Nature and Characteristic of VAT/ Meaning of in the course of business

THIRD DIVISION
[G.R. NO. 146984 : July 28, 2006]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. MAGSAYSAY LINES, INC., BALIWAG
NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP (HK) and NATIONAL DEVELOPMENT
COMPANY, Respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development Company (NDC) of five
(5) of its vessels to the private respondents is subject to value-added tax (VAT) under the National
Internal Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court of Tax
Appeals (CTA) and the Court of Appeals commonly ruled that the sale is not subject to VAT. We affirm,
though on a more unequivocal rationale than that utilized by the rulings under review. The fact that the
sale was not in the course of the trade or business of NDC is sufficient in itself to declare the sale as
outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its
shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in
one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type
vessels.1 The vessels were constructed for the NDC between 1981 and 1984, then initially leased to
Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were
transferred and leased, on a bareboat basis, to the NMC.2
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and
conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the
value of the vessels."3 On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines)
offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines,
purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM
Limited of the Marden Group based in Hongkong (collectively, private respondents). 4 The bid was
approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was issued to
Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand,
and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the
contract stipulated that "[v]alue-added tax, if any, shall be for the account of the PURCHASER." 5 Per
arrangement, an irrevocable confirmed Letter of Credit previously filed as bidders bond was accepted by
NDC as security for the payment of VAT, if any. By this time, a formal request for a ruling on whether or
not the sale of the vessels was subject to VAT had already been filed with the Bureau of Internal Revenue
(BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in behalf of private
respondents. Thus, the parties agreed that should no favorable ruling be received from the BIR, NDC was
authorized to draw on the Letter of Credit upon written demand the amount needed for the payment of the
VAT on the stipulated due date, 20 December 1988.6
In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14
December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling

cited the fact that NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal
VAT registered activity of leasing out personal property including sale of its own assets that are movable,
tangible 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 ofP15,120,000.00 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. 39588, 568-88 and 007-89, as well as the refund of the VAT payment made amounting
toP15,120,000.00.8 The Commissioner of Internal Revenue (CIR) opposed the petition, first arguing that
private respondents were not the real parties in interest as they were not the transferors or sellers as
contemplated in Sections 99 and 100 of the then Tax Code. The CIR also squarely defended the VAT
rulings holding the sale of the vessels liable for VAT, especially citing Section 3 of Revenue Regulation
No. 5-87 (R.R. No. 5-87), which provided that "[VAT] is imposed on any sale or transactions 'deemed
sale' of taxable goods (including capital goods, irrespective of the date of acquisition)." The CIR argued
that the sale of the vessels were among those transactions "deemed sale," as enumerated in Section 4 of
R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the Regulation, which
classified "change of ownership of business" as a circumstance that gave rise to a transaction "deemed
sale."
In a Decision dated 27 April 1992, the CTA rejected the CIR's arguments and granted the petition. 9The
CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of
NDC's business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied
only to sales in the course of trade or business. The CTA further held that the sale of the vessels could
not be "deemed sale," and thus subject to VAT, as the transaction did not fall under the enumeration of
transactions deemed sale as listed either in Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87.
Finally, the CTA ruled that any case of doubt should be resolved in favor of private respondents since
Section 99 of the Tax Code which implemented VAT is not an exemption provision, but a classification
provision which warranted the resolution of doubts in favor of the taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals,10 which on 11 March 1997, rendered a
Decision reversing the CTA.11 While the appellate court agreed that the sale was an isolated transaction,
not made in the course of NDC's regular trade or business, it nonetheless found that the transaction fell
within the classification of those "deemed sale" under R.R. No. 5-87, since the sale of the vessels
together with the NMC shares brought about a change of ownership in NMC. The Court of Appeals also
applied the principle governing tax exemptions that such should be strictly construed against the taxpayer,
and liberally in favor of the government.12
However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5
February 2001.13 This time, the appellate court ruled that the "change of ownership of business" as
contemplated in R.R. No. 5-87 must be a consequence of the "retirement from or cessation of business"
by the owner of the goods, as provided for in Section 100 of the Tax Code. The Court of Appeals also
agreed with the CTA that the classification of transactions "deemed sale" was a classification statute, and
not an exemption statute, thus warranting the resolution of any doubt in favor of the taxpayer. 14
To the mind of the Court, the arguments raised in the present petition have already been adequately
discussed and refuted in the rulings assailed before us. Evidently, the petition should be denied. Yet the
Court finds that Section 99 of the Tax Code is sufficient reason for upholding the refund of VAT payments,
and the subsequent disquisitions by the lower courts on the applicability of Section 100 of the Tax Code
and Section 4 of R.R. No. 5-87 are ultimately irrelevant.

A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on
consumption, even though it is assessed on many levels of transactions on the basis of a fixed
percentage.15 It is the end user of consumer goods or services which ultimately shoulders the tax, as the
liability therefrom is passed on to the end users by the providers of these goods or services 16who in turn
may credit their own VAT liability (or input VAT) from the VAT payments they receive from the final
consumer (or output VAT).17 The final purchase by the end consumer represents the final link in a
production chain that itself involves several transactions and several acts of consumption. The VAT
system assures fiscal adequacy through the collection of taxes on every level of consumption,18 yet
assuages the manufacturers or providers of goods and services by enabling them to pass on their
respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire
tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance
to the taxpayer's role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code
and its subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of goods or
services by persons who engage in such activities, in the course of trade or business. These
transactions outside the course of trade or business may invariably contribute to the production chain, but
they do so only as a matter of accident or incident. As the sales of goods or services do not occur within
the course of trade or business, the providers of such goods or services would hardly, if at all, have the
opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections
since the accumulation of output VAT arises in the first place only through the ordinary course of trade or
business.
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated
by both the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually
reconsidered.20 We cite with approval the CTA's explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the
term "carrying on business" does not mean the performance of a single disconnected act, but means
conducting, prosecuting and continuing business by performing progressively all the acts normally
incident thereof; while "doing business" conveys the idea of business being done, not from time to time,
but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS),
p. 608-9 (1988)]. "Course of business" is what is usually done in the management of trade or business.
[Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing
business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The
sale which was involuntary and made pursuant to the declared policy of Government for privatization
could no longer be repeated or carried on with regularity. It should be emphasized that the normal VATregistered activity of NDC is leasing personal property.21
This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that the NDC
was created for the primary purpose of selling real property. 23
The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute
before this Court,24 should have definitively settled the matter. Any sale, barter or exchange of goods or
services not in the course of trade or business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon
by the CIR, is captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be
levied, assessed and collected on every sale, barter or exchange of goods, a value added tax x x x."
Section 100 should be read in light of Section 99, which lays down the general rule on which persons are
liable for VAT in the first place and on what transaction if at all. It may even be noted that Section 99 is
the very first provision in Title IV of the Tax Code, the Title that covers VAT in the law. Before any portion

of Section 100, or the rest of the law for that matter, may be applied in order to subject a transaction to
VAT, it must first be satisfied that the taxpayer and transaction involved is liable for VAT in the first place
under Section 99.
It would have been a different matter if Section 100 purported to define the phrase "in the course of trade
or business" as expressed in Section 99. If that were so, reference to Section 100 would have been
necessary as a means of ascertaining whether the sale of the vessels was "in the course of trade or
business," and thus subject to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not
the meaning of "in the course of trade or business," but instead the identification of the transactions which
may be deemed as sale. It would become necessary to ascertain whether under those two provisions the
transaction may be deemed a sale, only if it is settled that the transaction occurred in the course of trade
or business in the first place. If the transaction transpired outside the course of trade or business, it would
be irrelevant for the purpose of determining VAT liability whether the transaction may be deemed sale,
since it anyway is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in question was not
made in the course of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant
to Section 99 of the Tax Code, no matter how the said sale may hew to those transactions deemed sale
as defined under Section 100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the
Court finds the discussions offered on this point by the CTA and the Court of Appeals (in its subsequent
Resolution) essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions
deemed sale those involving "change of ownership of business." However, Section 4(E) of R.R. No. 5-87,
reflecting Section 100 of the Tax Code, clarifies that such "change of ownership" is only an attending
circumstance to "retirement from or cessation of business[,] with respect to all goods on hand [as] of the
date of such retirement or cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the
"change of ownership of business" as only a "circumstance" that attends those transactions "deemed
sale," which are otherwise stated in the same section.26
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

NatureCharacteristicofVAT/AutoZero Rate v Effectively Zero-rate/Exempt Persons v Exempt Transactions

THIRD DIVISION [G.R. No. 153866. February 11, 2005]
COMMISSIONER OF
INTERNAL
(PHILIPPINES), respondent.

REVENUE, petitioner,

vs.

SEAGATE

TECHNOLOGY

DECISION
PANGANIBAN, J.:
Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules
relevant thereto, including the value-added taxes or VAT. Although export sales are not deemed
exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction
between exempt entities and exempt transactions has little significance, because the net result is that the
taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with all
requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased.
Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such
refund or credit.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the
May 27, 2002 Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of
the Decision reads as follows:
WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit.[3]
The Facts
The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:
1. [Respondent] is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines, with principal office address at the
new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to
perform the duties of his office, including, among others, the duty to act and approve claims
for refund or tax credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been
issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to
engage in the manufacture of recording components primarily used in computers for export.
Such registration was made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration
Certification No. 97-083-000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this

Petition for Review), was filed on 4 October 1999 with Revenue District Office No. 83,
Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for
VAT refund.
The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the
[petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of
Petition for Review in order to toll the running of the two-year prescriptive period.
For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary
investigation/examination by [petitioners] Bureau;
2. Since taxes are presumed to have been collected in accordance with laws and regulations,
the [respondent] has the burden of proof that the taxes sought to be refunded were
erroneously or illegally collected x x x;
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
A claimant has the burden of proof to establish the factual basis of
his or her claim for tax credit/refund.
4. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is
due to the fact that claims for refund/credit [partake of] the nature of an exemption from tax.
Thus, it is incumbent upon the [respondent] to prove that it is indeed entitled to the
refund/credit sought. Failure on the part of the [respondent] to prove the same is fatal to its
claim for tax credit. He who claims exemption must be able to justify his claim by the clearest
grant of organic or statutory law. An exemption from the common burden cannot be
permitted to exist upon vague implications;
5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority
(PEZA) registered Ecozone Enterprise, then its business is not subject to VAT pursuant to
Section 24 of Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as
amended. As [respondents] business is not subject to VAT, the capital goods and services it
alleged to have purchased are considered not used in VAT taxable business. As such,
[respondent] is not entitled to refund of input taxes on such capital goods pursuant to Section
4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to
Section 4.103 of said regulations.
6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the
1997 Tax Code on filing of a written claim for refund within two (2) years from the date of
payment of tax.
On July 19, 2001, the Tax Court rendered a decision granting the claim for refund. [4]
Ruling of the Court of Appeals
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit
certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66. This sum represented
the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1,
1998 to June 30, 1999.
The appellate court reasoned that respondent had availed itself only of the fiscal incentives under
Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those
under both Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916. Respondent was,

therefore, considered exempt only from the payment of income tax when it opted for the income tax
holiday in lieu of the 5 percent preferential tax on gross income earned. As a VAT-registered entity,
though, it was still subject to the payment of other national internal revenue taxes, like the VAT.
Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of
RR 7-95 were applicable. Having paid the input VAT on the capital goods it purchased, respondent
correctly filed the administrative and judicial claims for its refund within the two-year prescriptive period.
Such payments were -- to the extent of the refundable value -- duly supported by VAT invoices or official
receipts, and were not yet offset against any output VAT liability.
Hence this Petition.[5]
Sole Issue
Petitioner submits this sole issue for our consideration:
Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount
of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the
period April 1, 1998 to June 30, 1999.[6]
The Courts Ruling
The Petition is unmeritorious.

Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to
a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special economic zone,[7] respondent is entitled
to the fiscal incentives and benefits[8] provided for in either PD 66[9] or EO 226.[10]It shall, moreover, enjoy
all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 [11] and
7844.[12]
Preferential Tax Treatment
Under Special Laws
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent
shall not be subject to internal revenue laws and regulations for raw materials, supplies, articles,
equipment, machineries, spare parts and wares, except those prohibited by law, brought into the zone to
be stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed,
manipulated, manufactured, mixed or used directly or indirectly in such activities. [13] Even so, respondent
would enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange and financial
assistance; and exemption from export taxes, local taxes and licenses.[14]
Comparatively, the same exemption from internal revenue laws and regulations applies if EO
226[15] is chosen. Under this law, respondent shall further be entitled to an income tax holiday; additional
deduction for labor expense; simplification of customs procedure; unrestricted use of consigned
equipment; access to a bonded manufacturing warehouse system; privileges for foreign nationals
employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw materials;
and exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment
and spare parts, export taxes, duties, imposts and fees, [16] local taxes and licenses, and real property
taxes.[17]

A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation
of raw materials, capital and equipment[18] -- is, ipso facto, also accorded to the zone[19] under RA 7916.
Furthermore, the latter law -- notwithstanding other existing laws, rules and regulations to the contrary -extends[20] to that zone the provision stating that no local or national taxes shall be imposed therein. [21] No
exchange control policy shall be applied; and free markets for foreign exchange, gold, securities and
future shall be allowed and maintained.[22] Banking and finance shall also be liberalized under minimum
Bangko Sentral regulation with the establishment of foreign currency depository units of local commercial
banks and offshore banking units of foreign banks.[23]
In the same vein, respondent benefits under RA 7844 from negotiable tax credits [24] for locallyproduced materials used as inputs. Aside from the other incentives possibly already granted to it by the
Board of Investments, it also enjoys preferential credit facilities [25] and exemption from PD 1853.[26]
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax
treatment.[27] It is not subject to internal revenue laws and regulations and is even entitled to tax credits.
The VAT on capital goods is an internal revenue tax from which petitioner as an entity is exempt.
Although the transactions involving such tax are not exempt, petitioner as a VAT-registered
person,[28] however, is entitled to their credits.
Nature of the VAT and
the Tax Credit Method
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on
every importation of goods, whether or not in the course of trade or business, or imposed on each sale,
barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or
business[29] as they pass along the production and distribution chain, the tax being limited only to the
value added[30] to such goods, properties or services by the seller, transferor or lessor. [31] It is an indirect
tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services.[32] As such, it should be understood not in the context of the person or entity that is primarily,
directly and legally liable for its payment, but in terms of its nature as a tax on consumption. [33] In either
case, though, the same conclusion is arrived at.
The law[34] that originally imposed the VAT in the country, as well as the subsequent amendments of
that law, has been drawn from the tax credit method.[35] Such method adopted the mechanics and selfenforcement features of the VAT as first implemented and practiced in Europe and subsequently adopted
in New Zealand and Canada.[36] Under the present method that relies on invoices, an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs
and imports.[37]
If at the end of a taxable quarter the output taxes[38] charged by a seller[39] are equal to the input
taxes[40] passed on by the suppliers, no payment is required. It is when the output taxes exceed the input
taxes that the excess has to be paid.[41] If, however, the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters. [42] Should the input taxes result from zerorated or effectively zero-rated transactions or from the acquisition of capital goods, [43] any excess over the
output taxes shall instead be refunded[44] to the taxpayer or credited[45] against other internal revenue
taxes.[46]
Zero-Rated and Effectively
Zero-Rated Transactions
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zerorated transactions as to their source.
Zero-rated transactions generally refer to the export sale of goods and supply of services.[47] The tax
rate is set at zero.[48] When applied to the tax base, such rate obviously results in no tax chargeable
against the purchaser. The seller of such transactions charges no output tax, [49] but can claim a refund of
or a tax credit certificate for the VAT previously charged by suppliers.

