco insists that Section 4.108.1 of Revenue Regulation 07-95 does not require the word TIN-VAT
to be imprinted on a VAT-registered persons supporting invoices and official receipts[39] and so there is no reason for the
denial of its P4,720,725.63 claim of input tax.[40]
In this regard, Internal Revenue Regulation 7-95 (Consolidated Value-Added Tax Regulations) is clear. Section
4.108-1 thereof reads:
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.
Contrary to Kepcos allegation, the regulation specifically requires the VAT registered person to imprint TIN-VAT
on its invoices or receipts. Thus, the Court agrees with the CTA when it wrote: [T]o be considered a VAT invoice, the TINVAT must be printed, and not merely stamped. Consequently, purchases supported by invoices or official receipts, wherein
the TIN-VAT is not printed thereon, shall not give rise to any input VAT. Likewise, input VAT on purchases supported by
invoices or official receipts which are NON-VAT are disallowed because these invoices or official receipts are not considered
as VAT Invoices.[41]
Kepco further argues that under Section 113(A) of the 1997 NIRC, invoices and official receipts are used
interchangeably for purposes of substantiating input VAT.[42] Hence, it claims that the CTA should have accepted its
substantiation of input VAT on (1) P64,509.50 on purchases of goods with official receipts and (2) P256,689.98 on
purchases of services with invoices.[43]
The Court is not persuaded.
Under the law, a VAT invoice is necessary for every sale, barter or exchange of goods or properties while a VAT
official receipt properly pertains to every lease of goods or properties, and for every sale, barter or exchange of
services.[44] In Commissioner of Internal Revenue v. Manila Mining Corporation,[45] the Court distinguished an invoice from a
receipt, thus:
A sales or commercial invoice is a written account of goods sold or services rendered indicating
the prices charged therefor or a list by whatever name it is known which is used in the ordinary course
of business evidencing sale and transfer or agreement to sell or transfer goods and services.
A receipt on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering services
and client or customer.
In other words, the VAT invoice is the sellers best proof of the sale of the goods or services to the buyer while the
VAT receipt is the buyers best evidence of the payment of goods or services received from the seller. Even though VAT
invoices and receipts are normally issued by the supplier/seller alone, the said invoices and receipts, taken collectively, are
necessary to substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction), and the
best means to prove the input VAT payments (proof of payment).[46] Hence, VAT invoice and VAT receipt should not be
confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used alternatively.
Although it is true that the CTA is not strictly governed by technical rules of evidence, [47] the invoicing and
substantiation requirements must, nevertheless, be followed because it is the only way to determine the veracity of Kepcos
claims. Verily, the CTA En Banc correctly disallowed the input VAT that did not meet the required standard of
substantiation.
The CTA is devoted exclusively to the resolution of tax-related issues and has unmistakably acquired an expertise
on the subject matter. In the absence of abuse or reckless exercise of authority,[48] the CTA En Bancs decision should be
upheld.
The Court has always decreed that tax refunds are in the nature of tax exemptions which represent a loss of
revenue to the government. These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but
should be granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken. Such
exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the government. [49]
WHEREFORE, the petition is DENIED.
SO ORDERED.
Case Number 7
G.R. No. 188260
November 13, 2013
LUZON HYDRO CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
BERSAMIN, J.:
This case involves a claim for refund or tax credit to cover petitioner Luzon Hydro Corporation's unutilized Input ValueAdded Tax (VAT) worth 1 2,920,665 .16 corresponding to the four quarters of taxable year 2001.
The Case
The petitioner brought this action in the Court of Tax Appeals (CTA) after the Commissioner of Internal Revenue
(respondent) did not act on the claim (CTA Case No. 6669). The CTA 2nd Division denied the claim on May 2, 2008 on the
ground that the petitioner did not prove that it had zero-rated sales for the four quarters of 2001.1 The CT A En Banc
denied the petitioner's motion for reconsideration, and affirmed the decision of the CTA 2nd Division through its decision
dated May 5, 2009.2 Hence, the petitioner appeals the decision of the CTA En Banc.
Antecedents
The petitioner, a corporation duly organized under the laws of the Philippines, has been registered with the Bureau of
Internal Revenue (BIR) as a VAT taxpayer under Taxpayer Identification No. 004-266-526. It was formed as a consortium
of several corporations, namely: Northern Mini Hydro Corporation, Aboitiz Equity Ventures, Inc., Ever Electrical
Manufacturing, Inc. and Pacific Hydro Limited.
Pursuant to the Power Purchase Agreement entered into with the National Power Corporation (NPC), the electricity
produced by the petitioner from its operation of the Bakun Hydroelectric Power Plant was to be sold exclusively to
NPC.3 Relative to its sale to NPC, the petitioner was granted by the BIR a certificate for Zero Rate for VAT purposes in the
periods from January 1, 2000 to December 31, 2000; February 1, 2000 to December 31, 2000 (Certificate No. Z-1622000); and from January 2, 2001 to December 31, 2001 (Certificate No. 2001-269).4
The petitioner alleged herein that it had incurred input VAT in the amount of P9,795,427.89 on its domestic purchases of
goods and services used in its generation and sales of electricity to NPC in the four quarters of 2001; 5 and that it had
declared the input VAT of P9,795,427.89 in its amended VAT returns for the four quarters on 2001, as follows: 6
Exhibit
Date Filed
Period Covered
Input VAT (P)
May 25, 2001
1st quarter 2001
1,903,443.96
July 23, 2001
2nd quarter 2001
2,166,051.96
July 23, 2002
3rd quarter 2001
1,598,482.39
July 24, 2002
4th quarter 2001
4,127,449.58
Total 9,795,427.89
On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to its unutilized input VAT for
the period from October 1999 to October 2001 aggregating P14,557,004.38.7 Subsequently, on July 24, 2002, it amended
the claim for refund or tax credit to cover the period from October 1999 to May 2002 forP20,609,047.56.8
The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District Office No. 2 in Vigan City, concluded an
investigation, and made a recommendation in its report dated August 19, 2002 favorable to the petitioners claim for the
period from January 1, 2001 to December 31, 2001.9
Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on the petitioners claim despite
the favorable recommendation. Hence, on April 14, 2003, the petitioner filed its petition for review in the CTA, praying for
the refund or tax credit certificate (TCC) corresponding to the unutilized input VAT paid for the four quarters of 2001
totalling P9,795,427.88.10
Answering on May 29, 2003,11 the Commissioner denied the claim, and raised the following special and affirmative
defenses, to wit:
xxxx
7. The petitioner has failed to demonstrate that the taxes sought to be refunded were erroneously or illegally
collected;
8. In an action for tax refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to
sustain the same is fatal to the action for tax refund;
9. It is incumbent upon petitioner to show compliance with the provisions of Section 112 and Section 229, both
of the National Internal Revenue Code, as amended;
10. Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption
from taxation (Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, January 30, 1970, 31 SCRA 95)
and as such they are looked upon [with] disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue,
124 SCRA 121);
11. Taxes paid and collected are presumed to have been made in accordance with the law and regulations,
hence, not refundable.12
xxxx
On October 30, 2003, the parties submitted a Joint Stipulation of Facts and Issues,13 which the CTA in Division approved
on November 10, 2003. The issues to be resolved were consequently the following:
1. Whether or not the input value added tax being claimed by petitioner is supported by sufficient documentary
evidence;
2. Whether petitioner has excess and unutilized input VAT from its purchases of domestic goods and services,
including capital goods in the amount of P9,795,427.88;
3. Whether or not the input VAT being claimed by petitioner is attributable to its zero-rated sale of electricity to
the NPC;
4.Whether or not the operation of the Bakun Hydroelectric Power Plant is directly connected and attributable to
the generation and sale of electricity to NPC, the sole business of petitioner; and 5. Whether or not the claim filed
by the petitioner was filed within the reglementary period provided by law.14
While the case was pending hearing, the Commissioner, through the Assistant Commissioner for Assessment Services,
informed the petitioner by the letter dated March 3, 2005 that its claim had been granted in the amount ofP6,874,762.72,
net of disallowances of P2,920,665.16. Accompanying the letter was the TCC for P6,874,762.72 (TCC No. 00002618).15
On May 3, 2005, the petitioner filed a Motion for Leave of Court to Amend Petition for Review in consideration of the
partial grant of the claim through TCC No. 00002618. The CTA in Division granted the motion on May 11, 2005, and
admitted the Amended Petition for Review, whereby the petitioner sought the refund or tax credit in the reduced amount
of P2,920,665.16. The CTA in Division also directed the respondent to file a supplemental answer within ten days from
notice.16
When no supplemental answer was filed within the period thus allowed, the CTA in Division treated the answer filed on
May 16, 2003 as the Commissioners answer to the Amended Petition for Review.17
Thereafter, the petitioner presented testimonial and documentary evidence to support its claim. On the other hand, the
Commissioner submitted the case for decision based on the pleadings.18 On May 2, 2007, the case was submitted for
decision without the memorandum of the Commissioner.19
Ruling of the CTA in Division
The CTA in Division promulgated its decision in favor of the respondent denying the petition for review, viz:
In petitioners VAT returns for the four quarters of 2001, no amount of zero-rated sales was declared. Likewise, petitioner
did not submit any VAT official receipt of payments for services rendered to NPC. The only proof submitted by petitioner
is a letter from Regional Director Rene Q. Aguas, Revenue Region No. 1, stating that the financial statements and annual
income tax return constitute sufficient secondary proof of effectively zero-rated and that based on their examination and
evaluation of the financial statements and annual income tax return of petitioner for taxable year 2000, it had annual
gross receipts of PhP187,992,524.00. This Court cannot give credence to the said letter as it refers to taxable year 2000,
while the instant case refers to taxable year 2001.
Without zero-rated sales for the four quarters of 2001, the input VAT payments of PhP9,795,427.88 (including the
present claim of PhP2,920,665.16) allegedly attributable thereto cannot be refunded. It is clear under Section 112 (A) of
the NIRC of 1997 that the refund/tax credit of unutilized input VAT is premised on the existence of zero-rated or
effectively zero-rated sales.
xxxx
For petitioners non-compliance with the first requisite of proving that it had effectively zero-rated sales for the four
quarters of 2001, the claimed unutilized input VAT payments of PhP2,920,665.16 cannot be granted.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
SO ORDERED.20
On May 21, 2008, the petitioner moved to reconsider the decision of the CTA in Division. 21 However, the CTA in Division
denied the petitioners motion for reconsideration on September 5, 2008.22
Decision of the CTA En Banc
On October 17, 2008, the petitioner filed a petition for review in the CTA En Banc (CTA E.B No. 420), posing the main
issue whether or not the CTA in Division erred in denying its claim for refund or tax credit upon a finding that it had not
established its having effectively zero-rated sales for the four quarters of 2001.
On May 5, 2009, the CTA En Banc promulgated the assailed decision affirming the Division, and denying the claim for
refund or tax credit, stating:
The other argument of petitioner that even if the tax credit certificate will not be used as evidence, it was able to prove
that it has zero-rated sale as shown in its financial statements and income tax returns quoting the letter opinion of
Regional Director Rene Q. Aguas that the statements and the return are considered sufficient to establish that it generated
zero-rated sale of electricity is bereft of merit. As found by the Court a quo, the letter opinion refers to taxable year 2000,
while the instant case covers taxable year 2001; hence, cannot be given credence. Even assuming for the sake of argument
that the financial statements, the return and the letter opinion relates to 2001, the same could not be taken plainly as it is
because there is still a need to produce the supporting documents proving the existence of such zero-rated sales, which is
wanting in this case. Considering that there are no zero-rated sales to speak of for taxable year 2001, petitioner is,
therefore, not entitled to a refund of PhP2,920,665.16 input tax allegedly attributable thereto since it is basic requirement
under Section 112 (A) of the NIRC that there should exists a zero-rated sales in order to be entitled to a refund of
unutilized input tax.
It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and that the claimant has the
burden of proof to establish the factual basis of its claim for tax credit or refund. Failure in this regard, petitioners claim
must therefore, fail.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
SO ORDERED.23
On June 10, 2009, the CTA En Banc also denied the petitioners motion for reconsideration.24
Issue
Aggrieved, the petitioner has appealed, urging as the lone issue:
WHETHER THE CTA EN BANC COMMITTED A REVERSIBLE ERROR IN AFFIRMING THE DECISION OF THE CTA.
In its August 3, 2009 petition for review,25 the petitioner has argued as follows:
(1) Its sale of electricity to NPC was automatically zero-rated pursuant to Republic Act No. 9136 (EPIRA Law);
hence, it need not prove that it had zero-rated sales in the period from January 1, 2001 to December 31, 2001 by
the presentation of VAT official receipts that would contain all the necessary information required under Section
113 of the National Internal Revenue Code of 1997, as implemented by Section 4.108-1 of Revenue Regulations
No. 7-95. Evidence of sale of electricity to NPC other than official receipts could prove zero-rated sales.
(2) The TCC, once issued, constituted an administrative opinion that deserved consideration and respect by the
CTA En Banc.
(3) The CTA En Banc was devoid of any authority to determine the existence of the petitioners zero-rated sales,
inasmuch as that would constitute an encroachment on the powers granted to an administrative agency having
expertise on the matter.
(4) The CTA En Banc manifestly overlooked evidence not disputed by the parties and which, if properly
considered, would justify a different conclusion.26
The petitioner has prayed for the reversal of the decision of the CTA En Banc, and for the remand of the case to the CTA
for the reception of its VAT official receipts as newly discovered evidence. It has supported the latter relief prayed for by
representing that the VAT official receipts had been misplaced by Edwin Tapay, its former Finance and Accounting
Manager, but had been found only after the CTA En Banc has already affirmed the decision of the CTA in Division. In the
alternative, it has asked that the Commissioner allow the claim for refund or tax credit ofP2,920,665.16.
In the comment submitted on December 3, 2009,27 the Commissioner has insisted that the petitioners claim cannot be
granted because it did not incur any zero-rated sale; that its failure to comply with the invoicing requirements on the
documents supporting the sale of services to NPC resulted in the disallowance of its claim for the input tax; and the claim
should also be denied for not being substantiated by appropriate and sufficient evidence.
In its reply filed on February 4, 2010,28 the petitioner reiterated its contention that it had established its claim for refund
or tax credit; and that it should be allowed to present the official receipts in a new trial.
Ruling of the Court
The petition is without merit.
Section 112 of the National Internal Revenue Code 1997 provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales--Any VAT-registered person, whose sales are zero-rated or effectively zerorated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of
a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax,
to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also
in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the
volume of sales.
xxxx
A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur, namely:
(a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (c) the input
taxes are due or paid; (d) the input taxes are not transitional input taxes; (e) the input taxes have not been applied against
output taxes during and in the succeeding quarters; (f) the input taxes claimed are attributable to zero-rated or effectively
zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas; (h) where there are both zero-rated or effectively zero-rated sales and
taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input
taxes shall be proportionately allocated on the basis of sales volume; and (i) the claim is filed within two years after the
close of the taxable quarter when such sales were made.29
The petitioner did not competently establish its claim for refund or tax credit.1avvphi1 We agree with the CTA En Banc
that the petitioner did not produce evidence showing that it had zero-rated sales for the four quarters of taxable year
2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated sales from its power generation in
its four quarterly VAT returns, which indicated that it had not made any sale of electricity. Had there been zero-rated
sales, it would have reported them in the returns. Indeed, it carried the burden not only that it was entitled under the
substantive law to the allowance of its claim for refund or tax credit but also that it met all the requirements for
evidentiary substantiation of its claim before the administrative official concerned, or in the de novo litigation before the
CTA in Division.30
Although the petitioner has correctly contended here that the sale of electricity by a power generation company like it
should be subject to zero-rated VAT under Republic Act No. 9136,31 its assertion that it need not prove its having actually
made zero-rated sales of electricity by presenting the VAT official receipts and VAT returns cannot be upheld. It ought to
be reminded that it could not be permitted to substitute such vital and material documents with secondary evidence like
financial statements.
We further find to be lacking in substance and bereft of merit the petitioners insistence that the CTA En Banc should not
have disregarded the letter opinion by BIR Regional Director Rene Q. Aguas to the effect that its financial statements and
its return were sufficient to establish that it had generated zero-rated sale of electricity. To recall, the CTA En Banc
rejected the insistence because, firstly, the letter opinion referred to taxable year 2000 but this case related to taxable
year 2001, and, secondly, even assuming for the sake of argument that the financial statements, the return and the letter