Effectively zero-rated transactions, however, refer to the sale of goods [50] or supply of services[51] to
persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such transactions to a zero rate. [52] Again, as applied to the
tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges zero
output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers.
Zero Rating and
Exemption
In terms of the VAT computation, zero rating and exemption are the same, but the extent of
relief that results from either one of them is not.
Applying the destination principle[53] to the exportation of goods, automatic zero rating[54] is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller
internationally competitive by allowing the refund or credit of input taxes that are attributable to export
sales.[55] Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly
and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the
suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the
tax.[56] But in an exemption there is only partial relief,[57] because the purchaser is not allowed any tax
refund of or credit for input taxes paid.[58]
Exempt Transaction
and Exempt Party
The object of exemption from the VAT may either be the transaction itself or any of the parties to the
transaction.[59]
An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax
status -- VAT-exempt or not -- of the party to the transaction.[60] Indeed, such transaction is not subject to
the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax
Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of
which its taxable transactions become exempt from the VAT. [61] Such party is also not subject to the VAT,
but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or
non-VAT taxpayer.
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or
passed on by the seller to the purchaser of the goods, properties or services. [62] While the liability is
imposed on one person, the burden may be passed on to another. Therefore, if a special law merely
exempts a party as a seller from its direct liability for payment of the VAT, but does not relieve the same
party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers, the
purchase transaction is not exempt. Applying this principle to the case at bar, the purchase transactions
entered into by respondent are not VAT-exempt.
Special laws may certainly exempt transactions from the VAT.[63] However, the Tax Code provides
that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which
respondent was registered. The purchase transactions it entered into are, therefore, not VAT-exempt.
These are subject to the VAT; respondent is required to register.
Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10
percent,[64] depending again on the application of the destination principle.[65]

If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for
use or consumption outside the Philippines, these shall be subject to 0 percent. [66] If entered into with a
purchaser for use or consumption in the Philippines, then these shall be subject to 10 percent, [67] unless
the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its
exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero
rate,[68] because the ecozone within which it is registered is managed and operated by the PEZA as
a separate customs territory.[69] This means that in such zone is created the legal fiction of foreign
territory.[70] Under the cross-border principle[71] of the VAT system being enforced by the Bureau of
Internal Revenue (BIR),[72] no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority. If exports of goods and services from
the Philippines to a foreign country are free of the VAT,[73] then the same rule holds for such exports from
the national territory -- except specifically declared areas -- to an ecozone.
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are
considered exports to a foreign country; conversely, sales by a PEZA-registered entity to a VATregistered person in the customs territory are deemed imports from a foreign country. [74] An ecozone -indubitably a geographical territory of the Philippines -- is, however, regarded in law as foreign
soil.[75] This legal fiction is necessary to give meaningful effect to the policies of the special law creating
the zone.[76] If respondent is located in an export processing zone [77] within that ecozone, sales to the
export processing zone, even without being actually exported, shall in fact be viewed as constructively
exported under EO 226.[78] Considered as export sales,[79] such purchase transactions by respondent
would indeed be subject to a zero rate.[80]
Tax Exemptions
Broad and Express
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal
revenue laws and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a
tax on consumption, for which the direct liability is imposed on one person but the indirect burden is
passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on
its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its
purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we
ought not to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:
First, RA 7916 states that no taxes, local and national, shall be imposed on business establishments
operating within the ecozone.[81] Since this law does not exclude the VAT from the prohibition, it is
deemed included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in
cases not excepted; that is, a thing not being excepted must be regarded as coming within the purview of
the general rule.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be
passed on and, therefore, indirectly imposed on the same entity -- a patent circumvention of the law. That
no VAT shall be imposed directly upon business establishments operating within the ecozone under RA
7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid prohibetur ex
directo prohibetur et per obliquum. When anything is prohibited directly, it is also prohibited indirectly.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for
real property taxes that presently are imposed on land owned by developers. [82] This similar and repeated
prohibition is an unambiguous ratification of the laws intent in not imposing local or national taxes on
business enterprises within the ecozone.

Third, foreign and domestic merchandise, raw materials, equipment and the like shall not be subject
to x x x internal revenue laws and regulations under PD 66[83] -- the original charter of PEZA (then EPZA)
that was later amended by RA 7916.[84] No provisions in the latter law modify such exemption.
Although this exemption puts the government at an initial disadvantage, the reduced tax collection
ultimately redounds to the benefit of the national economy by enticing more business investments and
creating more employment opportunities.[85]
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those
prohibited by law -- shall not be subject to x x x internal revenue laws and regulations x x x [86] if brought to
the ecozones restricted area[87] for manufacturing by registered export enterprises, [88] of which respondent
is one. These rules also apply to all enterprises registered with the EPZA prior to the effectivity of such
rules.[89]
Fifth, export processing zone enterprises registered[90] with the Board of Investments (BOI) under EO
226 patently enjoy exemption from national internal revenue taxes on imported capital equipment
reasonably needed and exclusively used for the manufacture of their products; [91] on required supplies
and spare part for consigned equipment;[92] and on foreign and domestic merchandise, raw materials,
equipment and the like -- except those prohibited by law -- brought into the zone for manufacturing.[93] In
addition, they are given credits for the value of the national internal revenue taxes imposed on domestic
capital equipment also reasonably needed and exclusively used for the manufacture of their
products,[94] as well as for the value of such taxes imposed on domestic raw materials and supplies that
are used in the manufacture of their export products and that form part thereof.[95]
Sixth, the exemption from local and national taxes granted under RA 7227[96] are ipso facto accorded
to ecozones.[97] In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in
favor of the ecozone.[98]
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the
production of export goods,[99] and for locally produced raw materials, capital equipment and spare parts
used by exporters of non-traditional products[100] -- shall also be continuously enjoyed by similar exporters
within the ecozone.[101] Indeed, the latter exporters are likewise entitled to such tax exemptions and
credits.
Tax Refund as
Tax Exemption
To be sure, statutes that grant tax exemptions are construed strictissimi juris[102] against the
taxpayer[103] and liberally in favor of the taxing authority.[104]
Tax refunds are in the nature of such exemptions.[105] Accordingly, the claimants of those refunds
bear the burden of proving the factual basis of their claims; [106] and of showing, by words too plain to be
mistaken, that the legislature intended to exempt them.[107] In the present case, all the cited legal
provisions are teeming with life with respect to the grant of tax exemptions too vivid to pass unnoticed. In
addition, respondent easily meets the challenge.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt.
The end result, however, is that it is not subject to the VAT. The non-taxability of transactions that are
otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an
entity, not upon the transactions themselves.[108] Nonetheless, its exemption as an entity and the nonexemption of its transactions lead to the same result for the following considerations:
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to
execute or administer such laws[109] will have to be adopted. Their prior tax issuances have held
inconsistent positions brought about by their probable failure to comprehend and fully appreciate the
nature of the VAT as a tax on consumption and the application of the destination principle.[110] Revenue
Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any VATregistered suppliers sale of goods, property or services from the customs territory to any registered

enterprise operating in the ecozone -- regardless of the class or type of the latters PEZA registration -- is
legally entitled to a zero rate.[111]
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its
very soul.
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of
export processing zones, seeks to encourage and promote foreign commerce as a means of x x x
strengthening our export trade and foreign exchange position, of hastening industrialization, of reducing
domestic unemployment, and of accelerating the development of the country.[112]
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special
economic zones, the government shall actively encourage, promote, induce and accelerate a sound and
balanced industrial, economic and social development of the country x x x through the establishment,
among others, of special economic zones x x x that shall effectively attract legitimate and productive
foreign investments.[113]
Under EO 226, the State shall encourage x x x foreign investments in industry x x x which shall x x x
meet the tests of international competitiveness[,] accelerate development of less developed regions of the
country[,] and result in increased volume and value of exports for the economy. [114] Fiscal incentives that
are cost-efficient and simple to administer shall be devised and extended to significant projects to
compensate for market imperfections, to reward performance contributing to economic
development,[115] and to stimulate the establishment and assist initial operations of the enterprise. [116]
Wisely accorded to ecozones created under RA 7916[117] was the governments policy -- spelled out
earlier in RA 7227 -- of converting into alternative productive uses[118] the former military reservations and
their extensions,[119] as well as of providing them incentives[120] to enhance the benefits that would be
derived from them[121] in promoting economic and social development.[122]
Finally, under RA 7844, the State declares the need to evolve export development into a national
effort[123] in order to win international markets. By providing many export and tax incentives,[124] the State
is able to drive home the point that exporting is indeed the key to national survival and the means through
which the economic goals of increased employment and enhanced incomes can most expeditiously be
achieved.[125]
The Tax Code itself seeks to promote sustainable economic growth x x x; x x x increase economic
activity; and x x x create a robust environment for business to enable firms to compete better in the
regional as well as the global market.[126] After all, international competitiveness requires economic and
tax incentives to lower the cost of goods produced for export. State actions that affect global competition
need to be specific and selective in the pricing of particular goods or services.[127]
All these statutory policies are congruent to the constitutional mandates of providing incentives to
needed investments,[128] as well as of promoting the preferential use of domestic materials and locally
produced goods and adopting measures to help make these competitive. [129] Tax credits for domestic
inputs strengthen backward linkages. Rightly so, the rule of law and the existence of credible and efficient
public institutions are essential prerequisites for sustainable economic development.[130]
VAT Registration, Not Application
for Effective Zero Rating,
Indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law. [131] Petitioner alleges that
respondent did register for VAT purposes with the appropriate Revenue District Office. However, it is now
too late in the day for petitioner to challenge the VAT-registered status of respondent, given the latters
prior representation before the lower courts and the mode of appeal taken by petitioner before this Court.
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal
revenue laws and regulations the equipment -- including capital goods -- that registered enterprises will
use, directly or indirectly, in manufacturing.[132] EO 226 even reiterates this privilege among the incentives

it gives to such enterprises.[133] Petitioner merely asserts that by virtue of the PEZA registration alone of
respondent, the latter is not subject to the VAT. Consequently, the capital goods and services respondent
has purchased are not considered used in the VAT business, and no VAT refund or credit is due. [134] This
is a non sequitur. By the VATs very nature as a tax on consumption, the capital goods and services
respondent has purchased are subject to the VAT, although at zero rate. Registration does not determine
taxability under the VAT law.
Moreover, the facts have already been determined by the lower courts. Having failed to present
evidence to support its contentions against the income tax holiday privilege of respondent,[135] petitioner is
deemed to have conceded. It is a cardinal rule that issues and arguments not adequately and seriously
brought below cannot be raised for the first time on appeal. [136] This is a matter of procedure[137] and a
question of fairness.[138] Failure to assert within a reasonable time warrants a presumption that the party
entitled to assert it either has abandoned or declined to assert it.[139]
The BIR regulations additionally requiring an approved prior application for effective zero
rating[140] cannot prevail over the clear VAT nature of respondents transactions. The scope of such
regulations is not within the statutory authority x x x granted by the legislature. [141]
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot
purport to do any more than interpret the latter.[142] The courts will not countenance one that overrides the
statute it seeks to apply and implement.[143]
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no
provision under our VAT law requires an additional application to be made for such taxpayers
transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and
cannot become exempt simply because an application therefor was not made or, if made, was denied. To
allow the additional requirement is to give unfettered discretion to those officials or agents who, without
fluid consideration, are bent on denying a valid application. Moreover, the State can never be estopped
by the omissions, mistakes or errors of its officials or agents.[144]
Second, grantia argumenti that such an application is required by law, there is still the presumption
of regularity in the performance of official duty.[145] Respondents registration carries with it the
presumption that, in the absence of contradictory evidence, an application for effective zero rating was
also filed and approval thereof given. Besides, it is also presumed that the law has been obeyed [146] by
both the administrative officials and the applicant.
Third, even though such an application was not made, all the special laws we have tackled exempt
respondent not only from internal revenue laws but also from the regulations issued pursuant thereto.
Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic
growth in the country and attain global competitiveness as envisioned in those laws.
A VAT-registered status, as well as compliance with the invoicing requirements,[147] is sufficient for
the effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can
easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied
documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for
their effective zero rating. Otherwise, their VAT exemption would be determined, not by their nature, but
by the taxpayers negligence -- a result not at all contemplated. Administrative convenience cannot thwart
legislative mandate.
Tax Refund or
Credit in Order
Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax
refund or credit is in order.
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in
EO 226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5
percent preferential tax regime.

The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, [148] for
EO 226[149] also has provisions to contend with. These two regimes are in fact incompatible and cannot
be availed of simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the
PEZA law exempts it from all taxes.
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of
income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer
enterprise. Besides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local and
national taxes imposable upon business establishments within the ecozone cannot outrightly determine a
VAT exemption. Being subject to VAT, payments erroneously collected thereon may then be refunded or
credited.
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916,
Section 24 thereof does not preclude the VAT. One can, therefore, counterargue that such provision
merely exempts respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on
consumption, not on business. Although respondent as an entity is exempt, the transactions it enters into
are not necessarily so. The VAT payments made in excess of the zero rate that is imposable may
certainly be refunded or credited.
Compliance with All Requisites
for VAT Refund or Credit
As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a
VAT refund or credit.[150]
First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from
Contex, in which this Court held that the petitioner therein was registered as a non-VAT
taxpayer.[151] Hence, for being merely VAT-exempt, the petitioner in that case cannot claim any VAT
refund or credit.
Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices
and have not been offset against any output taxes. Although enterprises registered with the BOI after
December 31, 1994 would no longer enjoy the tax credit incentives on domestic capital equipment -- as
provided for under Article 39(d), Title III, Book I of EO 226 [152] -- starting January 1, 1996, respondent
would still have the same benefit under a general and express exemption contained in both Article 77(1),
Book VI of EO 226; and Section 12, paragraph 2 (c) of RA 7227, extended to the ecozones by RA 7916.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones
from national and local taxes, but also to grant them tax credits. This fact was revealed by the
sponsorship speeches in Congress during the second reading of House Bill No. 14295, which later
became RA 7916, as shown below:
MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local
taxes; x x x tax credit for locally-sourced inputs x x x.
xxxxxxxxx
MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment
conducive for investors, the bill offers incentives such as the exemption from local and national taxes, x x
x tax credits for locally sourced inputs x x x.[153]
And third, no question as to either the filing of such claims within the prescriptive period or the
validity of the VAT returns has been raised. Even if such a question were raised, the tax exemption under
all the special laws cited above is broad enough to cover even the enforcement of internal revenue laws,
including prescription.[154]

Summary
To summarize, special laws expressly grant preferential tax treatment to business establishments
registered and operating within an ecozone, which by law is considered as a separate customs territory.
As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations
pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax
regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no
longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase
transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is
necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a
tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such
VAT refund or credit.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur.

NATURE AND CHARACTERISTIC OF VAT

EN BANC
[G.R. NO. 173425 - September 4, 2012]
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and
PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.
CONCURRING OPINION
ABAD, J.:
I fully concur in Justice Mariano C. Del Castillo's ponencia and disagree with Justice Antonio T. Carpio's
points of dissent. In 1992 Congress enacted Republic Act (R.A.) 7227 creating the Bases Conversion
Development Authority (BCDA) for the purpose of raising funds through the sale to private investors of
military lands in Metro Manila. To do this, the BCDA established the Fort Bonifacio Development Corp.
(FBDC), a registered corporation, to enable the latter to develop the 214-hectare military camp in Fort
Bonifacio, Taguig, for mix residential and commercial purposes. On February 8, 1995 the Government of
the Republic of the Philippines ceded the land by deed of absolute sale to FBDC for P 71.2 billion.
Subsequently, cashing in on the sale, BCDA sold at a public bidding 55o/o of its shares in FBDC to
private investors, retaining ownership of the remaining 45%.
In October 1996, after the National Internal Revenue Code (NIRC) subjected the sale and lease of real
properties to VAT, FBDC began selling and leasing lots in Fort Bonifacio. FBDC filed its first VAT return
covering those sales and leases and subsequently made cash payments for output VAT due. After which,
FBDC filed a claim for refund representing transitional input tax credit based on 8o/o of the value of its
beginning inventory of lands or actual value-added tax paid on its goods, whichever is higher, that Section
105 of the NIRC grants to first-time VAT payers like FBDC.
Because of the inaction of the Commissioner of Internal Revenue (CIR) on its claim for refund, FBDC filed
a Petition for Review before the Court of Tax Appeals (CTA), which court denied the petition. On appeal,
the Court of
Appeals (CA) affirmed the denial. Both the CTA and the CA premised their actions on the fact that FBDC
paid no tax on the Government s sale of the lands to it as to entitle it to the transitional input tax credit.
Likewise, citing Revenue Regulations 7-95, which implemented Section 105 of the NIRC, the CTA and
the CA ruled that such tax credit given to real estate dealers is essentially based on the value of
improvements they made on their land holdings after January 1, 1988, rather than on the book value of
the same as FBDC proposed.
FBDC subsequently appealed the CA decision to this Court by Petition for Review in G.R. 158885, "Fort
Bonifacio Development Corporation v. Commissioner of Internal Revenue." Meantime, similar actions
involving subsequent FBDC sales subject to VAT, including the present action, took the same route CTA,
CA, and lastly this Court because of the CIR s refusal to honor FBDC s claim to transitional input tax
credit.
On April 2, 2009 the Court En Banc rendered judgment in G.R. 158885,1 declaring FBDC entitled to the
transitional input tax credit that Section 105 of the NIRC granted. In the same decision, the Court also
disposed of G.R. 170680, "Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue," which was consolidated with G.R. 158885. The Court directed the CIR in that case to refund to
FBDC the VAT which it paid for the third quarter of 1997. Justice Tinga penned the decision with the

concurrence of Justices Martinez, Corona, Nazario, Velasco, Jr., De Castro, Peralta, and Santiago.
Justices Carpio, Quisumbing, Morales, and Brion dissented. Chief Justice Puno and Justice Nachura took
no part.
The CIR filed a motion for reconsideration but the Court denied the same with finality on October 2,
2009.2 Justice De Castro penned the resolution of denial with the concurrence of Justices Santiago,
Corona, Nazario, Velasco, Jr., Nachura, Peralta, Bersamin, Del Castillo, and Abad. Justices Carpio and
Morales dissented. Chief Justice Puno took no part. Justices Quisumbing and Brion were on leave.
Since the Court s April 2, 2009 decision and October 2, 2009 resolution in G.R. 158885 and G.R. 170680
had long become final and executory, they should foreclose the identical issue in the present cases (G.R.
173425 and G.R. 181092) of whether or not FBDC is entitled to the transitional input tax credit granted in
Section 105 of the NIRC. Indeed, the rulings in those previous cases may be regarded as the law of the
case and can no longer be changed.
Justice Del Castillo s ponencia in the present case reiterates the Court s rulings on exactly the same
issue between the same parties. But Justice Carpio s dissent would have the Court flip from its landmark
ruling, take FBDC s tax credit back, and hold that the Court grossly erred in allowing FBDC, still 45%
government-owned, to get an earlier refund of the VAT payments it made from the sale of Fort Bonifacio
lands.
A value added tax is a form of indirect sales tax paid on products and services at each stage of
production or distribution, based on the value added at that stage and included in the cost to the ultimate
consumer.3rll
To illustrate how VAT works, take a lumber store that sells a piece of lumber to a carpentry shop
forP 100.00. The lumber store must pay a 12% VAT or P 12.00 on such sale but it may charge the
carpentry shop P 112.00 for the piece of lumber, passing on to the latter the burden of paying the P12.00
VAT.
When the carpentry shop makes a wooden stool out of that lumber and sells the stool to a furniture
retailer for P 150.00 (which would now consists of the P 100.00 cost of the lumber, the P 50.00 cost of
shaping the lumber into a stool, and profit), the carpentry shop must pay a 12% VAT of P 6.00 on
theP 50.00 value it added to the piece of lumber that it made into a stool. But it may charge the furniture
retailer the VAT of P 12.00 passed on to it by the lumber store as well as the VAT of P 6.00 that the
carpentry shop itself has to pay. Its buyer, the furniture retailer, will pay P 150.00, the price of the wooden
stool, and P 18.00 (P 12.00 + P 6.00), the passed-on VAT due on the same.
When the furniture retailer sells the wooden stool to a customer for P 200.00, it would have added to
its P 150.00 acquisition cost of the stool its mark-up of P 50.00 to cover its overhead and profit. The
furniture retailer must, however, pay an additional 12% VAT of P 6.00 on the P 50.00 add-on value of the
stool. But it could charge its customer all the accumulated VAT payments: the P 12.00 paid by the lumber
store, the P 6.00 paid by the carpentry shop, and the other P 6.00 due from the furniture retailer, for a
total of P 24.00. The customer will pay P 200.00 for the stool and P 24.00 in passed-on 12% VAT.
Now, would the furniture retailer pay to the BIR the P 24.00 VAT that it passed on to its customer and
collected from him at the store s counter? Not all of the P 24.00. The furniture retailer could claim a credit
for the P 12.00 and the P 6.00 in input VAT payments that the lumber store and the carpentry shop
passed on to it and that it paid for when it bought the wooden stool. The furniture retailer would just have
to pay to the BIR the output VAT of P 6.00 covering its P 50.00 mark-up. This payment rounds out the
12% VAT due on the final sale of the stool for P 200.00.
When the VAT law first took effect, it would have been unfair for a furniture retailer to pay all of the 10%
VAT (the old rate) on the wooden stools in its inventory at that time and not be able to claim deduction for

any tax on sale that the lumber store and the carpentry shop presumably passed on to it when it bought
those wooden stools. To remedy this unfairness, Section 105 of the NIRC granted those who must pay
VAT for the first time a transitional input tax credit of 8% of the value of the inventory of goods they have
or actual value-added tax paid on such goods when the VAT law took effect. The furniture retailer would
thus have to pay only a 2% VAT on the wooden stools in that inventory, given the transitional input VAT
tax credit of 8% allowed it under the old 10% VAT rate.
In the case before the Court, FBDC had an inventory of Fort Bonifacio lots when the VAT law was made
to cover the sale of real properties for the first time. FBDC registered as new VAT payer and submitted to
the BIR an inventory of its lots. FBDC sought to apply the 8% transitional input tax credit that Section 105
grants first-time VAT payers like it but the CIR would not allow it. The dissenting opinion of Justice Carpio
echoes the CIR s reason for such disallowance. When the Government sold the Fort Bonifacio lands to
FBDC, the Government paid no sales tax whatsoever on that sale. Consequently, it could not have
passed on to FBDC what could be the basis for the 8% transitional input tax credit that Section 105
provides.
The reasoning appears sound at first glance. But Section 105 grants all first-time VAT payers such
transitional input tax credit of 8% without any precondition. It does not say that a taxpayer has to prove
that the seller, from whom he bought the goods or the lands, paid sales taxes on them. Consequently, the
CIR has no authority to insist that sales tax should have been paid beforehand on FBDC s inventory of
lands before it could claim the 8% transitional input tax credit. The Court s decision in G.R. 158885 and
G.R. 170680 more than amply explains this point and such explanation need not be repeated here.
But there is a point that has apparently been missed. When the Government sold the military lands to
FBDC for development into mixed residential and commercial uses, the presumption is that in fixing their
price the Government took into account the price that private lands similarly situated would have fetched
in the market place at that time. The clear intent was to privatize ownership of those former military lands.
It would make no sense for the Government to sell the same to intended private investors at a price
lesser than the price of comparable private lands. The presumption is that the sale did not give undue
benefit to the buyers in violation of the anti-graft and corrupt practices act.
Moreover, there is one clear evidence that the former military lands were sold to private investors at
market price. After the Government sold the lands to FBDC, then wholly owned by BCDA, the latter sold
55% of its shares in FBDC to private investors in a public bidding where many competed. Since FBDC
had no assets other than the lands it bought from the Government, the bidding was essentially for those
lands. There can be no better way of determining the market price of such lands than a well-publicized
bidding for them, joined in by interested bona fide bidders.
Thus, since the Government sold its lands to investors at market price like they were private lands, the
price FBDC paid to it already factored in the cost of sales tax that prices of ordinary private lands included.
This means that FBDC, which bought the lands at private-land price, should be allowed like other real
estate dealers holding private lands to claim the 8% transitional input tax credit that Section 105 grants
with no precondition to first-time VAT payers. Otherwise, FBDC would be put at a gross disadvantage
compared to other real estate dealers. It will have to sell at higher prices than market price, to cover the
10% VAT that the BIR insists it should pay. Whereas its competitors will pay only a 2% VAT, given the 8%
transitional input tax credit of Section 105. To deny such tax credit to FBDC would amount to a denial of
its rights to fairness aqd to equal protection.
The Court was correct in allowing FBDC the right to be refunded the VAT that it already paid, applying
instead to the VAT tax due on its sales the transitional input VAT that Section 105 provides.
Justice Carpio also argues that ifFBDC will be given a tax refund, it would be sourced from public funds,
which violates Section 4(2) of the Govenm1ent Auditing Code that govemment funds or property cannot

be used in order to benefit private individuals or entities. They shall only be spent or used solely for public
purposes.
But the records show that FBDC actually paid to the BIR the amounts for which it seeks a BIR tax refund.
The CIR does not deny this fact. FBDC was forced to pay cash on the VAT due on its sales because the
BIR refused to apply the 8% transitional input VAT tax credits that the law allowed it. Since such tax
credits were sufficient to cover the VAT due, FBDC is entitled to a refund of the VAT it already paid. And,
contrary to the dissenting opinion, if FBDC will be given a tax refund, it would be sourced, not from public
funds, but from the VAT payments which FBDC itself paid to the BIR.
Like the previous cases before the Court, the BIR has the option to refund what FBDC paid it with
equivalent tax credits. Such tax credits have never been regarded as needing appropriation out of
government funds. Indeed, FBDC concedes in its prayers that it may get its refund in the form of a Tax
Credit Certificate.
For the above reasons, I concur with Justice Del Castillo's ponencia.

VAT AS INDIRECT TAX / VAT REFUND

SECOND DIVISION
[G.R. NO. 151135 : July 2, 2004]
CONTEX CORPORATION, Petitioner, v. HON. COMMISSIONER OF INTERNAL
REVENUE,Respondent.
DECISION
QUISUMBING, J.:
For review is the Decision1 dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823,
which reversed and set aside the decision2 dated October 13, 2000, of the Court of Tax Appeals
(CTA) .The CTA had ordered the Commissioner of Internal Revenue (CIR) to refund the sum
of P683,061.90 to petitioner as erroneously paid input value-added tax (VAT) or in the alternative, to
issue a tax credit certificate for said amount.Petitioner also assails the appellate courts Resolution, 3dated
December 19, 2001, denying the motion for reconsideration.
Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and
garments and other hospital supplies for export.Petitioners place of business is at the Subic Bay Freeport
Zone (SBFZ) .It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay
Freeport Enterprise, pursuant to the provisions of Republic Act No. 7227. 4 As an SBMA-registered firm,
petitioner is exempt from all local and national internal revenue taxes except for the preferential tax
provided for in Section 12 (c)5 of Rep. Act No. 7227.Petitioner also registered with the Bureau of Internal
Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials
necessary in the conduct of its manufacturing business.The suppliers of these goods shifted unto
petitioner the 10% VAT on the purchased items, which led the petitioner to pay input taxes in the amounts
of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.6 cralawred
Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep.
Act No. 7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid.Mr. Edilberto
Carlos, revenue district officer of BIR RDO No. 19, denied the first application letter, dated December 29,
1998.
Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this time
directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4.The second letter
sought a refund or issuance of a tax credit certificate in the amount of P1,108,307.72, representing
erroneously paid input VAT for the period January 1, 1997 to November 30, 1998.
When no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to
the Court of Tax Appeals, in a Petition for Review docketed as CTA Case No. 5895.Petitioner stressed
that Section 112(A)7 if read in relation to Section 106(A) (2) (a)8 of the National Internal Revenue Code,
as amended and Section 12(b)9 and (c) of Rep. Act No. 7227 would show that it was not liable in any way
for any value-added tax.
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims for
refund are strictly construed against the taxpayer. Since petitioner failed to establish both its right to a tax
refund or tax credit and its compliance with the rules on tax refund as provided for in Sections 204 10 and
22911 of the Tax Code, its claim should be denied, according to the BIR.