opinion had related to taxable year 2001, they still could not be taken at face value for the purpose of approving the claim
for refund or tax credit due to the need to produce the supporting documents proving the existence of the zero-rated
sales, which did not happen here. In that respect, the CTA En Banc properly disregarded the letter opinion as irrelevant to
the present claim of the petitioner.
We further see no reason to grant the prayer of the petitioner for the remand of this case to enable it to present before the
CTA newly discovered evidence consisting in VAT official receipts.
Ordinarily, the concept of newly discovered evidence is applicable to litigations in which a litigant seeks a new trial or the
re-opening of the case in the trial court. Seldom is the concept appropriate when the litigation is already on appeal,
particularly in this Court. The absence of a specific rule on newly discovered evidence at this late stage of the proceedings
is not without reason. The propriety of remanding the case for the purpose of enabling the CTA to receive newly
discovered evidence would undo the decision already on appeal and require the examination of the pieces of newly
discovered evidence, an act that the Court could not do by virtue of its not being a trier of facts. Verily, the Court has
emphasized in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue 32 that a
judicial claim for tax refund or tax credit brought to the CTA is by no means an original action but an appeal by way of a
petition for review of the taxpayers unsuccessful administrative claim; hence, the taxpayer has to convince the CTA that
the quasi-judicial agency a quo should not have denied the claim, and to do so the taxpayer should prove every minute
aspect of its case by presenting, formally offering and submitting its evidence to the CTA, including whatever was
required for the successful prosecution of the administrative claim as the means of demonstrating to the CTA that its
administrative claim should have been granted in the first place.
Nonetheless, on the proposition that we may relax the stringent rules of procedure for the sake of rendering justice, we
still hold that the concept of newly discovered evidence may not apply herein. In order that newly discovered evidence
may be a ground for allowing a new trial, it must be fairly shown that: (a) the evidence is discovered after the trial; (b)
such evidence could not have been discovered and produced at the trial even with the exercise of reasonable diligence; (c)
such evidence is material, not merely cumulative, corroborative, or impeaching; and (d) such evidence is of such weight
that it would probably change the judgment if admitted.33
The first two requisites are not attendant. To start with, the proposed evidence was plainly not newly discovered
considering the petitioner s admission that its former Finance and Accounting Manager had misplaced the VAT official
receipts. If that was true, the misplaced receipts were forgotten evidence. And, secondly, the receipts, had they truly
existed, could have been sooner discovered and easily produced at the trial with the exercise of reasonable diligence. But
the petitioner made no convincing demonstration that it had exercised reasonable diligence. The Court cannot accept its
tender of such receipts and return now, for, indeed, the non-production of documents as vital and material as such
receipts and return were to the success of its claim for refund or tax credit was improbable, as it goes against the sound
business practice of safekeeping relevant documents precisely to ensure their future use to support an eventual
substantial claim for refund or tax credit.
WHEREFORE, the Court DENIES the petition for review on certiorari for its lack of merit; AFFIRMS the decision dated May
5, 2009 of the Court of Tax Appeals En Bane; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
Case Number 8
COMMISSIONER OF G.R. No. 146984
INTERNAL REVENUE
Petitioner,
Present:
QUISUMBING,
- versus - Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
MAGSAYSAY LINES, INC., VELASCO, JR., JJ.
BALIWAG NAVIGATION, INC.,
FIM LIMITED OF THE MARDEN
GROUP (HK) and NATIONAL
DEVELOPMENT COMPANY,
Respondents. Promulgated:
July 28, 2006
x---------------------------------------------------------------------------------x
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development Company (NDC) of five (5) of its vessels
to the private respondents is subject to value-added tax (VAT) under the National Internal Revenue Code of 1986 (Tax
Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court of Appeals commonly ruled that
the sale is not subject to VAT. We affirm, though on a more unequivocal rationale than that utilized by the rulings under
review. The fact that the sale was not in the course of the trade or business of NDC is sufficient in itself to declare the sale
as outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in
its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and
five (5) of its ships, which are 3,700 DWT Tween-Decker, Kloeckner type vessels.[1] The vessels were constructed for the
NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary.
Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC. [2]
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public
auction was that the winning bidder was to pay a value added tax of 10% on the value of the vessels. [3] On 3 June 1988,
private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels for P168,000,000.00.
The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag
Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private respondents). [4] The bid
was approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and Magsaysay Lines,
Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the contract stipulated that [v]alue-added tax, if any,
shall be for the account of the PURCHASER.[5] Per arrangement, an irrevocable confirmed Letter of Credit previously filed
as bidders bond was accepted by NDC as security for the payment of VAT, if any. By this time, a formal request for a ruling
on whether or not the sale of the vessels was subject to VAT had already been filed with the Bureau of Internal Revenue
(BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in behalf of private respondents. Thus, the
parties agreed that should no favorable ruling be received from the BIR, NDC was authorized to draw on the Letter of Credit
upon written demand the amount needed for the payment of the VAT on the stipulated due date, 20 December 1988.[6]
In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December 1988 from
the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that NDC was a VATregistered enterprise, and thus its transactions incident to its normal VAT registered activity of leasing out personal
property including sale of its own assets that are movable, tangible objects which are appropriable or transferable are
subject to the 10% [VAT].[7]
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88 (dated 18
August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry from the Chairman of
the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated 24
February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the Letter of Credit to pay for the VAT, and
the amount of P15,120,000.00 in taxes was paid on 16 March 1989.
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a Supplemental
Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as
the refund of the VAT payment made amounting to P15,120,000.00.[8] The Commissioner of Internal Revenue (CIR)
opposed the petition, first arguing that private respondents were not the real parties in interest as they were not the
transferors or sellers as contemplated in Sections 99 and 100 of the then Tax Code. The CIR also squarely defended the VAT
rulings holding the sale of the vessels liable for VAT, especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 587), which provided that [VAT] is imposed on any sale or transactions deemed sale of taxable goods (including capital
goods, irrespective of the date of acquisition). The CIR argued that the sale of the vessels were among those transactions
deemed sale, as enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of
the Regulation, which classified change of ownership of business as a circumstance that gave rise to a transaction deemed
sale.
In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted the petition. [9] The CTA ruled that the
sale of a vessel was an isolated transaction, not done in the ordinary course of NDCs business, and was thus not subject to
VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of trade or business. The CTA further
held that the sale of the vessels could not be deemed sale, and thus subject to VAT, as the transaction did not fall under the
enumeration of transactions deemed sale as listed either in Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87.
Finally, the CTA ruled that any case of doubt should be resolved in favor of private respondents since Section 99 of the Tax
Code which implemented VAT is not an exemption provision, but a classification provision which warranted the resolution
of doubts in favor of the taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals,[10] which on 11 March 1997, rendered a Decision
reversing the CTA.[11] While the appellate court agreed that the sale was an isolated transaction, not made in the course of
NDCs regular trade or business, it nonetheless found that the transaction fell within the classification of those deemed sale
under R.R. No. 5-87, since the sale of the vessels together with the NMC shares brought about a change of ownership in
NMC. The Court of Appeals also applied the principle governing tax exemptions that such should be strictly construed
against the taxpayer, and liberally in favor of the government.[12]
However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5 February
2001.[13] This time, the appellate court ruled that the change of ownership of business as contemplated in R.R. No. 5-87
must be a consequence of the retirement from or cessation of business by the owner of the goods, as provided for in Section
100 of the Tax Code. The Court of Appeals also agreed with the CTA that the classification of transactions deemed sale was
a classification statute, and not an exemption statute, thus warranting the resolution of any doubt in favor of the taxpayer.[14]
To the mind of the Court, the arguments raised in the present petition have already been adequately discussed and refuted
in the rulings assailed before us. Evidently, the petition should be denied. Yet the Court finds that Section 99 of the Tax Code
is sufficient reason for upholding the refund of VAT payments, and the subsequent disquisitions by the lower courts on the
applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even though it
is assessed on many levels of transactions on the basis of a fixed percentage.[15] It is the end user of consumer goods or
services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these
goods or services[16] who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive
from the final consumer (or output VAT).[17] The final purchase by the end consumer represents the final link in a
production chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal
adequacy through the collection of taxes on every level of consumption,[18] yet assuages the manufacturers or providers of
goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the
end consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayers
role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations,[19] the
tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course
of trade or business. These transactions outside the course of trade or business may invariably contribute to the
production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur
within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity
to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output
VAT arises in the first place only through the ordinary course of trade or business.
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both the CTA and
the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered. [20] We cite with approval
the CTAs explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil.
992), the term carrying on business does not mean the performance of a single disconnected act, but
means conducting, prosecuting and continuing business by performing progressively all the acts normally
incident thereof; while doing business conveys the idea of business being done, not from time to time,
but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p.
608-9 (1988)]. Course of business is what is usually done in the management of trade or business. [Idmi
v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that course of business or doing
business connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale
which was involuntary and made pursuant to the declared policy of Government for privatization could
no longer be repeated or carried on with regularity. It should be emphasized that the normal VATregistered activity of NDC is leasing personal property.[21]
This finding is confirmed by the Revised Charter[22] of the NDC which bears no indication that the NDC was created
for the primary purpose of selling real property.[23]
The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before this
Court,[24] should have definitively settled the matter. Any sale, barter or exchange of goods or services not in the course of
trade or business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the CIR, is
captioned Value-added tax on sale of goods, and it expressly states that [t]here shall be levied, assessed and collected on
every sale, barter or exchange of goods, a value added tax x x x. Section 100 should be read in light of Section 99, which lays
down the general rule on which persons are liable for VAT in the first place and on what transaction if at all. It may even be
noted that Section 99 is the very first provision in Title IV of the Tax Code, the Title that covers VAT in the law. Before any
portion of Section 100, or the rest of the law for that matter, may be applied in order to subject a transaction to VAT, it must
first be satisfied that the taxpayer and transaction involved is liable for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported to define the phrase in the course of trade or business as
expressed in Section 99. If that were so, reference to Section 100 would have been necessary as a means of ascertaining
whether the sale of the vessels was in the course of trade or business, and thus subject to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the meaning of in the
course of trade or business, but instead the identification of the transactions which may be deemed as sale. It would become
necessary to ascertain whether under those two provisions the transaction may be deemed a sale, only if it is settled that
the transaction occurred in the course of trade or business in the first place. If the transaction transpired outside the course
of trade or business, it would be irrelevant for the purpose of determining VAT liability whether the transaction may be
deemed sale, since it anyway is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in question was not made in the course
of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of the Tax Code, no matter
how the said sale may hew to those transactions deemed sale as defined under Section 100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court finds the
discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those involving change of ownership
of business. However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the Tax Code, clarifies that such change of
ownership is only an attending circumstance to retirement from or cessation of business[, ] with respect to all goods on
hand [as] of the date of such retirement or cessation.[25] Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the
change of ownership of business as only a circumstance that attends those transactions deemed sale, which are otherwise
stated in the same section.[26]
WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.
Case Number 9
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance; LIWAYWAY
VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL
REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION;
PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. GUINGONA,
JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of
Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner of
Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration
of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which
there are 10 in all, have been filed by the several petitioners in these cases, with the exception of the Philippine
Educational Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David,
petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's
reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous claims
made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI,
24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives where it passed
three readings and that afterward it was sent to the Senate where after first reading it was referred to the Senate Ways
and Means Committee, they complain that the Senate did not pass it on second and third readings. Instead what the
Senate did was to pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that
what the Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just
becomes the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill
by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its
own version of revenue bills, which, in consolidation with House bills earlier passed, became the enrolled bills. These
were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5) YEARS
TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was
approved by the President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by
the House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE
WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This Act is a
consolidation of H. No. 22232, which was approved by the House of Representatives on August 2, 1989, and S. No. 807,
which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of House and
Senate bills. These are the following, with indications of the dates on which the laws were approved by the President and
dates the separate bills of the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE
OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX PERCENT
(6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House, passed its own version of a House revenue measure. It is
noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the Senate, voted to
approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of
form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did in this case, a
separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into Consideration . . .H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of
a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject
distinct from that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power
than the U.S. Senate because of textual differences between constitutional provisions giving them the power to propose or
concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other
Bills" in the American version, according to petitioners, shows the intention of the framers of our Constitution to restrict
the Senate's power to propose amendments to revenue bills. Petitioner Tolentino contends that the word "exclusively"
was inserted to modify "originate" and "the words 'as in any other bills' (sic) were eliminated so as to show that these bills
were not to be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing
but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution
originally provided for a unicameral National Assembly. When it was decided in 1939 to change to a bicameral legislature,