On October 13, 2000, the CTA decided CTA Case No. 5895 as follows:chanroblesvirtua1awlibrary
WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY
GRANTED.Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT
CERTIFICATE in favor of Petitioner the sum of P683,061.90, representing erroneously paid input VAT.
SO ORDERED.12 cralawred
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A) (2) (a) and 112(A) of
the Tax Code.The tax court stressed that these provisions apply only to those entities registered as VAT
taxpayers whose sales are zero-rated.Petitioner does not fall under this category, since it is a non-VAT
taxpayer as evidenced by the Certificate of Registration RDO Control No. 95-180-000133 issued by RDO
Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay Freeport Zone and thus it is exempt from VAT,
pursuant to Rep. Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases
of supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the
Implementing Rules and Regulations of the Bases Conversion and Development Act of 1992, all that
petitioner is required to pay as a SBFZ-registered enterprise is a 5% preferential tax.
The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being
barred by the two-year prescriptive period under Section 229 of the Tax Code.The tax court also limited
the refund only to the input VAT paid by the petitioner on the supplies and materials directly used by the
petitioner in the manufacture of its goods.It struck down all claims for input VAT paid on maintenance,
office supplies, freight charges, and all materials and supplies shipped or delivered to the petitioners
Makati and Pasay City offices.
Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA decision
by the Court of Appeals.Respondent maintained that the exemption of Contex Corp. under Rep. Act No.
7227 was limited only to direct taxes and not to indirect taxes such as the input component of the
VAT.The Commissioner pointed out that from its very nature, the value-added tax is a burden passed on
by a VAT registered person to the end users; hence, the direct liability for the tax lies with the suppliers
and not Contex.
Finding merit in the CIRs arguments, the appellate court decided CA-G.R. SP No. 62823 in his favor,
thus:chanroblesvirtua1awlibrary
WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET
ASIDE.Contexs claim for refund of erroneously paid taxes is DENIED accordingly.
SO ORDERED.13 cralawred
In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the
importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No.
7227 and its implementing rules covers only the VAT imposable under Section 107 of the [Tax Code],
which is a direct liability of the importer, and in no way includes the value-added tax of the seller-exporter
the burden of which was passed on to the importer as an additional costs of the goods. 14 This was
because the exemption granted by Rep. Act No. 7227 relates to the act of importation and Section
10715 of the Tax Code specifically imposes the VAT on importations.The appellate court applied the
principle that tax exemptions are strictly construed against the taxpayer. The Court of Appeals pointed out
that under the implementing rules of Rep. Act No. 7227, the exemption of SBFZ-registered enterprises
from internal revenue taxes is qualified as pertaining only to those for which they may be directly liable.It
then stated that apparently, the legislative intent behind Rep. Act No. 7227 was to grant exemptions only

to direct taxes, which SBFZ-registered enterprise may be liable for and only in connection with their
importation of raw materials, capital, and equipment as well as the sale of their goods and services.
Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied.
Hence, the instant petition raising as issues for our resolution the following:chanroblesvirtua1awlibrary
A.WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE
TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY
PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND
MATERIALS.
B.WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS
ENTITLED TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES
AND RAW MATERIALS FOR THE YEARS 1997 AND 1998.16 cralawred
Simply stated, we shall resolve now the issues concerning:(1) the correctness of the finding of the Court
of Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to petitioner as a
purchaser; and (2) the entitlement of the petitioner to a tax refund on its purchases of supplies and raw
materials for 1997 and 1998.
On the first issue, petitioner argues that the appellate courts restrictive interpretation of petitioners VAT
exemption as limited to those covered by Section 107 of the Tax Code is erroneous and devoid of legal
basis.It contends that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no
local and national taxes shall be imposed upon SBFZ-registered firms and hence, said law should govern
the case.Petitioner calls our attention to regulations issued by both the SBMA and BIR clearly and
categorically providing that the tax exemption provided for by Rep. Act No. 7227 includes exemption from
the imposition of VAT on purchases of supplies and materials.
The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax
exemptions, such grant is not all-encompassing but is limited only to those taxes for which a SBFZregistered business may be directly liable.Hence, SBFZ locators are not relieved from the indirect taxes
that may be shifted to them by a VAT-registered seller.
At this juncture, it must be stressed that the VAT is an indirect tax.As such, the amount of tax paid on the
goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller,
transferor, or lessor to the buyer, transferee or lessee. 17 Unlike a direct tax, such as the income tax, which
primarily taxes an individuals ability to pay based on his income or net wealth, an indirect tax, such as the
VAT, is a tax on consumption of goods, services, or certain transactions involving the same.The VAT,
thus, forms a substantial portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden
of the tax.As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the
buyer. What is transferred in such instances is not the liability for the tax, but the tax burden.In adding or
including the VAT due to the selling price, the seller remains the person primarily and legally liable for the
payment of the tax.What is shifted only to the intermediate buyer and ultimately to the final purchaser is
the burden of the tax.18 Stated differently, a seller who is directly and legally liable for payment of an
indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the
burden of the same tax.It is the final purchaser or consumer of such goods or services who, although not
directly and legally liable for the payment thereof, ultimately bears the burden of the tax. 19 cralawred
Exemptions from VAT are granted by express provision of the Tax Code or special laws.Under VAT, the
transaction can have preferential treatment in the following ways:chanroblesvirtua1awlibrary

(a) VAT Exemption.An exemption means that the sale of goods or properties and/or services and the use
or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid.20 This is a case wherein the VAT is removed at the exempt stage (i.e., at the
point of the sale, barter or exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill any output tax to his
customers because the said transaction is not subject to VAT.On the other hand, a VAT-registered
purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any
input tax on such purchase despite the issuance of a VAT invoice or receipt. 21 cralawred
(b) Zero-rated Sales.These are sales by VAT-registered persons which are subject to 0% rate, meaning
the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is
a taxable transaction for VAT purposes, shall not result in any output tax.However, the input tax on his
purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit
or refund in accordance with these regulations.22 cralawred
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm.In contrast, exemption
only removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes
paid by the exempt firms business or non-retail customers.It is for this reason that a sharp distinction must
be made between zero-rating and exemption in designating a value-added tax.23 cralawred
Apropos, the petitioners claim to VAT exemption in the instant case for its purchases of supplies and raw
materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them
from all national and local internal revenue taxes, including VAT and Section 4 (A) (a) of BIR Revenue
Regulations No. 1-95.24 cralawred
On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the
respondent.In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration25 issued
by the BIR.As such, it is exempt from VAT on all its sales and importations of goods and services.
Petitioners claim, however, for exemption from VAT for its purchases of supplies and raw materials is
incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT
Credit/Refund.
The point of contention here is whether or not the petitioner may claim a refund on the Input VAT
erroneously passed on to it by its suppliers.
While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by
its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party
to claim such VAT refund.
Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the Consolidated Value-Added Tax
Regulations provide:chanroblesvirtua1awlibrary
Sec. 4.100-2.Zero-rated Sales.A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax.However, the input tax on his purchases of
goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations.
The following sales by VAT-registered persons shall be subject to 0%:chanroblesvirtua1awlibrary
(a) Export Sales

Export Sales shall mean

.. .
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise
known as the Bases Conversion and Development Act of 1992.
.. .
(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered
and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development
Authority (CDA), R. A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements,
e.g. Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the
Philippines is a signatory effectively subject such sales to zero-rate.
Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT credit with
no corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT
taxpayer and thus, is exempt from VAT.As an exempt VAT taxpayer, it is not allowed any tax credit on
VAT (input tax) previously paid.In fine, even if we are to assume that exemption from the burden of VAT
on petitioners purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax
previously paid as petitioner is an exempt VAT taxpayer.
Rather, it is the petitioners suppliers who are the proper parties to claim the tax credit and accordingly
refund the petitioner of the VAT erroneously passed on to the latter.
Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that
petitioners VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a
seller and hence, it cannot claim any refund or exemption for any input VAT it paid, if any, on its
purchases of raw materials and supplies.
WHEREFORE, the petition is DENIEDfor lack of merit.The Decision dated September 3, 2001, of the
Court of Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are
AFFIRMED.No pronouncement as to costs.
SO ORDERED.

Persons Liable in General

FIRST DIVISION
[G.R. No. 125355. March 30, 2000.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. COURT OF APPEALS and
COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, Respondents.
DECISION

PARDO, J.:

What is before the Court is a petition for review on certiorari of the decision of the Court of Appeals, 1
reversing that of the Court of Tax Appeals, 2 which affirmed with modification the decision of the
Commissioner of Internal Revenue ruling that Commonwealth Management and Services Corporation, is
liable for value added tax for services to clients during taxable year 1988.chanrobles virtua| |aw |ibrary
Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly
organized and existing under the laws of the Philippines. It is an affiliate of Philippine American Life
Insurance Co. (Philamlife), organized by the latter to perform collection, consultative and other technical
services, including functioning as an internal auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988,
computed as follows:jgc:chanrobles.com.ph
"Taxable sale/receipt P1,679,155.00
===========
10% tax due thereon 167,915.50
25% surcharge 41,978.88
20% interest per annum 125,936.63
Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P351,831.01" 3

===========
COMASERCOs annual corporate income tax return ending December 31, 1988 indicated a net loss in its
operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latters finding of
deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to
COMASERCO demanding payment of the deficiency VAT.
On September 29, 1992, COMASERCO filed with the Court of Tax Appeals 4 a petition for review
contesting the Commissioners assessment. COMASERCO asserted that the services it rendered to

Philamlife and its affiliates, relating to collections, consultative and other technical assistance, including
functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that
it was not engaged in the business of providing services to Philamlife and its affiliates. COMASERCO was
established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates,
and not in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not engaged
in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not liable to pay VAT.chanroblesvirtuallawlibrary
On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal
Revenue, the dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency
value-added tax for the taxable year 1988 is AFFIRMED with slight modifications. Accordingly, petitioner
is ordered to pay respondent Commissioner of Internal Revenue the amount of P335,831.01 inclusive of
the 25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid pursuant to
Section 248 and 249 of the Tax Code.
"The compromise penalty of P16,000.00 imposed by the respondent in her assessment letter shall not be
included in the payment as there was no compromise agreement entered into between petitioner and
respondent with respect to the value-added tax deficiency." 5
On July 26, 1995, respondent filed with the Court of Appeals, a petition for review of the decision of the
Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing that of the
Court of Tax Appeals, the dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, in view of the foregoing, judgment is hereby rendered REVERSING and SETTING
ASIDE the questioned Decision promulgated on 22 June 1995. The assessment for deficiency valueadded tax for the taxable year 1988 inclusive of surcharge, interest and penalty charges are ordered
CANCELLED for lack of legal and factual basis." 6
The Court of Appeals anchored its decision on the ratiocination in another tax case involving the same
parties, 7 where it was held that COMASERCO was not liable to pay fixed and contractors tax for
services rendered to Philamlife and its affiliates. The Court of Appeals, in that case, reasoned that
COMASERCO was not engaged in business of providing services to Philamlife and its affiliates. In the
same manner, the Court of Appeals held that COMASERCO was not liable to pay VAT for it was not
engaged in the business of selling services.
On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for review
oncertiorari assailing the decision of the Court of Appeals.
On August 7, 1996, we required respondent COMASERCO to file comment on the petition, and on
September 26, 1996, COMASERCO complied with the resolution. 8
We give due course to the petition.
At issue in this case is whether COMASERCO was engaged in the sale of services, and thus liable to pay
VAT thereon.
Petitioner avers that to "engage in business" and to "engage in the sale of services" are two different
things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for
a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the
service. It is immaterial whether profit is derived from rendering the service.chanroblesvirtuallawlibrary
We agree with the Commissioner.

Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E.O.) No.
273 in 1988, provides that:jgc:chanrobles.com.ph
"SECTION 99. Persons liable. Any person who, in the course of trade or business, sells, barters or
exchanges goods, renders services, or engages in similar transactions and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code." 9
COMASERCO contends that the term "in the course of trade or business" requires that the "business" is
carried on with a view to profit or livelihood. It avers that the activities of the entity must be profit-oriented.
COMASERCO submits that it is not motivated by profit, as defined by its primary purpose in the articles of
incorporation, stating that it is operating "only on reimbursement-of-cost basis, without any profit." Private
respondent argues that profit motive is material in ascertaining who to tax for purposes of determining
liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law (EVAT), amending
among other sections, Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National
Internal Revenue Code of 1997, took effect. The amended law provides that:jgc:chanrobles.com.ph
"SECTION 105. Persons Liable. Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be
subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code.
"The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing sale or
lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.
"The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members of their guests), or government entity.
"The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade
or business."cralaw virtua1aw library
Contrary to COMASERCOs contention the above provision clarifies that even a non-stock, non-profit
organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on
transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or
property, and on the performance of services, even in the absence of profit attributable thereto. The term
"in the course of trade or business" requires the regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business" incorporated in the present law applies to all
transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person
who, in the course of trade or business, sells, barters or exchanges goods and services, was already
liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or
government entity is liable to pay VAT for the sale of goods and services.chanrobles.com.ph:red
Section 108 of the National Internal Revenue Code of 1997 10 defines the phrase "sale of services" as
the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes
"the supply of technical advice, assistance or services rendered in connection with technical management
or administration of any scientific, industrial or commercial undertaking or project." 11

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 12
emphasizing that a domestic corporation that provided technical, research, management and technical
assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without
any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation
was organized without any intention of realizing profit, any income or profit generated by the entity in the
conduct of its activities was subject to income tax.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments
for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long as the entity provides service for a
fee, remuneration or consideration, then the service rendered is subject to VAT.
At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be
merely implied therefrom. 13 In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the
transactions exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the
services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out by
the Commissioner, the performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As the government agency charged with
the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any
showing that it is plainly wrong, is entitled to great weight. 14 Also, it has been the long standing policy
and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax
Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of
tax cases and has necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of its authority. 15
There is no merit to respondents contention that the Court of Appeals decision in CA-G.R. No. 34042,
declaring the COMASERCO as not engaged in business and not liable for the payment of fixed and
percentage taxes, binds petitioner. The issue in CA-G.R. No. 34042 is different from the present case,
which involves COMASERCOs liability for VAT. As heretofore stated, every person who sells, barters, or
exchanges goods and services, in the course of trade or business, as defined by law, is subject to
VAT.chanrobles virtual lawlibrary
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals in
CA-G.R. SP No. 37930. The Court hereby REINSTATES the decision of the Court of Tax Appeals in
C.T.A. Case No. 4853.
No costs.
SO ORDERED.

Meaning of in the course of business / VAT REFUND

SECOND DIVISION
G.R. No. 193301 : March 11, 2013
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondents.
G.R. No. 194637
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
CARPIO, J.:
G.R. No. 193301 is a petition for review1 assailing the Decision2 promulgated on 10 March 2010 as well
as the Resolution3 promulgated on 28 July 2010 by the Court of Tax Appeals En Banc (CTA En Banc) in
CTA EB No. 513. The CTA En Banc affirmed the 22 September 2008 Decision4 as well as the 26 June
2009 Amended Decision5 of the First Division of the Court of Tax Appeals (CTA First Division) in CTA
Case Nos. 7227, 7287, and 7317. The CTA First Division denied Mindanao II Geothermal Partnerships
(Mindanao II) claims for refund or tax credit for the first and second quarters of taxable year 2003 for
being filed out of time (CTA Case Nos. 7227 and 7287). The CTA First Division, however, ordered the
Commissioner of Internal Revenue (CIR) to refund or credit to Mindanao II unutilized input value-added
tax (VAT) for the third and fourth quarters of taxable year 2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing the Decision7 promulgated on 31 May 2010 as well as
the Amended Decision8 promulgated on 24 November 2010 by the CTA En Banc in CTA EB Nos. 476
and 483. In its Amended Decision, the CTA En Banc reversed its 31 May 2010 Decision and granted the
CIRs petition for review in CTA Case No. 476. The CTA En Banc denied Mindanao I Geothermal
Partnerships (Mindanao I) claims for refund or tax credit for the first (CTA Case No. 7228), second (CTA
Case No. 7286), third, and fourth quarters (CTA Case No. 7318) of 2003.
Both Mindanao I and II are partnerships registered with the Securities and Exchange Commission, value
added taxpayers registered with the Bureau of Internal Revenue (BIR), and Block Power Production
Facilities accredited by the Department of Energy. Republic Act No. 9136, or the Electric Power Industry
Reform Act of 2000 (EPIRA), effectively amended Republic Act No. 8424, or the Tax Reform Act of 1997
(1997 Tax Code),9 when it decreed that sales of power by generation companies shall be subjected to a
zero rate of VAT.10 Pursuant to EPIRA, Mindanao I and II filed with the CIR claims for refund or tax credit
of accumulated unutilized and/or excess input taxes due to VAT zero-rated sales in 2003. Mindanao I and
II filed their claims in 2005.
G.R. No. 193301
Mindanao II v. CIR
The Facts
G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287, and 7317, which
were consolidated as CTA EB No. 513. CTA Case Nos. 7227, 7287, and 7317 claim a tax refund or credit
of Mindanao IIs alleged excess or unutilized input taxes due to VAT zero-rated sales. In CTA Case No.

7227, Mindanao II claims a tax refund or credit of P3,160,984.69 for the first quarter of 2003. In CTA
Case No. 7287, Mindanao II claims a tax refund or credit of P1,562,085.33 for the second quarter of 2003.
In CTA Case No. 7317, Mindanao II claims a tax refund or credit of P3,521,129.50 for the third and fourth
quarters of 2003.
The CTA First Divisions narration of the pertinent facts is as follows:cralawlibrary
xxx
On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer (BOT) contract with
the Philippine National Oil Corporation Energy Development Company (PNOC-EDC) for finance,
engineering, supply, installation, testing, commissioning, operation, and maintenance of a 48.25
megawatt geothermal power plant, provided that PNOC-EDC shall supply and deliver steam to Mindanao
II at no cost. In turn, Mindanao II shall convert the steam into electric capacity and energy for PNOC-EDC
and shall deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC.
Mindanao II alleges that its sale of generated power and delivery of electric capacity and energy of
Mindanao II to NPC for and in behalf of PNOC-EDC is its only revenue-generating activity which is in the
ambit of VAT zero-rated sales under the EPIRA Law, x x x.
xxx
Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated
power by generation companies from ten (10%) percent to zero (0%) percent.
In the course of its operation, Mindanao II makes domestic purchases of goods and services and
accumulates therefrom creditable input taxes. Pursuant to the provisions of the National Internal Revenue
Code (NIRC), Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax
liability. Considering, however that its only revenue-generating activity is VAT zero-rated under RA No.
9136, Mindanao IIs input tax credits remain unutilized.
Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-rating of
the EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns on the following
dates:cralawlibrary
CTA Case No.

Period Covered
(2003)

Date of Filing
Original Return

Amended Return

7227

1st Quarter

April 23, 2003

July 3, 2002 (sic),

April 1, 2004 &
October 22, 2004

7287

2nd Quarter

July 22, 2003

April 1, 2004

7317

3rd Quarter

Oct. 27, 2003

April 1, 2004

7317

4th Quarter

Jan. 26, 2004

April 1, 2204

Considering that it has accumulated unutilized creditable input taxes from its only income-generating
activity, Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIRs
Revenue District Office at Kidapawan City on April 13, 2005 for the four quarters of 2003.
To date (September 22, 2008), the application for refund by Mindanao II remains unacted upon by the
CIR. Hence, these three petitions filed on April 22, 2005 covering the 1st quarter of 2003; July 7, 2005 for
the 2nd quarter of 2003; and September 9, 2005 for the 3rd and 4th quarters of 2003. At the instance of

Mindanao II, these petitions were consolidated on March 15, 2006 as they involve the same parties and
the same subject matter. The only difference lies with the taxable periods involved in each petition.11?r?l1
The Court of Tax Appeals Ruling: Division
In its 22 September 2008 Decision,12 the CTA First Division found that Mindanao II satisfied the twin
requirements for VAT zero rating under EPIRA: (1) it is a generation company, and (2) it derived sales
from power generation. The CTA First Division also stated that Mindanao II complied with five
requirements to be entitled to a refund:cralawlibrary
1. There must be zero-rated or effectively zero-rated sales;
2. That input taxes were incurred or paid;
3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated
sales;
4. That the input VAT payments were not applied against any output VAT liability; and
5. That the claim for refund was filed within the two-year prescriptive
period.13?r?l1 ???r?bl? ??r??l l?? l?br?r
With respect to the fifth requirement, the CTA First Division tabulated the dates of filing of Mindanao IIs
return as well as its administrative and judicial claims, and concluded that Mindanao IIs administrative
and judicial claims were timely filed in compliance with this Courts ruling in Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal Revenue (Atlas).14 The CTA First Division declared
that the two-year prescriptive period for filing a VAT refund claim should not be counted from the close of
the quarter but from the date of the filing of the VAT return. As ruled in Atlas, VAT liability or entitlement to
a refund can only be determined upon the filing of the quarterly VAT return.
CTA
Case
No.

Period
Covered
(2003)

Date Filing
Original
Return

Amended
Return

Administrative Judicial Claim

Return

7227

1st Quarter

23 April
2003

1 April
2004

13 April 2005

22 April 2005

7287

2nd
Quarter

22 July 2003 1 April

2004

13 April 2005

7 July 2005

7317

3rd Quarter 25 Oct. 2003 1 April

2004

13 April 2005

9 Sept. 2005

7317

4th Quarter 26 Jan. 2004 1 April

2004

13 April 2005

9 Sept.
200515

Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January 2004, when
Mindanao II filed its VAT returns, its administrative claim filed on 13 April 2005 and judicial claims filed on
22 April 2005, 7 July 2005, and 9 September 2005 were timely filed in accordance with Atlas.
The CTA First Division found that Mindanao II is entitled to a refund in the modified amount
ofP7,703,957.79, after disallowing P522,059.91 from input VAT16 and deducting P18,181.82 from
Mindanao IIs sale of a fully depreciated P200,000.00 Nissan Patrol. The input taxes amounting
toP522,059.91 were disallowed for failure to meet invoicing requirements, while the input VAT on the sale

of the Nissan Patrol was reduced by P18,181.82 because the output VAT for the sale was not included in
the VAT declarations.
The dispositive portion of the CTA First Divisions 22 September 2008 Decision reads:cralawlibrary
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby
ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the modified amount of SEVEN
MILLION SEVEN HUNDRED THREE THOUSAND NINE HUNDRED FIFTY SEVEN AND 79/100 PESOS
(P7,703,957.79) representing its unutilized input VAT for the four (4) quarters of the taxable year 2003.
SO ORDERED.17?r?l1 ???r?bl? ??r??l l?? l?br?r
Mindanao II filed a motion for partial reconsideration. 18 It stated that the sale of the fully depreciated
Nissan Patrol is a one-time transaction and is not incidental to its VAT zero-rated operations. Moreover,
the disallowed input taxes substantially complied with the requirements for refund or tax credit.
The CIR also filed a motion for partial reconsideration. It argued that the judicial claims for the first and
second quarters of 2003 were filed beyond the period allowed by law, as stated in Section 112(A) of the
1997 Tax Code. The CIR further stated that Section 229 is a general provision, and governs cases not
covered by Section 112(A). The CIR countered the CTA First Divisions 22 September 2008 decision by
citing this Courts ruling in Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant),19which stated that unutilized input VAT payments must be claimed within two years reckoned
from the close of the taxable quarter when the relevant sales were made regardless of whether said tax
was paid.
The CTA First Division denied Mindanao IIs motion for partial reconsideration, found the CIRs motion for
partial reconsideration partly meritorious, and rendered an Amended Decision 20 on 26 June 2009. The
CTA First Division stated that the claim for refund or credit with the BIR and the subsequent appeal to the
CTA must be filed within the two-year period prescribed under Section 229. The two-year prescriptive
period in Section 229 was denominated as a mandatory statute of limitations. Therefore, Mindanao IIs
claims for refund for the first and second quarters of 2003 had already prescribed.
The CTA First Division found that the records of Mindanao IIs case are bereft of evidence that the sale of
the Nissan Patrol is not incidental to Mindanao IIs VAT zero-rated operations. Moreover, Mindanao IIs
submitted documents failed to substantiate the requisites for the refund or credit claims.
The CTA First Division modified its 22 September 2008 Decision to read as follows:cralawlibrary
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby
ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE to Mindanao II Geothermal
Partnership in the modified amount of TWO MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT
HUNDRED EIGHTY SEVEN AND 77/100 PESOS (P2,980,887.77) representing its unutilized input VAT
for the third and fourth quarters of the taxable year 2003.
SO ORDERED.21?r?l1 ???r?bl? ??r??l l?? l?br?r
Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the CTA En Banc.
The Court of Tax Appeals Ruling: En Banc
On 10 March 2010, the CTA En Banc rendered its Decision23 in CTA EB No. 513 and denied Mindanao
IIs petition. The CTA En Banc ruled that (1) Section 112(A) clearly provides that the reckoning of the twoyear prescriptive period for filing the application for refund or credit of input VAT attributable to zero-rated

sales or effectively zero-rated sales shall be counted from the close of the taxable quarter when the sales
were made; (2) the Atlas and Mirant cases applied different tax codes: Atlas applied the 1977 Tax Code
while Mirant applied the 1997 Tax Code; (3) the sale of the fully-depreciated Nissan Patrol is incidental to
Mindanao IIs VAT zero-rated transactions pursuant to Section 105; (4) Mindanao II failed to comply with
the substantiation requirements provided under Section 113(A) in relation to Section 237 of the 1997 Tax
Code as implemented by Section 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulation No. 7-95; and (5)
the doctrine of strictissimi juris on tax exemptions cannot be relaxed in the present case.
The dispositive portion of the CTA En Bancs 10 March 2010 Decision reads:cralawlibrary
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review en banc is
DISMISSED for lack of merit. Accordingly, the Decision dated September 22, 2008 and the Amended
Decision dated June 26, 2009 issued by the First Division are AFFIRMED.
SO ORDERED.24?r?l1 ???r?bl? ??r??l l?? l?br?r
The CTA En Banc issued a Resolution25 on 28 July 2010 denying for lack of merit Mindanao IIs Motion for
Reconsideration.26 The CTA En Banc highlighted the following bases of their previous ruling:cralawlibrary
1. The Supreme Court has long decided that the claim for refund of unutilized input VAT must be filed
within two (2) years after the close of the taxable quarter when such sales were made.
2. The Supreme Court is the ultimate arbiter whose decisions all other courts should take bearings.
3. The words of the law are clear, plain, and free from ambiguity; hence, it must be given its literal
meaning and applied without any interpretation.27?r?l1 ???r?bl? ??r??l l?? l?br?r
G.R. No. 194637
Mindanao I v. CIR
The Facts
G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos. 476 and 483. Both
CTA EB cases consolidate three cases from the CTA Second Division: CTA Case Nos. 7228, 7286, and
7318. CTA Case Nos. 7228, 7286, and 7318 claim a tax refund or credit of Mindanao Is accumulated
unutilized and/or excess input taxes due to VAT zero-rated sales. In CTA Case No. 7228, Mindanao I
claims a tax refund or credit of P3,893,566.14 for the first quarter of 2003. In CTA Case No. 7286,
Mindanao I claims a tax refund or credit of P2,351,000.83 for the second quarter of 2003. In CTA Case
No. 7318, Mindanao I claims a tax refund or credit of P7,940,727.83 for the third and fourth quarters of
2003.
Mindanao I is similarly situated as Mindanao II. The CTA Second Divisions narration of the pertinent facts
is as follows:cralawlibrary
xxx
In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer (BOT) with the
Philippine National Oil Corporation Energy Development Corporation (PNOC-EDC) for the finance,
design, construction, testing, commissioning, operation, maintenance and repair of a 47-megawatt
geothermal power plant. Under the said BOT contract, PNOC-EDC shall supply and deliver steam to
Mindanao I at no cost. In turn, Mindanao I will convert the steam into electric capacity and energy for
PNOC-EDC and shall subsequently supply and deliver the same to the National Power Corporation
(NPC), for and in behalf of PNOC-EDC.