it became necessary to provide for the procedure for lawmaking by the Senate and the House of Representatives. The
work of proposing amendments to the Constitution was done by the National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail the powers of the
proposed Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills
shall originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In
case of disapproval by the Senate of any such bills, the Assembly may repass the same by a two-thirds
vote of all its members, and thereupon, the bill so repassed shall be deemed enacted and may be
submitted to the President for corresponding action. In the event that the Senate should fail to finally
act on any such bills, the Assembly may, after thirty days from the opening of the next regular session
of the same legislative term, reapprove the same with a vote of two-thirds of all the members of the
Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the
President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything
after the first sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution
No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was
derived. It explains why the word "exclusively" was added to the American text from which the framers of the Philippine
Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the defeat of the proposal, the
power of the Senate to propose amendments must be understood to be full, plenary and complete "as on other Bills."
Thus, because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by the House, however,
the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following
commentaries:
The power of the Senate to propose or concur with amendments is apparently without restriction. It
would seem that by virtue of this power, the Senate can practically re-write a bill required to come
from the House and leave only a trace of the original bill. For example, a general revenue bill passed by
the lower house of the United States Congress contained provisions for the imposition of an
inheritance tax . This was changed by the Senate into a corporation tax. The amending authority of the
Senate was declared by the United States Supreme Court to be sufficiently broad to enable it to make
the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives because it is
more numerous in membership and therefore also more representative of the people. Moreover, its
members are presumed to be more familiar with the needs of the country in regard to the enactment of
the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with
amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill introduced
in the U.S. House of Representatives was changed by the Senate to make a proposed inheritance tax a
corporation tax. It is also accepted practice for the Senate to introduce what is known as an
amendment by substitution, which may entirely replace the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds,
"but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an
entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or
altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will
be known as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the
number of the House bill and its other parts up to the enacting clause must be preserved although the text of the Senate
amendment may be incorporated in place of the original body of the bill is to insist on a mere technicality. At any rate
there is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No.
11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is
an independent and distinct bill. Hence their repeated references to its certification that it was passed by the Senate
"in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is
something substantially different between the reference to S. No. 1129 and the reference to H. No. 11197. From this
premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630
attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences between the two bills, at
the same time indicates that the provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of
the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. It was
enough that after it was passed on first reading it was referred to the Senate Committee on Ways and Means. Neither was
it required that S. No. 1630 be passed by the House of Representatives before the two bills could be referred to the
Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill and
Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference
committee, the question was raised whether the two bills could be the subject of such conference, considering that the bill
from one house had not been passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the
House but not passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never
passed in the House, can the two bills be the subject of a conference, and can a law be enacted from these
two bills? I understand that the Senate bill in this particular instance does not refer to investments in
government securities, whereas the bill in the House, which was introduced by the Speaker, covers two
subject matters: not only investigation of deposits in banks but also investigation of investments in
government securities. Now, since the two bills differ in their subject matter, I believe that no law can
be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this
where a conference should be had. If the House bill had been approved by the Senate, there would have
been no need of a conference; but precisely because the Senate passed another bill on the same subject
matter, the conference committee had to be created, and we are now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the President separately
certified to the need for the immediate enactment of these measures, his certification was ineffectual and void. The
certification had to be made of the version of the same revenue bill which at the moment was being considered.
Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as many bills as are presented
in a house of Congress even though the bills are merely versions of the bill he has already certified. It is enough that he
certifies the bill which, at the time he makes the certification, is under consideration. Since on March 22, 1994 the Senate
was considering S. No. 1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had
earlier certified H. No. 9210 for immediate enactment because it was the one which at that time was being considered by
the House. This bill was later substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase
"except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2) qualifies not only
the requirement that "printed copies [of a bill] in its final form [must be] distributed to the members three days before its
passage" but also the requirement that before a bill can become a law it must have passed "three readings on separate
days." There is not only textual support for such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its
final form furnished its Members at least three calendar days prior to its passage, except when the
President shall have certified to the necessity of its immediate enactment. Upon the last reading of a
bill, no amendment thereof shall be allowed and the question upon its passage shall be taken
immediately thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to the Members three days before its passage, except
when the Prime Minister certifies to the necessity of its immediate enactment to meet a public calamity
or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present Constitution,
thus:
(2) No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately thereafter, and the yeasand nays entered in
the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate days are required
and a bill has to be printed in final form before it can be passed, the need for a law may be rendered academic by the
occurrence of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit does not
make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an
urgent need for consideration of S. No. 1630, because they responded to the call of the President by voting on the bill on
second and third readings on the same day. While the judicial department is not bound by the Senate's acceptance of the
President's certification, the respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed for six
days. Only its distribution in advance in its final printed form was actually dispensed with by holding the voting on second
and third readings on the same day (March 24, 1994). Otherwise, sufficient time between the submission of the bill on
February 8, 1994 on second reading and its approval on March 24, 1994 elapsed before it was finally voted on by the
Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of
Congress of what they must vote on and (2) to give them notice that a measure is progressing through the enacting
process, thus enabling them and others interested in the measure to prepare their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for
Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of full public
disclosure and the people's right to know (Art. II, 28 and Art. III, 7) the Conference Committee met for two days in
executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing open hearings for conference
committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members were
present. These were staff members of the Senators and Congressmen, however, who may be presumed to be their
confidential men, not stenographers as in this case who on the last two days of the conference were excluded. There is no
showing that the conferees themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of their meetings.
Above all, the public's right to know was fully served because the Conference Committee in this case submitted a report
showing the changes made on the differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other amendments." These changes are shown in the bill attached to
the Conference Committee Report. The members of both houses could thus ascertain what changes had been made in the
original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of 1955) was
reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the conference
committee regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the
Rules of this House which provides specifically that the conference report must be accompanied by a
detailed statement of the effects of the amendment on the bill of the House. This conference committee
report is not accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of
order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this
provision applies to those cases where only portions of the bill have been amended. In this case before us
an entire bill is presented; therefore, it can be easily seen from the reading of the bill what the provisions
are. Besides, this procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the
Rules, and the reason for the requirement in the provision cited by the gentleman from Pangasinan is
when there are only certain words or phrases inserted in or deleted from the provisions of the bill
included in the conference report, and we cannot understand what those words and phrases mean and
their relation to the bill. In that case, it is necessary to make a detailed statement on how those words and
phrases will affect the bill as a whole; but when the entire bill itself is copied verbatim in the conference
report, that is not necessary. So when the reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was upheld
by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane
to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an
opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited to resolving differences
between the Senate and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not entertain allegations that,
because new provisions had been added by the conference committee, there was thereby a violation of the constitutional
injunction that "upon the last reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an amendment was
made upon the last reading of the bill that eventually became R.A. No. 7354 and that copiesthereof in its
final form were not distributed among the members of each House. Both the enrolled bill and the
legislative journals certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26
(2) of the Constitution. We are bound by such official assurances from a coordinate department of the
government, to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may be given
instructions by their parent bodies or they may be left without instructions. Normally the conference
committees are without instructions, and this is why they are often critically referred to as "the little
legislatures." Once bills have been sent to them, the conferees have almost unlimited authority to
change the clauses of the bills and in fact sometimes introduce new measures that were not in the
original legislation. No minutes are kept, and members' activities on conference committees are
difficult to determine. One congressman known for his idealism put it this way: "I killed a bill on export
incentives for my interest group [copra] in the conference committee but I could not have done so
anywhere else." The conference committee submits a report to both houses, and usually it is accepted.
If the report is not accepted, then the committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that conference
committees here are no different from their counterparts in the United States whose vast powers we noted in Philippine
Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the power "to determine the rules of
its proceedings," including those of its committees. Any meaningful change in the method and procedures of Congress or
its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the Constitution
which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title
thereof." PAL contends that the amendment of its franchise by the withdrawal of its exemption from the VAT is not
expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges of any kind, nature, or description, imposed, levied, established,
assessed or collected by any municipal, city, provincial or national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal Revenue Code,
which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to which the
Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in the way of
accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No.
1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the
title that the law seeks to amend the pertinent provisions of the NIRC, among which is 103(q), in order to widen the base
of the VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of legislation. The
titles of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had been given of the pendency of these bills in Congress before they
were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A. No. 7354 is
entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND
RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED
THEREWITH. It contained a provision repealing all franking privileges. It was contended that the withdrawal of franking
privileges was not expressed in the title of the law. In holding that there was sufficient description of the subject of the
law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general objectives of the
statute to be expressed in its title would not only be unreasonable but would actually render legislation
impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its title, but matter
germane to the subject as expressed in the title, and adopted to the accomplishment
of the object in view, may properly be included in the act. Thus, it is proper to create
in the same act the machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its execution. If
such matters are properly connected with the subject as expressed in the title, it is
unnecessary that they should also have special mention in the title. (Southern Pac.
Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from
the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out
the press or target a group belonging to the press for special treatment or which in any way discriminate against the press
on the basis of the content of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those
granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could
take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the
State does not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it
was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with the result
that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the license tax. The censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295
(1983), the tax was found to be discriminatory because although it could have been made liable for the sales tax or, in lieu
thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press was not. Instead, the press
was exempted from both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink which
made these items "the only items subject to the use tax that were component of goods to be sold at retail." The U.S.
Supreme Court held that the differential treatment of the press "suggests that the goal of regulation is not related to
suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that even a law
that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly"
by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires,
enterprises registered with the Export Processing Zone Authority, and many more are likewise totally withdrawn, in
addition to exemptions which are partially withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit
oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to
show that by and large this is not so and that the exemptions are granted for a purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit
of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest
products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn
livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn, sugar
cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning
to the Philippines) or for professional use, like professional instruments and implements, by persons
coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum
products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this
assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First
Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because
it classifies the privileges protected by the First Amendment along with the wares and merchandise of
hucksters and peddlers and treats them all alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition
on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application
to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on
him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated
a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held that the
tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of its
right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional
right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the
lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its
right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are
used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales
would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the
exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a
sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No. 7716,
although fixed in amount, is really just to pay for the expenses of registration and enforcement of provisions such as those
relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT
does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for
the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA asserts that
R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable
basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations
to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate
at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by
the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a
contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular
contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens
upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can
it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco
and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food
items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally
essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that
real estate transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was
already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in
claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment
of the VAT. Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the example
given by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot
yet buy their own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that
the State be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98
Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663
(1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that
"The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To
satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations
placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases, namely, that
the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382)
Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which
are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sarisari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, so that the costs of basic food and other necessities, spared as they are from
the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc.
(CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a
progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers
without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been
interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be
minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest
form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution
from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102
(b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest
products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn
livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn sugar
cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning
to the Philippines) and or professional use, like professional instruments and implements, by persons
coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum
products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are
used or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or
for lease in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar
property or right, the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes
and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places,
securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of
franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at
retail but at wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact
of actuality. There is no factual foundation to show in the concrete the application of the law to actual contracts and
exemplify its effect on property rights. For the fact is that petitioner's members have not even been assessed the VAT.
Petitioner's case is not made concrete by a series of hypothetical questions asked which are no different from those dealt
with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here, does not suffice. There must be a factual foundation of such unconstitutional taint. Considering
that petitioner here would condemn such a provision as void on its face, he has not made out a case.
This is merely to adhere to the authoritative doctrine that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing,
the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of
adjudication would result in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give
rise to such a case. A test case, provided it is an actual case and not an abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication
would be no different from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government." This duty can only arise if an actual case or controversy is before us. Under Art . VIII, 5 our jurisdiction is
defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we
have the judicial power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear and
decide cases pending between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v.
Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This power cannot be directly
appropriated until it is apportioned among several courts either by the Constitution, as in the case of Art. VIII, 5, or by
statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg.
129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power conferred by law upon a
court or judge to take cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906))
Without an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of
discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines (CUP),
after briefly surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to
cooperatives that the present Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT
would therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis which
menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again
granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93
revoked the exemption; and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the
government adverse to the interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit
of the people; and an expanding productivity as the key to raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural
development and agrarian reform, through industries that make full and efficient use of human and
natural resources, and which are competitive in both domestic and foreign markets. However, the State
shall protect Filipino enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given
optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar
collective organizations, shall be encouraged to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of cooperatives as
instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to
withdraw the exemptions and preferential treatments theretofore granted to private business enterprises in general, in view
of the economic crisis which then beset the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of
cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not the only
ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all, including government and private
entities. In the second place, the Constitution does not really require that cooperatives be granted tax exemptions in order
to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy
toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and
there is no discrimination to cooperatives, no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such
theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions,
churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit educational institutions by reason of Art.
XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the
law because electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives
(farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional
determination that there is greater need to provide cheaper electric power to as many people as possible, especially those
living in the rural areas, than there is to provide them with other necessities in life. We cannot say that such classification
is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact
taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the
conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that its enactment by the
other branches of the government does not constitute a grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as the body which is electorally responsible, remembering that,
as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the people in quite as
great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It
is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators,
that those who took part in passing the law in question by voting for it in Congress should later thrust to the courts the
burden of reviewing measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much
less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
Case Number 10
G.R. No. 187485
February 12, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.
X----------------------------X
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,
vs.
x----------------------------x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,
vs.
DECISION
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the
Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB
affirmed the 29 November 2007 Amended Decision4 as well as the 11 July 2008 Resolution5 of the Second Division of the
Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of
Internal Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power Corporation
(San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods and services for the taxable year
2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as the
Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB reversed the 8
January 2010 Decision9 as well as the 7 April 2010 Resolution10of the CTA Second Division and granted the CIRs petition
for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporations
(Taganito) judicial claim for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as the
Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July 2009
Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA Second
Division denied, due to prescription, Philex Mining Corporations (Philex) judicial claim for P23,956,732.44 tax refund or
credit.
On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with G.R. No. 196113,
which were pending in the same Division, and with G.R. No. 187485, which was assigned to the Court En Banc. The Second
Division also resolved to refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R. No. 187485, the lowernumbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
The Facts
The CTA EBs narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and approve
claims for refund or tax credit, with office at the Bureau of Internal Revenue ("BIR") National Office Building, Diliman,
Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with
principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in October 1997 to design, construct,
erect, assemble, own, commission and operate power-generating plants and related facilities pursuant to and under
contract with the Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or
any governmentowned or controlled corporation, or other entity engaged in the development, supply, or distribution of
energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is likewise
registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design, construction,
erection, assembly, as well as to own, commission, and operate electric power-generating plants and related activities, for
which it was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and energy for
the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA
provides, among others, that [San Roque] shall be responsible for the design, construction, installation, completion,
testing and commissioning of the Power Station and shall operate and maintain the same, subject to NPC instructions.
During the cooperation period of twenty-five (25) years commencing from the completion date of the Power Station, NPC
will take and pay for all electricity available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam, spillway and
power plant, [San Roque] allegedly incurred, excess input VAT in the amount of 559,709,337.54 for taxable year 2001
which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims
for refund, in the total amount of 559,709,337.54, representing unutilized input taxes as declared in its VAT returns for
taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased its
unutilized input VAT to the amount of 560,200,283.14. Consequently, [San Roque] filed with the BIR on even date,
separate amended claims for refund in the aggregate amount of 560,200,283.14.
[CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court [of Tax
Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15
The Court of Tax Appeals Ruling: Division
The CTA Second Division initially denied San Roques claim. In its Decision16 dated 8 March 2006, it cited the following as
bases for the denial of San Roques claim: lack of recorded zero-rated or effectively zero-rated sales; failure to submit
documents specifically identifying the purchased goods/services related to the claimed input VAT which were included in
its Property, Plant and Equipment account; and failure to prove that the related construction costs were capitalized in its
books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following requirements of Section 112(B)
of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT attributable to capital goods
imported or locally purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly
supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-year prescriptive
period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of Facts, Records,
p. 157). It was also established that the instant claim of 560,200,823.14 is already net of the 11,509.09 output tax
declared by [San Roque] in its amended VAT return for the first quarter of 2001. Moreover, the entire amount of
560,200,823.14 was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns for
the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed
input taxes of 560,200,823.14 did not form part of the excess input taxes of 83,692,257.83, as of the second quarter of
2002 that was to be carried-over to the succeeding quarters. Further, [San Roques] claim for refund/tax credit certificate
of excess input VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July 25, 2001,
October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all subsequently
amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally filed its separate claims
for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth
quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters on
March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April 10, 2003. Counting from
the respective dates when [San Roque] originally filed its VAT returns for the first, second, third and fourth quarters of
2001, the administrative claims for refund (original and amended) and the Petition for Review fall within the two-year
prescriptive period.18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended
Decision,19 the CTA Second Division found legal basis to partially grant San Roques claim. The CTA Second Division
ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of 483,797,599.65, which
represents San Roques unutilized input VAT on its purchases of capital goods and services for the taxable year 2001. The
CTA based the adjustment in the amount on the findings of the independent certified public accountant. The following
reasons were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related purchases
are in the nature of capital goods; and the purchases pertain to capital goods. Moreover, the reduction of claims was based
on the following: the difference between San Roques claim and that appearing on its books; the official receipts covering
the claimed input VAT on purchases of local services are not within the period of the claim; and the amount of VAT cannot
be determined from the submitted official receipts and invoices. The CTA Second Division denied San Roques claim for
refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales because San
Roque had no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and this
Courts Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor
of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five
Hundred Ninety Nine Pesos and Sixty Five Centavos (483,797,599.65) representing unutilized input VAT on purchases
of capital goods and services for the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division issued a
Resolution dated 11 July 2008 which denied the CIRs motion for lack of merit.
The Court of Tax Appeals Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques claim for refund or
tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008
Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular No. 4903,22 as its bases for ruling that San Roques judicial claim was not prematurely filed. The pertinent portions of the
Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the
petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the two (2)
year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent appeal to the
Court of Tax Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned from the
date of the filing of the quarterly VAT return and payment of the tax due. If the said period is about to expire but the
BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for review with this
Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes time in
deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax
Appeals before the end of the two-year period without awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable Court of Tax
Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait indefinitely for a
decision or ruling which may or may not be forthcoming and which he has no legal right to expect. It is
disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a ruling or decision of the
Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make matters more exasperating for
the taxpayer if we were to close the doors of the courts of justice for such a relief until after the Collector (now
Commissioner) of Internal Revenue, would have, at his personal convenience, given his go signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the claims
and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein petitioner) may
take. At stake are claims for refund and unlike disputed assessments, no decision of respondent (herein
petitioner) is required before one can go to this Court. (Emphasis supplied and citations omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18, 2003,
that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed
simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of the subject 120-day
period, to wit:
In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to
the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period
prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for
refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the
administrative agency and the tax court may act on the case separately. While the case is pending in the tax court
and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of
the summons from the tax court, shall request from the head of the investigating/processing office for the docket
containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as
evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the
investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such
time that a final decision has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease
from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer
ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to
withdraw the claim with the CTA.23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Divisions narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the laws of
the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi Village, Makati City. It is
duly registered with the Securities and Exchange Commission with Certificate of Registration No. 138682 issued on March
4, 1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting, extracting,
milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing, buying, selling,
exchanging, shipping, transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver, copper,
lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by-products and which by-products thereof