Mindanao Is 47-megawatt geothermal power plant project has been accredited by the Department of
Energy (DOE) as a Private Sector Generation Facility, pursuant to the provision of Executive Order No.
215, wherein Certificate of Accreditation No. 95-037 was issued.
On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant provisions of the National
Internal Revenue Code (NIRC) of 1997 were deemed modified. R.A. No. 9136, also known as the
"Electric Power Industry Reform Act of 2001 (EPIRA), was enacted by Congress to ordain reforms in the
electric power industry, highlighting, among others, the importance of ensuring the reliability, security and
affordability of the supply of electric power to end users. Under the provisions of this Republic Act and its
implementing rules and regulations, the delivery and supply of electric energy by generation companies
became VAT zero-rated, which previously were subject to ten percent (10%) VAT.?r?l??
xxx
The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by
generation companies from ten (10%) percent to zero percent (0%). Thus, Mindanao I adopted the VAT
zero-rating of the EPIRA in computing for its VAT payable when it filed its VAT Returns, on the belief that
its sales qualify for VAT zero-rating.
Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly VAT Returns for the first,
second, third, and fourth quarters of taxable year 2003, which were subsequently amended and filed with
the BIR.
On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for the issuance of tax
credit certificate on its alleged unutilized or excess input taxes for taxable year 2003, in the accumulated
amount of P14,185, 294.80.
Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court on April 22, 2005,
July 7, 2005, and September 9, 2005 docketed as CTA Case Nos. 7228, 7286, and 7318, respectively.
However, on October 10, 2005, Mindanao I received a copy of the letter dated September 30, 2003 (sic)
of the BIR denying its application for tax credit/refund.28?r?l1
The Court of Tax Appeals Ruling: Division
On 24 October 2008, the CTA Second Division rendered its Decision29 in CTA Case Nos. 7228, 7286,
and 7318. The CTA Second Division found that (1) pursuant to Section 112(A), Mindanao I can only claim
90.27% of the amount of substantiated excess input VAT because a portion was not reported in its
quarterly VAT returns; (2) out of the P14,185,294.80 excess input VAT applied for refund,
onlyP11,657,447.14 can be considered substantiated excess input VAT due to disallowances by the
Independent Certified Public Accountant, adjustment on the disallowances per the CTA Second Divisions
further verification, and additional disallowances per the CTA Second Divisions further verification;
(3) Mindanao Is accumulated excess input VAT for the second quarter of 2003 that was carried over to
the third quarter of 2003 is net of the claimed input VAT for the first quarter of 2003, and the same
procedure was done for the second, third, and fourth quarters of 2003; and (4) Mindanao Is administrative
claims were filed within the two-year prescriptive period reckoned from the respective dates of filing of the
quarterly VAT returns.
The dispositive portion of the CTA Second Divisions 24 October 2008 Decision reads:cralawlibrary
WHEREFORE, premises considered, the consolidated Petitions for Review are hereby PARTIALLY
GRANTED. Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in favor
of Mindanao I in the reduced amount of TEN MILLION FIVE HUNDRED TWENTY THREE THOUSAND

ONE HUNDRED SEVENTY SEVEN PESOS AND 53/100 (P10,523,177.53) representing Mindanao Is
unutilized input VAT for the four quarters of the taxable year 2003.
SO ORDERED.30?r?l1
Mindanao I filed a motion for partial reconsideration with motion for Clarification 31 on 11 November 2008.
It claimed that the CTA Second Division should not have allocated proportionately Mindanao Is unutilized
creditable input taxes for the taxable year 2003, because the proportionate allocation of the amount of
creditable taxes in Section 112(A) applies only when the creditable input taxes due cannot be directly and
entirely attributed to any of the zero-rated or effectively zero-rated sales. Mindanao I claims that its
unreported collection is directly attributable to its VAT zero-rated sales. The CTA Second Division denied
Mindanao Is motion and maintained the proportionate allocation because there was a portion of the gross
receipts that was undeclared in Mindanao Is gross receipts.
The CIR also filed a motion for partial reconsideration32 on 11 November 2008. It claimed that Mindanao I
failed to exhaust administrative remedies before it filed its petition for review. The CTA Second Division
denied the CIRs motion, and cited Atlas33 as the basis for ruling that it is more practical and reasonable to
count the two-year prescriptive period for filing a claim for refund or credit of input VAT on zero-rated
sales from the date of filing of the return and payment of the tax due.
The dispositive portion of the CTA Second Divisions 10 March 2009 Resolution reads:cralawlibrary
WHEREFORE, premises considered, the CIRs Motion for Partial Reconsideration and Mindanao Is
Motion for Partial Reconsideration with Motion for Clarification are hereby DENIED for lack of merit.
SO ORDERED.34?r?l1
The Ruling of the Court of Tax Appeals: En Banc
On 31 May 2010, the CTA En Banc rendered its Decision35 in CTA EB Case Nos. 476 and 483 and
denied the petitions filed by the CIR and Mindanao I. The CTA En Banc found no new matters which have
not yet been considered and passed upon by the CTA Second Division in its assailed decision and
resolution.
The dispositive portion of the CTA En Bancs 31 May 2010 Decision reads:cralawlibrary
WHEREFORE, premises considered, the Petitions for Review are hereby DISMISSED for lack of merit.
Accordingly, the October 24, 2008 Decision and March 10, 2009 Resolution of the CTA Former Second
Division in CTA Case Nos. 7228, 7286, and 7318, entitled "Mindanao I Geothermal Partnership v.
Commissioner of Internal Revenue" are hereby AFFIRMED in toto.
SO ORDERED.36?r?l1 ???r?bl? ??r??l l?? l?br?r
Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Bancs 31 May 2010
Decision. In an Amended Decision promulgated on 24 November 2010, the CTA En Banc agreed with the
CIRs claim that Section 229 of the NIRC of 1997 is inapplicable in light of this Courts ruling in Mirant. The
CTA En Banc also ruled that the procedure prescribed under Section 112(D) now 112(C) 37 of the 1997
Tax Code should be followed first before the CTA En Banc can act on Mindanao Is claim. The CTA En
Banc reconsidered its 31 May 2010 Decision in light of this Courts ruling in Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc. (Aichi).38?r?l1
The pertinent portions of the CTA En Bancs 24 November 2010 Amended Decision read:cralawlibrary

C.T.A. Case No. 7228:cralawlibrary

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the First Quarter
of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from
March 31, 2003 or until March 31, 2005 within which to file its administrative claim for refund;
(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of unutilized input VAT for
the first quarter of taxable year 2003 with the BIR, which is beyond the two-year prescriptive period
mentioned above.
C.T.A. Case No. 7286:cralawlibrary
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the second
quarter of 2003. Pursuant to
Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from June 30, 2003, within
which to file its administrative claim for refund for the second quarter of 2003, or until June 30, 2005;
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT for the
second quarter of taxable year 2003 with the BIR, which is within the two-year prescriptive period,
provided under Section 112 (A) of the NIRC of 1997, as amended;
(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I submitted the supporting
documents together with the application for refund) or until August 2, 2005, to decide the administrative
claim for refund;
(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to September 1, 2005,
Mindanao I should have elevated its claim for refund to the CTA in Division;
(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this Court, docketed as CTA
Case No. 7286, even before the 120-day period for the CIR to decide the claim for refund had lapsed on
August 2, 2005. The Petition for Review was, therefore, prematurely filed and there was failure to exhaust
administrative remedies;
xxx
C.T.A. Case No. 7318:cralawlibrary
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the third and
fourth quarters of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I
therefore, has two years from September 30, 2003 and December 31, 2003, or until September 30, 2005
and December 31, 2005, respectively, within which to file its administrative claim for the third and fourth
quarters of 2003;
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT for the
third and fourth quarters of taxable year 2003 with the BIR, which is well within the two-year prescriptive
period, provided under Section 112(A) of the NIRC of 1997, as amended;
(3) From April 4, 2005, which is also presumably the date Mindanao I submitted supporting documents,
together with the aforesaid application for refund, the CIR has 120 days or until August 2, 2005, to decide
the claim;

(4) Within thirty (30) days from the lapse of the 120-day period or from August 3, 2005 until September 1,
2005 Mindanao I should have elevated its claim for refund to the CTA;
(5) However, Mindanao I filed its Petition for Review with the CTA in Division only on September 9, 2005,
which is 8 days beyond the 30-day period to appeal to the CTA.
Evidently, the Petition for Review was filed way beyond the 30-day prescribed period. Thus, the Petition
for Review should have been dismissed for being filed late.
In recapitulation:cralawlibrary
(1) C.T.A. Case No. 7228
Claim for the first quarter of 2003 had already prescribed for having been filed beyond the two-year
prescriptive period;
(2) C.T.A. Case No. 7286
Claim for the second quarter of 2003 should be dismissed for Mindanao Is failure to comply with a
condition precedent when it failed to exhaust administrative remedies by filing its Petition for Review even
before the lapse of the 120-day period for the CIR to decide the administrative claim;
(3) C.T.A. Case No. 7318
Petition for Review was filed beyond the 30-day prescribed period to appeal to the CTA.
xxx
IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenues Motion for Reconsideration is
hereby GRANTED; Mindanao Is Motion for Partial Reconsideration is hereby DENIED for lack of merit.
The May 31, 2010 Decision of this Court En Banc is hereby REVERSED.
Accordingly, the Petition for Review of the Commissioner of Internal Revenue in CTA EB No. 476 is
hereby GRANTED and the entire claim of Mindanao I Geothermal Partnership for the first, second, third
and fourth quarters of 2003 is hereby DENIED.
SO ORDERED.39?r?l1
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition for Review:cralawlibrary
I. The Honorable Court of Tax Appeals erred in holding that the claim of Mindanao II for the 1st and 2nd
quarters of year 2003 has already prescribed pursuant to the Mirant case.
A. The Atlas case and Mirant case have conflicting interpretations of the law as to the reckoning date of
the two year prescriptive period for filing claims for VAT refund.

B. The Atlas case was not and cannot be superseded by the Mirant case in light of Section 4(3), Article
VIII of the 1987 Constitution.
C. The ruling of the Mirant case, which uses the close of the taxable quarter when the sales were made
as the reckoning date in counting the two-year prescriptive period cannot be applied retroactively in the
case of Mindanao II. ???r?bl? ??r??l l?? l?br?r
II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated Nissan Patrol is a one-time transaction and is not
incidental to the VAT zero-rated operation of Mindanao II.
III. The Honorable Court of Tax Appeals erred in denying the amount disallowed by the Independent
Certified Public Accountant as Mindanao II substantially complied with the requisites of the 1997 Tax
Code, as amended, for refund/tax credit.
A. The amount of P2,090.16 was brought about by the timing difference in the recording of the foreign
currency deposit transaction.
B. The amount of P2,752.00 arose from the out-of-pocket expenses reimbursed to SGV & Company
which is substantially suppoerted [sic] by an official receipt.
C. The amount of P487,355.93 was unapplied and/or was not included in Mindanao IIs claim for refund or
tax credit for the year 2004 subject matter of CTA Case No. 7507. ???r?bl? ??r??l l?? l?br?r
IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the present
case.40?r?l1 ???r?bl? ??r??l l?? l?br?r
G.R. No. 194637
Mindanao I v. CIR
Mindanao I raised the following grounds in its Petition for Review:cralawlibrary
I. The administrative claim and judicial claim in CTA Case No. 7228 were timely filed pursuant to the case
of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, which
was then the controlling ruling at the time of filing.
A. The recent ruling in the Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, which uses
the end of the taxable quarter when the sales were made as the reckoning date in counting the two-year
prescriptive period, cannot be applied retroactively in the case of Mindanao I.
B. The Atlas case promulgated by the Third Division of this Honorable Court on June 8, 2007 was not and
cannot be superseded by the Mirant Pagbilao case promulgated by the Second Division of this Honorable
Court on September 12, 2008 in light of the explicit provision of Section 4(3), Article VIII of the 1987
Constitution. ???r?bl? ??r??l l?? l?br?r
II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc., cannot be applied retroactively to Mindanao I in the present
case.41?r?l1 ???r?bl? ??r??l l?? l?br?r
In a Resolution dated 14 December 2011,42 this Court resolved to consolidate G.R. Nos. 193301 and
194637 to avoid conflicting rulings in related cases.
The Courts Ruling

Determination of Prescriptive Period

G.R. Nos. 193301 and 194637 both raise the question of the determination of the prescriptive period, or
the interpretation of Section 112 of the 1997 Tax Code, in light of our rulings in Atlas and Mirant.
Mindanao IIs unutilized input VAT tax credit for the first and second quarters of 2003, in the amounts
ofP3,160,984.69 and P1,562,085.33, respectively, are covered by G.R. No. 193301, while Mindanao Is
unutilized input VAT tax credit for the first, second, third, and fourth quarters of 2003, in the amounts
ofP3,893,566.14, P2,351,000.83, and P7,940,727.83, respectively, are covered by G.R. No. 194637.
Section 112 of the 1997 Tax Code
The pertinent sections of the 1997 Tax Code, the law applicable at the time of Mindanao IIs and
Mindanao Is administrative and judicial claims, provide:cralawlibrary
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.?r?l??
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
x x x x 43 (Underscoring supplied) ???r?bl? ??r??l l?? l?br?r
The relevant dates for G.R. No. 193301 (Mindanao II) are:cralawlibrary
CTA
Case No.

Period
covered by
VAT Sales in
2003 and
amount

Close of
Last day
quarter
for filing
when sales application
were
of tax
made
refund/tax
credit
certificate
with the
CIR

Actual date of
filing
application for
tax refund/
credit with the
CIR
(administrative
claim)44

Last day for

filing case
with CTA45

Actual Date
of filing case
with CTA
(judicial
claim)

7227

1st Quarter,
31 March
P3,160,984.69 2003

31 March
2005

13 April 2005

12 September 22 April 2005

2005

7287

2nd Quarter,
30 June
P1,562,085.33 2003

30 June
2005

13 April 2005

12 September 7 July 2005

2005

7317

3rd and 4th

30
30
Quarters,
September September
P3,521,129.50 2003
2005

13 April 2005

12 September 9 September
2005
2005

31
December
2003

2 January
2006
(31
December
2005 being
a Saturday)

The relevant dates for G.R. No. 194637 (Minadanao I) are:cralawlibrary

CTA Period
Case covered by
No.
VAT Sales in
2003 and
amount

Close of
quarter
when sales
were
made

Last day
for filing
application
of tax
refund/tax
credit
certificate
with the
CIR

Actual date of
filing
application for
tax refund/
credit with the
CIR
(administrative
claim)46

Last day for

filing case
with CTA47

Actual Date
of filing case
with CTA
(judicial
claim)

7227

1st Quarter,
P3,893,566.14

31 March
2003

31 March
2005

4 April 2005

1 September
2005

22 April 2005

7287

2nd Quarter,
P2,351,000.83

30 June
2003

30 June
2005

4 April 2005

1 September
2005

7 July 2005

7317

3rd
and 4th
Quarters,
P7,940,727.83

30
September
2003

30
September
2005

4 April 2005

1 September
2005

9 September
2005

31
December
2003

2 January
2006
(31
December
2005 being
a Saturday)

When Mindanao II and Mindanao I filed their respective administrative and judicial claims in 2005, neither
Atlas nor Mirant has been promulgated. Atlas was promulgated on 8 June 2007, while Mirant was
promulgated on 12 September 2008. It is therefore misleading to state that Atlas was the controlling
doctrine at the time of filing of the claims. The 1997 Tax Code, which took effect on 1 January 1998, was
the applicable law at the time of filing of the claims in issue. As this Court explained in the recent
consolidated cases of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito
Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue (San Roque):48?r?l1

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to
the Commissioner to decide whether to grant or deny San Roques application for tax refund or credit. It is
indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting
period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No.
273, which took effect on 1 January 1988. The waiting period was extended to 120 days effective 1
January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in our
statute books for more than fifteen (15) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a
cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayers petition.
Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the
Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes." When a
taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the
decision of the Commissioner, there is no "decision" of the Commissioner to review and thus the CTA as
a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly
provides that if the Commissioner fails to decide within "a specific period" required by law, such "inaction
shall be deemed a denial" of the application for tax refund or credit. It is the Commissioners decision, or
inaction "deemed a denial," that the taxpayer can take to the CTA for review. Without a decision or an
"inaction x x x deemed a denial" of the Commissioner, the CTA has no jurisdiction over a petition for
review.
San Roques failure to comply with the 120-day mandatory period renders its petition for review with the
CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roques void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes its validity."
There is no law authorizing the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own
void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or
acquired right can arise from acts or omissions which are against the law or which infringe upon the rights
of others." For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot
claim any right arising from such void petition. Thus, San Roques petition with the CTA is a mere scrap of
paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day
period just because the Commissioner merely asserts that the case was prematurely filed with the CTA
and does not question the entitlement of San Roque to the refund. The mere fact that a taxpayer has
undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected
from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance with the
mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential
and necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax
exemptions, are strictly construed against the taxpayer.
The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the
tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the
Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the
taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive periods, and non-

adherence to exhaustion of administrative remedies bar a taxpayers claim for tax refund or credit,
whether or not the Commissioner questions the numerical correctness of the claim of the taxpayer. This
Court should not establish the precedent that non-compliance with mandatory and jurisdictional
conditions can be excused if the claim is otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance with mandatory and jurisdictional
requirements, for then every tax refund case will have to be decided on the numerical correctness of the
amounts claimed, regardless of non-compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San
Roque filed its petition for review with the CTA more than four years before Atlas was promulgated. The
Atlas doctrine did not exist at the time San Roque failed to comply with the 120-day period. Thus, San
Roque cannot invoke the Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse.
In any event, the Atlas doctrine merely stated that the two-year prescriptive period should be counted
from the date of payment of the output VAT, not from the close of the taxable quarter when the sales
involving the input VAT were made. The Atlas doctrine does not interpret, expressly or impliedly, the
120+30 day periods.49 (Emphases in the original; citations omitted)
Prescriptive Period for
the Filing of Administrative Claims
In determining whether the administrative claims of Mindanao I and Mindanao II for 2003 have prescribed,
we see no need to rely on either Atlas or Mirant. Section 112(A) of the 1997 Tax Code is clear: "Any VATregistered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales x x x."???r?bl? ??r??l l?? l?br?r
We rule on Mindanao I and IIs administrative claims for the first, second, third, and fourth quarters of
2003 as follows:cralawlibrary
(1) The last day for filing an application for tax refund or credit with the CIR for the first quarter of 2003
was on 31 March 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while
Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims have prescribed,
pursuant to Section 112(A) of the 1997 Tax Code.
(2) The last day for filing an application for tax refund or credit with the CIR for the second quarter of 2003
was on 30 June 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while
Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on time,
pursuant to Section 112(A) of the 1997 Tax Code.
(3) The last day for filing an application for tax refund or credit with the CIR for the third quarter of 2003
was on 30 September 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005,
while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code.
(4) The last day for filing an application for tax refund or credit with the CIR for the fourth quarter of 2003
was on 2 January 2006. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while
Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on time,
pursuant to Section 112(A) of the 1997 Tax Code. ???r?bl? ??r??l l?? l?br?r
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims for the second, third and fourth quarters of 2003 have been properly
appealed, we still see no need to refer to either Atlas or Mirant, or even to Section 229 of the 1997 Tax

Code. The second paragraph of Section 112(C) of the 1997 Tax Code is clear: "In case of full or partial
denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court of Tax Appeals."???r?bl? ??r??l l?? l?br?r
The mandatory and jurisdictional nature of the 120+30 day periods was explained in San
Roque:cralawlibrary
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide
the taxpayers claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the
date of submission of complete documents." Following the verba legis doctrine, this law must be applied
exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with
the CTA without waiting for the Commissioners decision within the 120-day mandatory and jurisdictional
period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial"
decision of the Commissioner for the CTA to review. In San Roques case, it filed its petition with the CTA
a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San Roque
knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or
inaction of the Commissioner, thus:cralawlibrary
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.
xxx
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year
prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2)
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law states
that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which
means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer
with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply
with the law. The two-year prescriptive period is a grace period in favor of the taxpayer and he can avail
of the full period before his right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit
"within one hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsection (A)." The reference in Section 112(C) of the
submission of documents "in support of the application filed in accordance with Subsection A" means that
the application in Section 112(A) is the administrative claim that the Commissioner must decide within the
120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within

which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-year
prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner. As held in Aichi, the "phrase within two years x x x apply for
the issuance of a tax credit or refund refers to applications for refund/credit with the CIR and not to
appeals made to the CTA."???r?bl? ??r??l l?? l?br?r
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit within the
first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond
the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period.
Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day
period, will have until the 731st day to decide the claim. If the Commissioner decides only on the 731st
day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the
two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the
taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the
law by filing his administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is
not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer
for filing his administrative claim with the Commissioner. This Court cannot interpret a law to defeat,
wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The
taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive
period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time.
The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides
the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his
judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of
Section 112(A) and (C).50 (Emphases in the original; citations omitted)
In San Roque, this Court ruled that "all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of
its issuance on 10 December 2003 up to its reversal in Aichi on 6 October 2010, where this Court held
that the 120+30 day periods are mandatory and jurisdictional."51 We shall discuss later the effect of San
Roques recognition of BIR Ruling No. DA-489-03 on claims filed between 10 December 2003 and 6
October 2010. Mindanao I and II filed their claims within this period.
We rule on Mindanao I and IIs judicial claims for the second, third, and fourth quarters of 2003 as
follows:cralawlibrary
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 April
2005. Counting 120 days after filing of the administrative claim with the CIR (11 August 2005) and 30
days after the CIRs denial by inaction, the last day for filing a judicial claim with the CTA for the second,
third, and fourth quarters of 2003 was on 12 September 2005. However, the judicial claim cannot be filed
earlier than 11 August 2005, which is the expiration of the 120-day period for the Commissioner to act on
the claim.
(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code, Mindanao
IIs judicial claim for the second quarter of 2003 was prematurely filed.

However, pursuant to San Roques recognition of the effect of BIR Ruling No. DA-489-03, we rule that
Mindanao IIs judicial claim for the second quarter of 2003 qualifies under the exception to the strict
application of the 120+30 day periods.
(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA on 9 September 2005.
Mindanao IIs judicial claim for the third quarter of 2003 was thus filed on time, pursuant to Section 112(C)
of the 1997 Tax Code.
(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September 2005.
Mindanao IIs judicial claim for the fourth quarter of 2003 was thus filed on time, pursuant to Section
112(C) of the 1997 Tax Code. ???r?bl? ??r??l l?? l?br?r
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April 2005.
Counting 120 days after filing of the administrative claim with the CIR (2 August 2005) and 30 days after
the CIRs denial by inaction,52 the last day for filing a judicial claim with the CTA for the second, third, and
fourth quarters of 2003 was on 1 September 2005. However, the judicial claim cannot be filed earlier than
2 August 2005, which is the expiration of the 120-day period for the Commissioner to act on the claim.
(1) Mindanao I filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005, before
the expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code, Mindanao Is
judicial claim for the second quarter of 2003 was prematurely filed. However, pursuant to San Roques
recognition of the effect of BIR Ruling No. DA-489-03, we rule that Mindanao Is judicial claim for the
second quarter of 2003 qualifies under the exception to the strict application of the 120+30 day periods.
(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA on 9 September 2005.
Mindanao Is judicial claim for the third quarter of 2003 was thus filed after the prescriptive period,
pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September 2005.
Mindanao Is judicial claim for the fourth quarter of 2003 was thus filed after the prescriptive period,
pursuant to Section 112(C) of the 1997 Tax Code. ???r?bl? ??r??l l?? l?br?r
San Roque: Recognition of BIR Ruling No. DA-489-03
In the consolidated cases of San Roque, the Court En Banc 53 examined and ruled on the different claims
for tax refund or credit of three different companies. In San Roque, we reiterated that "following the verba
legis doctrine, Section 112(C) must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioners decision
within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there
will be no decision or deemed a denial decision of the Commissioner for the CTA to
review."???r?bl? ??r??l l?? l?br?r
Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque
recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel54 in favor of taxpayers. BIR
Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120day period before it could seek judicial relief with the CTA by way of Petition for Review." This Court
discussed BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:cralawlibrary
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a
difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the

reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being
made to return the tax refund or credit they received or could have received under Atlas prior to its
abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner,
like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. x x x.
xxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all
taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not
by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that
is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This
government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the Commissioner the administrative claim of Lazi
Bay Resources Development, Inc., the agency was in fact asking the Commissioner what to do in cases
like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse
of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court
in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional.
xxx
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim
prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03.
Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial
claim from the vice of prematurity. (Emphasis in the original)
Summary of Administrative and Judicial Claims
G.R. No. 193301
Mindanao II v. CIR
Administrative
Claim

Judicial Claim

Action on Claim

1st Quarter, 2003

Filed late

--

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

2nd Quarter, 2003

Filed on time

Prematurely filed

Grant, pursuant to
BIR Ruling No. DA-489-03

3rd Quarter, 2003

Filed on time

Filed on time

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

4th Quarter, 2003

Filed on time

Filed on time

Grant, pursuant to
Section 112(C) of the

1997 Tax Code

G.R. No. 194637
Mindanao I v. CIR
Administrative
Claim

Judicial Claim

Action on Claim

1st Quarter, 2003

Filed late

--

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

2nd Quarter, 2003

Filed on time

Prematurely filed

Grant, pursuant to
BIR Ruling No. DA-489-03

3rd Quarter, 2003

Filed on time

Filed late

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

4th Quarter, 2003

Filed on time

Filed late

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

Summary of Rules on Prescriptive Periods Involving VAT

We summarize the rules on the determination of the prescriptive period for filing a tax refund or credit of
unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows:cralawlibrary
(1) An administrative claim must be filed with the CIR within two years after the close of the taxable
quarter when the zero-rated or effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The
120-day period may extend beyond the two-year period from the filing of the administrative claim if the
claim is filed in the later part of the two-year period. If the 120-day period expires without any decision
from the CIR, then the administrative claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIRs decision
denying the administrative claim or from the expiration of the 120-day period without any action from the
CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods. ???r?bl? ??r??l l?? l?br?r
"Incidental" Transaction
Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the
course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT.
Section 105 of the 1997 Tax Code does not support Mindanao IIs position:cralawlibrary

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No.
7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of
its net income and whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade
or business. (Emphasis supplied)
Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay) 55 and
Imperial v. Collector of Internal Revenue (Imperial)56 to justify its position. Magsaysay, decided under the
NIRC of 1986, involved the sale of vessels of the National Development Company (NDC) to Magsaysay
Lines, Inc. We ruled that the sale of vessels was not in the course of NDCs trade or business as it was
involuntary and made pursuant to the Governments policy for privatization. Magsaysay, in quoting from
the CTAs decision, imputed upon Imperial the definition of "carrying on business." Imperial, however, is
an unreported case that merely stated that "to engage is to embark in a business or to employ oneself
therein."57?r?l1
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction. However, it does not follow
that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a
reading of Section 105 of the 1997 Tax Code would show that a transaction "in the course of trade or
business" includes "transactions incidental thereto."???r?bl? ??r??l l?? l?br?r
Mindanao IIs business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver
the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan
Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and equipment.
Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao IIs
business which should be liable for VAT.
Substantiation Requirements
Mindanao II claims that the CTAs disallowance of a total amount of P492,198.09 is improper as it has
substantially complied with the substantiation requirements of Section 113(A)58 in relation to Section
23759 of the 1997 Tax Code, as implemented by Section 4.104-1, 4.104-5 and 4.108-1 of Revenue
Regulation No. 7-95.60?r?l1
We are constrained to state that Mindanao IIs compliance with the substantiation requirements is a
finding of fact. The CTA En Banc evaluated the records of the case and found that the transactions in
question are purchases for services and that Mindanao II failed to comply with the substantiation
requirements. We affirm the CTA En Bancs finding of fact, which in turn affirmed the finding of the CTA
First Division. We see no reason to overturn their findings.
WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of Tax Appeals En Bane
in CT A EB No. 513 promulgated on 10 March 2010, as well as the Resolution promulgated on 28 July
2010, and the Decision of the Court of Tax Appeals En Bane in CTA EB Nos. 476 and 483 promulgated

on 31 May 2010, as well as the Amended Decision promulgated on 24 November 2010, are AFFIRMED
with MODIFICATION.
For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first quarter of 2003 is
DENIED while its claims for the second, third, and fourth quarters of 2003 are GRANTED. For G.R. No.
19463 7, the claims of Mindanao I Geothermal Partnership for the first, third, and fourth quarters of 2003
are DENIED while its claim for the second quarter of 2003 is GRANTED.
SO ORDERED.