of every kind and description and by whatsoever process the same can be or may hereafter be produced, and generally
and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and mineral rights
and claims and to conduct all business appertaining thereto, to purchase, locate, lease or otherwise acquire, mining claims
and rights, timber rights, water rights, concessions and mines, buildings, dwellings, plants machinery, spare parts, tools
and other properties whatsoever which this corporation may from time to time find to be to its advantage to mine lands,
and to explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize water rights in
such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide,
maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels, aircraft and
vehicles, private telegraph and telephone lines, and other communication media, as may be needed by the corporation for
its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and operate
bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts, shafts, tunnels, furnaces, cook
ovens, crushing works, gasworks, electric lights and power plants and compressed air plants, chemical works of all kinds,
concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling
houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and other works,
conveniences and properties of any description in connection with or which may be directly or indirectly conducive to
any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in any operations;
and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017494. Likewise,
[Taganito] is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel silicate and chromite
ores, with BOI Certificate of Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with authority to exercise
the functions of the said office, including inter alia, the power to decide refunds of internal revenue taxes, fees and other
charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC)
or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR
National Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to December
31, 2005. For easy reference, a summary of the filing dates of the original and amended Quarterly VAT Returns for taxable
year 2005 of [Taganito] is as follows:
Exhibit(s)
L to L-4
M to M-3
Quarter
1st
Nature of
the Return
Mode of filing
Filing Date
Original
Electronic
April 15, 2005
Amended
Electronic
July 20, 2005
N to N-4
Q to Q-3
2nd
R to R-4
U to U-4
3rd
V to V-4
Y to Y-4
Z to Z-4
4th
Amended
Electronic
October 18, 2006
Original
Electronic
July 20, 2005
Amended
Electronic
October 18, 2006
Original
Electronic
October 19, 2005
Amended
Electronic
October 18, 2006
Original
Electronic
January 20, 2006
Amended
Electronic
October 18, 2006
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
Covered
Zero-Rated Sales
Input VAT on
Domestic
Purchases and
Importations
of Goods and
Services
Input VAT on
Domestic
Purchases and
Importations
of Capital
Goods
Total Input VAT
01/01/05 03/31/05
P551,179,871.58
P1,491,880.56
P239,803.22
P1,731,683.78
04/01/05 06/30/05
64,677,530.78
204,364.17
5,811,130.73
6,015,494.90
07/01/05 09/30/05
480,784,287.30
144,887.67
144,887.67
10/01/05 12/31/05
350,212,345.02
473,598.03
473,598.03
P1,446,854,034.68
P2,314,730.43
P6,050,933.95
P8,365,664.38
TOTAL
On November 14, 2006, [Taganito] filed with [the CIR], through BIRs Large Taxpayers Audit and Investigation Division II
(LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of its supposed input VAT amounting to
8,365,664.38 for the period covering January 1, 2004 to December 31, 2004. On the same date, [Taganito] likewise filed
an Application for Tax Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same
amount.
On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct the period
of the above claim for tax credit/refund in the said amount of 8,365,664.38 as actually referring to the period covering
January 1, 2005 to December 31, 2005.
As the statutory period within which to file a claim for refund for said input VAT is about to lapse without action on the
part of the [CIR], [Taganito] filed the instant Petition for Review on February 17, 2007.
In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
4. [Taganitos] alleged claim for refund is subject to administrative investigation/examination by the Bureau of
Internal Revenue (BIR);
5. The amount of 8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on domestic
purchases of goods and services and on importation of capital goods for the period January 1, 2005 to December
31, 2005 is not properly documented;
6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of the
National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claiming tax
refund/credit;
7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT
refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient
compliance with the filing of administrative claim for refund, the administrative claim thereof being
mere proforma, which is a condition sine qua non prior to the filing of judicial claim in accordance with
the provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended,
requires the submission of complete documents in support of the application filed with the BIR before the
120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in
the law. Hence, [Taganitos] failure to submit proof of compliance with the above-stated requirements warrants
immediate dismissal of the petition for review.
8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections 110 and
113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue Regulations No. 7-95.
9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil.
466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption
from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked
upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the part of
[Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which provides, thus:
Section 112. Refunds or Tax Credits of Input Tax.
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.
In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim or after the expiration of the one hundred twenty dayperiod, appeal the decision
or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on November 14,
2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously the 120 days given to the
Commissioner to decide on the claim has not yet lapsed when the petition was filed. The petition was prematurely filed,
hence it must be dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its supposed
entitlement to the refund in the amount of 8,365,664.38, representing input taxes for the period covering January 1,
2005 to December 31, 2005. [The CIR], on the other hand, opted not to present evidence. Thus, in the Resolution
promulgated on January 22, 2009, this case was submitted for decision as of such date, considering [Taganitos]
"Memorandum" filed on January 19, 2009 and [the CIRs] "Memorandum" filed on December 19, 2008.24
The CTA Second Division partially granted Taganitos 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 Divisions Decision read:
Finally, records show that [Taganitos] administrative claim filed on November 14, 2006, which was amended on
November 29, 2006, and the Petition for Review filed with this Court on February 14, 2007 are well within the two-year
prescriptive period, reckoned from March 31, 2005, June 30, 2005, September 30, 2005, and December 31, 2005,
respectively, the close of each taxable quarter covering the period January 1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of 8,249,883.33
representing unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, [the
CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT MILLION TWO HUNDRED FORTY NINE
THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its
unutilized input taxes attributable to zero-rated sales from January 1, 2005 to December 31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a
Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs motion. The CTA Second Division ruled
that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in isolation from
Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice versa. The CTA Second Division applied the
mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to claims for refund or tax
credit under Section 112.
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010 Decision
and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganitos entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and reversed and set aside the
challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the 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 Courts rulings in the cases of Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc. (Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input VAT arising from
zero-rated sales should be reckoned from the close of the taxable quarter when the sales were made.Aichi further
emphasized that the failure to await the decision of the Commissioner or the lapse of 120-day period prescribed in
Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the period
prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA EB found that Taganitos judicial claim
was prematurely filed. Taganito filed its Petition for Review before the CTA Second Division on 14 February 2007. The
judicial claim was filed after the lapse of only 92 days from the filing of its administrative claim before the CIR, in violation
of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
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 Courts ruling in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected national internal
revenue tax are the same, insofar as both are monetary amounts which are currently in the hands of the government but
must rightfully be returned to the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of excess
or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or after the lapse of the
120-day period in the event of inaction by the Commissioner, provided that both administrative and judicial remedies
must be undertaken within the 2-year period.35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26 January
2011. The CTA EB denied for lack of merit Taganitos motion in a Resolution 36 dated 14 March 2011. The CTA EB did not
see any justifiable reason to depart from this Courts rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EBs narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is principally
engaged in the mining business, which includes the exploration and operation of mine properties and commercial
production and marketing of mine products, with office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity tasked with the
duties/functions of assessing and collecting all national internal revenue taxes, fees, and charges, and enforcement of all
forfeitures, penalties and fines connected therewith, including the execution of judgments in all cases decided in its favor
by [the Court of Tax Appeals] and the ordinary courts, where she can be served with court processes at the BIR Head
Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005 and Amended VAT
Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of 23,956,732.44 with the One Stop Shop
Center of the Department of Finance. However, due to [the CIRs] failure to act on such claim, on October 17, 2007,
pursuant to Sections 112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review, docketed as C.T.A.
Case No. 7687.
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 CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to prescription. The CTA Second
Division ruled that the two-year prescriptive period specified in Section 112(A) of RA 8424, as amended, applies not only
to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim with the CTA. Since Philexs
claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial
claim filed on 17 October 2007 was filed late and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied Philexs Motion for Reconsideration.
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10
November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philexs petition and affirmed the CTA Second Divisions
Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philexs] administrative claim for refund was filed within the two-year
prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20, 2006, [Philex]
applied the administrative claim for refund of unutilized input VAT in the amount of 23,956,732.44 with the One Stop
Shop Center of the Department of Finance, per Application No. 52490. From March 20, 2006, which is also presumably the
date [Philex] submitted supporting documents, together with the aforesaid application for refund, the CIR has 120 days,
or until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day period, or from July
19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund to the CTA. However, [Philex] filed its
Petition for Review only on October 17, 2007, which is 426 days way beyond the 30- day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review in CTA Case
No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond the 30-day
prescribed period; thus, no jurisdiction was acquired by the CTA in Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and accordingly,
DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for Review in CTA Case No. 7687 due to
prescription, and Resolution dated November 10, 2009 denying [Philexs] Motion for Reconsideration are hereby
AFFIRMED, with modification that the dismissal is based on the ground that the Petition for Review in CTA Case No. 7687
was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roques] 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 Roques] claim for refund of alleged unutilized input VAT on its purchases of
capital goods and services for the taxable year 2001 in the amount of P483,797,599.65. 40
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion
tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in violation of [Taganitos]
right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion amounting to lack
or excess of jurisdiction in erroneously interpreting the provisions of Section 112 (D). 41
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:
I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the petition was
filed with the CTA within the period set by prevailing court rulings at the time it was filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this instant case.42
The Courts Ruling
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, leasesgoods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the effectivity of Republic Act No. 7716.
xxxx
Section 110(B):
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters: [Provided, That the input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT:] 43 Provided,
however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, 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.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March
2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather two crucial
facts: first, San Roque did not wait for the 120-day period to lapse before filing its judicial claim;second, San Roque filed its
judicial claim more than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner
to decide whether to grant or deny San Roques application for tax refund or credit. It is indisputable that compliance with
the 120-day waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was
part of the provisions of the first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting
period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the
waiting period has been in our statute books for more than fifteen (15) yearsbefore San Roque filed its judicial
claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the
effect that the CTA does not acquire jurisdiction over the taxpayers petition. Philippine jurisprudence is replete with
cases upholding and reiterating these doctrinal principles.46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the Commissioner of
Internal Revenue in cases involving x x x refunds of internal revenue taxes."47 When a taxpayer prematurely files a judicial
claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no "decision" of
the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The
charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific period" required by
law, such "inaction shall be deemed a denial"48 of the application for tax refund or credit. It is the Commissioners
decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review. Without a decision or an
"inaction x x x deemed a denial" of the Commissioner, the CTA has no jurisdiction over a petition for review.49
San Roques failure to comply with the 120-day mandatory period renders its petition for review with the CTA void.
Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws shall be void,
except when the law itself authorizes their validity." San Roques void petition for review cannot be legitimized by the
CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be legitimized "except when the
law itself authorizes [its] validity." There is no law authorizing the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or
acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This
doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the rights of others."50 For violating a mandatory provision of
law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roques
petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period just
because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not question the
entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax
was admittedly illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a tax
refund or credit. Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax
refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule that tax refunds or
credits, just like tax exemptions, are strictly construed against the taxpayer.51 The burden is on the taxpayer to
show that he has strictly complied with the conditions for the grant of the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the Commissioner
chose not to contest the numerical correctness of the claim for tax refund or credit of the taxpayer. Non-compliance with
mandatory periods, non-observance of prescriptive periods, and non-adherence to exhaustion of administrative
remedies bar a taxpayers claim for tax refund or credit, whether or not the Commissioner questions the numerical
correctness of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in claims for tax
refunds or credit. Such precedent will render meaningless compliance with mandatory and jurisdictional requirements,
for then every tax refund case will have to be decided on the numerical correctness of the amounts claimed, regardless of
non-compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed its
petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did not
exist at the time San Roque failed to comply with the 120- day period. Thus, San Roque cannot invoke theAtlas 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 twoyear prescriptive period should be counted from the date of payment of the output VAT, not from the close of the taxable
quarter when the sales involving the input VAT were made. The Atlas doctrine does not interpret, expressly or
impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court in Atlasas 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 theAtlas doctrine on
one hand, and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the two-year
prescriptive period from the date of payment of the output VAT, which means within 20 days after the close of the taxable
quarter. The output VAT at that time must be paid at the time of filing of the quarterly tax returns, which were to be filed
"within 20 days following the end of each quarter."
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative claims filed
with the Commissioner, and the petitions for review filed with the CTA, were all filed within two years from the date of
payment of the output VAT, following Section 229:
Period Covered
Date of Filing Return

& Payment of Tax
Date of Filing
Administrative Claim
Date of Filing
Petition With CTA
2nd Quarter, 1990

Close of Quarter
30 June 1990
20 July 1990
21 August 1990
20 July 1992
3rd Quarter, 1990

Close of Quarter
30 September 1990
18 October 1990
21 November 1990
9 October 1992
4th Quarter, 1990

Close of Quarter
31 December 1990
20 January 1991
19 February 1991
14 January 1993
Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after the close of
the taxable quarter. Had the twoyear prescriptive period been counted from the "close of the taxable quarter" as
expressly stated in the law, the tax refund claims of Atlas would have already prescribed. In contrast, the Mirantdoctrine
counts the two-year prescriptive period from the "close of the taxable quarter when the sales were made" as expressly
stated in the law, which means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine
and the later Mirant doctrine is not material to San Roques claim for tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue in the
present case is San Roques non-compliance with the 120-day mandatory and jurisdictional period, which is counted from
the date it filed its administrative claim with the Commissioner. The 120-day period may extend beyond the two-year
prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. However, San
Roques fatal mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory period
whether the Atlas or the Mirant doctrine is applied.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the
law. Section 112(C)56 expressly grants the Commissioner 120 days within which to decide the taxpayers claim. The law is
clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of complete documents." Following
the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners decision within the 120-day mandatory
and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial"
decision of the Commissioner for the CTA to review. In San Roques case, it filed its petition with the CTA a mere 13 days
after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory
120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly
as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of
the Commissioner to the CTA within 30 days from receipt of the Commissioners decision, or if the Commissioner does not
act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the
expiration of the 120-day period.
b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to lapse.
Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine. Taganito filed a
Petition for Review on 14 February 2007 with the CTA. This is almost four months before the adoption of
theAtlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim being misled, misguided,
or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which expressly ruled that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of Petition for Review." Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but
before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial
claim with the CTA on time.
c. G.R. No. 197156 Philex Mining Corporation v. CIR
Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed on 20
March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its Petition for Review with the
CTA. The close of the third taxable quarter in 2005 is 30 September 2005, which is the reckoning date in computing the
two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the 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 Philexs claim. Since the Commissioner did not act on Philexs claim on
or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The
CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its
Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of
filing. In short, Philex was late by one year and 61 days in filing its judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for Review in
C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond the 30day prescribed period; thus, no jurisdiction was acquired by the CTA Division; x x x58 (Emphasis supplied)
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex did not file any petition
with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the
expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426
days after the lapse of the 120-day period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philexs judicial claim will have to be rejected because of late filing. Whether the two-year
prescriptive period is counted from the date of payment of the output VAT following the Atlas doctrine, or from the close
of the taxable quarter when the sales attributable to the input VAT were made following the Mirantand Aichi doctrines,
Philexs judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philexs claim during the 120-day period is, by express provision of law, "deemed a denial" of Philexs claim. Philex had 30
days from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or
"deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of
such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. 59 Philex
failed 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)
yearsafter the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of the creditable input tax due or paid to such sales." In short, the law states that the
taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which means at
anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the
Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law.
The twoyear prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period
before his right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of
documents "in support of the application filed in accordance with Subsection A" means that the application in
Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In
short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file
an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not
refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase within two years x x x apply for the issuance of a tax credit or
refund refers to applications for refund/credit with the CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days60), then the taxpayer must file his administrative claim for refund or credit within the
first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond
the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive
period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day
period, will have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or
does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year
prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file
an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his
administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in
the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative
claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a remedy that the law
expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file
his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on
the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from
such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day,
the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only
logical interpretation of Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax

The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is
collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VATregistered seller61 of goods, properties or services used as input by another VAT-registered person in the sale of his own
goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as part of the
purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as understood under
Section 229, then it is the first VAT-registered person - the taxpayer who is legally liable and who is deemed to have
legally paid for the input VAT - who can ask for a tax refund or credit under Section 229 as an ordinary refund or
credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input VAT to offset
against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not
"excessively" collected as understood under Section 229. At the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is "excessively" collected,
that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim
that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or
credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of
the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." The prescriptive period is
reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected,
that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial claim for
refund within two years from his date of payment. Only the person legally liable to pay the tax can file the judicial
claim for refund. The person to whom the tax is passed on as part of the purchase price has no personality to file
the judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two
years from the close of the taxable quarter when the sale was made by the person legally liable to pay theoutput VAT.
This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT may
have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section
112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or credit of
the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not
claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more than what is
legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions.
For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the
entire selling price of his goods, properties or services. However, the taxpayer is allowed a refund or credit on the VAT
previously paid by those who sold him the inputs for his goods, properties, or services. The net effect is that the taxpayer
pays the VAT only on the value that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the
taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power through
renewable sources of energy.64 Thus, a non zero-rated VAT-registered taxpayer who has no output VAT because he has
no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if the taxpayer has sales
but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under the VAT
System. He can only carry-over and apply his "excess" input VAT against his future output VAT. If such "excess"
input VAT is an "excessively" collected tax, the taxpayer should be able to seek a refund or credit for such "excess" input
VAT whether or not he has output VAT. The VAT System does not allow such refund or credit. Such "excess" input VAT is
not an "excessively" collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax imposed only on the
value added by the taxpayer. If the input VAT is in fact "excessively" collected under Section 229, then it is the person
legally liable to pay the input VAT, not the person to whom the tax was passed on as part of the purchase price and
claiming credit for the input VAT under the VAT System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section 229 may
lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an ordinary tax refund
or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what is legally due can be claimed
as a refund or credit. There is no requirement under Section 229 for an output VAT or subsequent sale of goods,
properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously, x x x
illegally, x x x excessively or in any manner wrongfully collected." In short, there must be a wrongful paymentbecause
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 legisrule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year
prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the
120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised inAichi, which
adopted the verba legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The language of
Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund
or issue the tax credit within one hundred twenty (120) days from the date of submission of complete documents," the
law clearly gives the Commissioner 120 days within which to decide the taxpayers claim. Resort to the courts prior to the
expiration of the 120-day period is a patent violation of the doctrine of exhaustion of administrative remedies, a ground
for dismissing the judicial suit due to prematurity. Philippine jurisprudence is awash with cases affirming and reiterating
the doctrine of exhaustion of administrative remedies.65 Such doctrine is basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision denying
the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the
Court of Tax Appeals," the law does not make the 120+30 day periods optional just because the law uses the word "may."
The word "may" simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30
days from receipt of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch of
the imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the taxpayer to
file a judicial claim one day after filing the administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioners decision if the twoyear prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the 30day 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 taxpayers judicial
claim, or even for purposes of determining if the BIR should actually concede to the taxpayers judicial claim. The internal
administrative evaluation of the taxpayers claim must necessarily continue to enable the BIR to oppose intelligently the
judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the judicial claim, resulting in the
termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial
claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of his
jurisdiction to decide an administrative claim within the 120-day mandatory period,unless the Commissioner has
clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67
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 CTAs assumption of jurisdiction over such claim since equitable estoppel has set in as
expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the power to
interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. The power to interpret the provisions
of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith
should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws,
should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this Court. Indeed,
Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a
taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required
of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the rule is
issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal only by the
Commissioner because this Section expressly states, "Any revocation, modification or reversal" without specifying who
made the revocation, modification or reversal. Hence, a reversal by this Court is covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlasdoctrine
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 Aichiprospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the
Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. As held by this
Court in CIR v. Philippine Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax Code, the
Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where
injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made,
three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an
assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good
faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1wphi1 in the later cases ofCommissioner
of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp., Commissioner of Internal
Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is
that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the
taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled to tax
refunds or credits based on the BIRs own issuances but later was suddenly saddled with deficiency taxes due to its
subsequent ruling changing the category of the taxpayers transactions for the purpose of paying its VAT, this Court ruled
that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular
taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop InterAgency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its
query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact
asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-48903 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.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-48903 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the
120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling
No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR Ruling
No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because
Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the
expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. The
effect of the claim of the dissenting opinions is that San Roques failure to wait for the 120-day mandatory period to lapse
is inconsequential, thus allowing San Roque to claim the tax refund or credit. However, the five cases cited by the
dissenting opinions do not support even remotely the claim that this Court had already made such a ruling. None of these
five cases mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory period is
inconsequential as long as the administrative and judicial claims are filed within the two-year prescriptive
period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually passed on to
Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued that "although Toshiba
may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The Commissioner cited Section 4.106-1
of Revenue Regulations No. 75 that "refund of input taxes on capital goods shall be allowed only to the extent that such
capital goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue still to be
resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases
of capital goods and services, to which this Court answers in the affirmative." Nowhere in this case did the Court discuss,
state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case are (1) whether
the absence of the BIR authority to print or the absence of the TIN-V in petitioners export sales invoices operates to
forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated sales; and (2)
whether petitioners failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax credit
certification." Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division, conceding that
petitioners transactions fall under the classification of zero-rated sales, nevertheless denied petitioners claim for lack of
substantiation, x x x." The Court quoted the ruling of the First Division that "valid VAT official receipts, and not mere
sale invoices, should have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the
CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioners motion for reconsideration having been denied
x x x, the present petition for review was filed." Clearly, the sole issue in this case is whether petitioner complied with the
substantiation requirements in claiming for tax refund or credit. Again, nowhere in this case did the Court discuss, state,
or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the
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 Ironcons application for refund of
its excess creditable VAT withheld." The Commissioner argued that "since the NIRC does not specifically grant taxpayers
the option to refund excess creditable VAT withheld, it follows that such refund cannot be allowed." Thus, this case is
solely about whether the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT
withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and
judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance with the
120-day period was never an issue in Cebu Toyo. As the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu Toyo
Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT, under Section
24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they contend that respondent Cebu Toyo Corporation is not
entitled to any refund or credit on input taxes it previously paid as provided under Section 4.103-1 of Revenue
Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7, 1995
making it exempt from income tax but not from other taxes such as VAT. Hence, according to respondent, its export
sales are not exempt from VAT, contrary to petitioners claim, but its export sales is subject to 0% VAT. Moreover,
it argues that it was able to establish through a report certified by an independent Certified Public Accountant that the
input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export sales. Since it did
not have any output tax against which said input taxes may be offset, it had the option to file a claim for refund/tax credit
of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioners contention that respondent is not entitled to refund for being exempt from VAT is untenable. This
argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act
No. 7916. Note that under said statute, the respondent had two options with respect to its tax burden. It could avail of an
income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not
from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including VAT under
P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court
of Tax Appeals found that respondent availed of the income tax holiday for four (4) years starting from August 7, 1995, as
clearly reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where respondent specified that it was
availing of the tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered
itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax rate. If
subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT. Again, nowhere in this case did the
Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as
they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the Resolution of
its (administrative) claim by the CIR" before filing its judicial claim with the CTA, this issue was not raised before the
Court. Certainly, this statement of the Court is not a binding precedent that the taxpayer need not wait for the 120-day
period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as
precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was answered and resolved against the contention of the appellant
in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question was raised nor was it even suggested that said
section 216 did not apply to a public officer. That question was not discussed nor referred to by any of the parties
interested in that case. It has been frequently decided that the fact that a statute has been accepted as valid, and invoked
and applied for many years in cases where its validity was not raised or passed on, does not prevent a court from later
passing on its validity, where that question is squarely and properly raised and presented. Where a question passes the
Court sub silentio, the case in which the question was so passed is not binding on the Court (McGirr vs. Hamilton
and Abreu, 30 Phil. 563), nor should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote
vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S.
82.) For the reasons given in the case of McGirr vs. Hamilton and Abreu, supra, the decision in the case of Bautista vs.
Fajardo, supra, can have no binding force in the interpretation of the question presented here.76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an issue by
any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute binding precedent on
the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing dates of
the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court or the public. That is why
CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law
may warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine legal system. 77 As
held by this Court in The Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the Constitution . . .
form part of the legal system of the Philippines," and, as it were, "laws" by their own right because they interpret what the
laws say or mean. Unlike rulings of the lower courts, which bind the parties to specific cases alone, our judgments
are universal in their scope and application, and equally mandatory in character. Let it be warned that to defy our
decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the
Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final
decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases by all
courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has been examined
and decided, it should be deemed settled and closed to further argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files the judicial
claim "after" the lapse of the 60-day period, a period with which San Roque failed to comply. Under Section 4.106-2(c),
the 60-day period is still mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary law,
more so in this case where the later law was enacted precisely to amend the prior administrative regulation and the law it
implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax.
(a) x x x x
(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the Commissioner shall
grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of
submission of complete documents in support of the application filed in accordance with subparagraphs (a) and
(b) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from receipt of the decision denying the claim or after the expiration of the
sixty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall be made. In proper cases, the Commissioner shall grant
a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete documents in
support of the application filed in accordance with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the
taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the
decision will become final. However, if no action on the claim for tax credit/refund has been taken by the
Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of the application
but before the lapse of the two (2) year period from the date of filing of the VAT return for the taxable quarter,
the taxpayer may appeal to the Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the Commissioner shall grant
the refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the Commissioner has
a 60-day period to act on the administrative claim. This 60-day period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer mandatory and
jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act on the
administrative claim, the taxpayer may file the judicial claim even "before the lapse of the two (2) year period."Thus,
under Section 4.106-2(c) the 60-day period is still mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two
reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be
disputed.1wphi1
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no action on the claim for tax
refund/credit has been taken by the Commissioner after the sixty (60) day period," the taxpayer "may" already file the
judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA 7716, the
taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act on the
claim.80 With the amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to
expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day period is deemed a
denial of the claim. This is the meaning of the phrase "but before the lapse of the two (2) year period" in Section
4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only "after the sixty (60) day period," this
period remains mandatory and jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely
faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an administrative
issuance, amended Section 106(d) of the Tax Code to make the period given to the Commissioner non-mandatory, still the
1997 Tax Code, a much later law, reinstated the original intent and provision of Section 106(d) by extending the 60-day
period to 120 days and re-adopting the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere
administrative issuance, becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a
prior inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on
an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the Commissioner
partially or fully denies the claim within the 120- day period, or (2) only within thirty days from the expiration of the
120- day period if the Commissioner does not act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five
yearsbefore San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day period
is mandatory and jurisdictional. San Roques claim, having been filed administratively on 28 March 2003, is governed by
the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of the 120-day
mandatory and jurisdictional period, San Roques claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the judicial
claim "after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed its judicial claim
just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim on 10 April 2003, a mere
13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now
Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit because San
Roque did not wait for the 60-day period to lapse, contrary to the express requirement in Section 4.106-2(c). In
short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed
against the taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax refund or
credit. San Roque did not comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency
collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic adversities
arising from poor tax collections, forcing the government to continue borrowing to fund the budget deficits. This Court
cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not comply with statutory
requirements for tax refunds or credits. The tax refund claims in the present cases are not a pittance. Many other
companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its head the well-settled
doctrine that tax refunds are strictly construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R. No. 187485
to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; (2) GRANTSthe petition of
Taganito Mining Corporation in G.R. No. 196113 for a tax refund or credit of P8,365,664.38; and (3)DENIES the petition of
Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44.
SO ORDERED.

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Case Number 2

COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 178697

SONY PHILIPPINES, INC.,

Deficiency VAT Due

DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)

Deficiency EWT Due

DEFICIENCY OF VAT ON ROYALTY PAYMENTS

LATE REMITTANCE OF FINAL WITHHOLDING TAX

LATE REMITTANCE OF INCOME PAYMENTS

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

Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded

VAT on Royalty P 429,242.07

WHEREFORE, the petition is DENIED.

KEPCO PHILIPPINES CORPORATION,

G.R. No. 181858

CARPIO, J., Chairperson,

November 24, 2010

Substantiated zero-rated sales to NPC

Rate of substantiated zero-rated sales

Total Input VAT Claimed

Multiply by Rate of Substantiated ZeroRated Sales

The Court does not agree.

November 13, 2013

LUZON HYDRO CORPORATION, Petitioner,

Input VAT (P)

May 25, 2001

1st quarter 2001

July 23, 2001

2nd quarter 2001

July 23, 2002

3rd quarter 2001

July 24, 2002

4th quarter 2001

WHEREFORE, the petition is DENIED. No costs.

4. R.A. NO. 7649

xxx xxx xxx

(f) Transactions exempted under special laws, or international agreements.

February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

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

April 15, 2005

July 20, 2005

October 18, 2006

July 20, 2005

October 18, 2006

October 19, 2005

October 18, 2006

January 20, 2006

October 18, 2006

Total Input VAT

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

Date of Filing Return

2nd Quarter, 1990

3rd Quarter, 1990

4th Quarter, 1990

III. "Excess" Input VAT and "Excessively" Collected Tax

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