Meaning of in the course of business / Output Tax v Input Tax: Subtantiation of Input Tax Credits
SECOND DIVISION
G.R. No. 178697 : November 17, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SONY PHILIPPINES, INC., Respondent.
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 CTA-First Division[2] which, in turn, partially granted the petition for
review of respondent Sony Philippines, Inc. (Sony).cra 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]cralaw
THE FACTS:chanroblesvirtuallawlibrary
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:chanroblesvirtuallawlibrary
DEFICIENCY VALUE -ADDED TAX
(VAT)
(Assessment No. ST-VAT-97-01242000)
Basic Tax Due

7,958,700.00

Add: Penalties
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-97-01252000)
Basic Tax Due
Add: Penalties
Interest up to 3-31-2000
Compromise

550,485.82
25,000.00

575,485.82

Deficiency EWT Due

1,992,462.72

DEFICIENCY OF VAT ON
ROYALTY PAYMENTS
(Assessment No. ST-LR1-97-01262000)
Basic Tax Due

Add: Penalties
Surcharge

359,177.80

Interest up to 3-31-2000

87,580.34

Compromise

16,000.00

Penalties Due

462,758.14
P

462,758.14

LATE REMITTANCE OF FINAL

WITHHOLDING TAX
(Assessment No. ST-LR2-97-01272000)
Basic Tax Due

Add: Penalties
Surcharge

Interest up to 3-31-2000

1,729,690.71
508,783.07

Compromise

50,000.00

Penalties Due

2,288,473.78
P

2,288,473.78

LATE REMITTANCE OF INCOME

PAYMENTS
(Assessment No. ST-LR3-97-01282000)
Basic Tax Due

Add: Penalties
25 % Surcharge
Interest up to 3-31-2000
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]cralaw
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]cralaw
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:chanroblesvirtuallawlibrary
WHEREFORE, the petition for review is hereby PARTIALLY GRANTED. Respondent is
ORDERED to CANCEL and WITHDRAW the deficiency assessment for value-added tax for 1997
for lack of merit. However, the deficiency assessments for expanded withholding tax and
penalties for late remittance of internal revenue taxes are UPHELD.
Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded withholding
tax in the amount of P1,035,879.70 and the following penalties for late remittance of internal
revenue taxes in the sum of P1,269,593.90:chanroblesvirtuallawlibrary
1. VAT on Royalty

P 429,242.07

2. Withholding Tax on Royalty

831,428.20

3. EWT of Petitioners Branches

Total

8,923.63

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]cralaw
The CIR sought a reconsideration of the above decision and submitted the following grounds in support
thereof:chanroblesvirtuallawlibrary
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]cralaw

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:chanroblesvirtuallawlibrary
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]cralaw
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:chanroblesvirtuallawlibrary
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:chanroblesvirtuallawlibrary
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]cralaw
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]cralaw
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]cralaw
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:chanroblesvirtuallawlibrary
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]cralaw
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]cralaw
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:chanroblesvirtuallawlibrary
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]cralaw
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
Thus:chanroblesvirtuallawlibrary

explains

when

VAT

may

be

imposed

or

exacted.

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 RegulationsNo. 6-85 which provides:chanroblesvirtuallawlibrary
(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%).cra[25]cralaw
In denying the very same argument of the CIR in its motion for reconsideration, the CTA-First Division,
held:chanroblesvirtuallawlibrary
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]cralaw

The Court agrees with the CTA-EB when it affirmed the CTA-First Division decision. Indeed, the
applicable rule is Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which
was the applicable rule during the subject period of examination and assessment as specified in the LOA.
Revenue Regulations No. 2-98, cited by the CIR, was only adopted in April 1998 and, therefore, cannot
be applied in the present case. Besides, the withholding tax on brokers and agents was only increased to
10% much later or by the end of July 2001 under Revenue Regulations No. 6-2001.[27] Until then, the
rate was only 5%.
The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT
assessment on the rental deposit. According to their findings, Sony incurred the subject rental deposit in
the amount of P10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the
appropriate LOA specifying the coverage, the 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 RegulationsNo. 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:chanroblesvirtuallawlibrary
(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]cralaw
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.

MEDICAL SERVICES
FIRST DIVISION
[G.R. NO. 168129 : April 24, 2007]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE HEALTH CARE PROVIDERS,
INC., Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, seeking to reverse the Decision1 dated February 18, 2005 and Resolution dated
May 9, 2005 of the Court of Appeals (Fifteenth Division) in CA-G.R. SP No. 76449.
The factual antecedents of this case, as culled from the records, are:
The Philippine Health Care Providers, Inc., herein respondent, is a corporation organized and existing
under the laws of the Republic of the Philippines. Pursuant to its Articles of Incorporation, 2 its primary
purpose is "To establish, maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and disabled persons enrolled in the
health care plan and to provide for the administrative, legal, and financial responsibilities of the
organization."rbl r l l lbrr
On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending the
National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-Added Tax
(VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988.
Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent wrote the Commissioner of
Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in its
health care program are exempt from the payment of the VAT.
On June 8, 1988, petitioner CIR, through the VAT Review Committee of the Bureau of Internal Revenue
(BIR), issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical services, is exempt
from the VAT coverage. This Ruling was subsequently confirmed by Regional Director Osmundo G.
Umali of Revenue Region No. 8 in a letter dated April 22, 1994.
Meanwhile, on January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took effect,
amending further the National Internal Revenue Code of 1977. Then on January 1, 1998, R.A. No. 8424
(National Internal Revenue Code of 1997) became effective. This new Tax Code substantially adopted
and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on E-VAT.
In the interim, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for
deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and
1997.
On October 20, 1999, respondent filed a protest with the BIR.
On January 27, 2000, petitioner CIR sent respondent a letter demanding payment of "deficiency VAT" in
the amount of P100,505,030.26 and DST in the amount of P124,196,610.92, or a total ofP224,702,641.18
for taxable years 1996 and 1997. Attached to the demand letter were four (4) assessment notices.

On February 23, 2000, respondent filed another protest questioning the assessment notices.
Petitioner CIR did not take any action on respondent's protests. Hence, on September 21, 2000,
respondent filed with the Court of Tax Appeals (CTA) a Petition for Review, docketed as CTA Case No.
6166.
On April 5, 2002, the CTA rendered its Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED.
Petitioner is hereby ORDERED TO PAY the deficiency VAT amounting to P22,054,831.75 inclusive of
25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency
and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until paid for
the 1997 VAT deficiency.rbl r l l lbrr
Accordingly, VAT Ruling No. 231-88 is declared void and without force and effect. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is
ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent filed a motion for partial reconsideration of the above judgment concerning its liability to pay
the deficiency VAT.
In its Resolution3 dated March 23, 2003, the CTA granted respondent's motion, thus:
WHEREFORE, in view of the foregoing, the instant Motion for Partial Reconsideration is GRANTED.
Accordingly, the VAT assessment issued by herein respondent against petitioner for the taxable years
1996 and 1997 is hereby WITHDRAWN and SET ASIDE.
SO ORDERED.
The CTA held:
Moreover, this court adheres to its conclusion that petitioner is a service contractor subject to VAT since
it does not actually render medical service but merely acts as a conduit between the members and
petitioner's accredited and recognized hospitals and clinics.
However, after a careful review of the facts of the case as well as the Law and jurisprudence applicable,
this court resolves to grant petitioner's "Motion for Partial Reconsideration." We are in accord with the
view of petitioner that it is entitled to the benefit of non-retroactivity of rulings guaranteed under Section
246 of the Tax Code, in the absence of showing of bad faith on its part. Section 246 of the Tax Code
provides:
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, x x x.
Clearly, undue prejudice will be caused to petitioner if the revocation of VAT Ruling No. 231-88 will be
retroactively applied to its case. VAT Ruling No. 231-88 issued by no less than the respondent itself has
confirmed petitioner's entitlement to VAT exemption under Section 103 of the Tax Code. In saying so,
respondent has actually broadened the scope of "medical services" to include the case of the petitioner.
This VAT ruling was even confirmed subsequently by Regional Director Ormundo G. Umali in his letter

dated April 22, 1994 (Exhibit M). Exhibit P, which served as basis for the issuance of the said VAT ruling
in favor of the petitioner sufficiently described the business of petitioner and there is no way BIR could be
misled by the said representation as to the real nature of petitioner's business. Such being the case, this
court is convinced that petitioner's reliance on the said ruling is premised on good faith. The facts of the
case do not show that petitioner deliberately committed mistakes or omitted material facts when it
obtained the said ruling from the Bureau of Internal Revenue. Thus, in the absence of such proof, this
court upholds the application of Section 246 of the Tax Code. Consequently, the pronouncement made by
the BIR in VAT Ruling No. 231-88 as to the VAT exemption of petitioner should be upheld.
Petitioner seasonably filed with the Court of Appeals a Petition for Review, docketed as CA-G.R. SP No.
76449.
In its Decision dated February 18, 2005, the Court of Appeals affirmed the CTA Resolution.
Petitioner CIR filed a motion for reconsideration, but it was denied by the appellate court in its
Resolution4 dated May 9, 2005.
Hence, the instant Petition for Review on Certiorari raising these two issues: (1) whether respondent's
services are subject to VAT; and (2) whether VAT Ruling No. 231-88 exempting respondent from
payment of VAT has retroactive application.
On the first issue, respondent is contesting petitioner's assessment of its VAT liabilities for taxable years
1996 and 1997.
Section 1025 of the National Internal Revenue Code of 1977, as amended by E.O. No. 273 (VAT Law)
and R.A. No. 7716 (E-VAT Law), provides:
SEC. 102. Value-added tax on sale of services and use or lease of properties. - (a) Rate and base of tax.
- There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts
derived from the sale or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of service" means the performance of all kinds of services in the
Philippines for a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors x x x.
Section 1036 of the same Code specifies the exempt transactions from the provision of Section 102, thus:
SEC. 103. Exempt Transactions. - The following shall be exempt from the value-added tax:
xxx
(l) Medical, dental, hospital and veterinary services except those rendered by professionals
xxx
The import of the above provision is plain. It requires no interpretation. It contemplates the exemption
from VAT of taxpayers engaged in the performance of medical, dental, hospital, and veterinary services.
In Commissioner of International Revenue v. Seagate Technology (Philippines),7we defined an exempt
transaction as one involving goods or services which, by their nature, are specifically listed in and
expressly exempted from the VAT, under the Tax Code, without regard to the tax status of the party in the
transaction. In Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.) Inc.,8 we
reiterated this definition.

In its letter to the BIR requesting confirmation of its VAT-exempt status, respondent described its services
as follows:
Under the prepaid group practice health care delivery system adopted by Health Care, individuals
enrolled in Health Care's health care program are entitled to preventive, diagnostic, and corrective
medical services to be dispensed by Health Care's duly licensed physicians, specialists, and other
professional technical staff participating in said group practice health care delivery system established
and operated by Health Care. Such medical services will be dispensed in a hospital or clinic owned,
operated, or accredited by Health Care. To be entitled to receive such medical services from Health Care,
an individual must enroll in Health Care's health care program and pay an annual fee. Enrollment in
Health Care's health care program is on a year-to-year basis and enrollees are issued identification cards.
From the foregoing, the CTA made the following conclusions:
a) Respondent "is not actually rendering medical service but merely acting as a conduit between
the members and their accredited and recognized hospitals and clinics."
b) It merely "provides and arranges for the provision of pre-need health care services to its
members for a fixed prepaid fee for a specified period of time."
c) It then "contracts the services of physicians, medical and dental practitioners, clinics and
hospitals to perform such services to its enrolled members;" and
d) Respondent "also enters into contract with clinics, hospitals, medical professionals and then
negotiates with them regarding payment schemes, financing and other procedures in the delivery
of health services."
We note that these factual findings of the CTA were neither modified nor reversed by the Court of
Appeals. It is a doctrine that findings of fact of the CTA, a special court exercising particular expertise on
the subject of tax, are generally regarded as final, binding, and conclusive upon this Court, more so
where these do not conflict with the findings of the Court of Appeals. 9 Perforce, as respondent does not
actually provide medical and/or hospital services, as provided under Section 103 on exempt
transactions, but merely arranges for the same, its services are not VAT-exempt.
Relative to the second issue, Section 246 of the 1997 Tax Code, as amended, provides that rulings,
circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no
retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are: (1)
where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue; (2) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (3)
where the taxpayer acted in bad faith.
We must now determine whether VAT Ruling No. 231-88 exempting respondent from paying its VAT
liabilities has retroactive application.
In its Resolution dated March 23, 2003, the CTA found that there is no showing that respondent
"deliberately committed mistakes or omitted material facts" when it obtained VAT Ruling No. 231-88 from
the BIR. The CTA held that respondent's letter which served as the basis for the VAT ruling "sufficiently
described" its business and "there is no way the BIR could be misled by the said representation as to the
real nature" of said business.
In sustaining the CTA, the Court of Appeals found that "the failure of respondent to refer to itself as a
health maintenance organization is not an indication of bad faith or a deliberate attempt to make false

representations." As "the term health maintenance organization did not as yet have any particular
significance for tax purposes," respondent's failure "to include a term that has yet to acquire its present
definition and significance cannot be equated with bad faith."
We agree with both the Tax Court and the Court of Appeals that respondent acted in good faith. InCivil
Service Commission v. Maala,10 we described good faith as "that state of mind denoting honesty of
intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an
honest intention to abstain from taking any unconscientious advantage of another, even through
technicalities of law, together with absence of all information, notice, or benefit or belief of facts which
render transaction unconscientious."
According to the Court of Appeals, respondent's failure to describe itself as a "health maintenance
organization," which is subject to VAT, is not tantamount to bad faith. We note that the term "health
maintenance organization" was first recorded in the Philippine statute books only upon the passage of
"The National Health Insurance Act of 1995" (Republic Act No. 7875). Section 4 (o) (3) thereof defines a
health maintenance organization as "an entity that provides, offers, or arranges for coverage of
designated health services needed by plan members for a fixed prepaid premium." Under this law, a
health maintenance organization is one of the classes of a "health care provider."
It is thus apparent that when VAT Ruling No. 231-88 was issued in respondent's favor, the term "health
maintenance organization" was yet unknown or had no significance for taxation purposes. Respondent,
therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis
of VAT Ruling No. 231-88.
In ABS-CBN Broasting Corp. v. Court of Tax Appeals,11 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 Broasting Corp. in the later cases
ofCommissioner of Internal Revenue v. Borroughs, Ltd.,12 Commissioner of Internal Revenue v. Mega
Gen. Mdsg. Corp.13 Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.)
Inc.,14and Commissioner of Internal Revenue v. Court of Appeals.15 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,16 wherein the taxpayer was
entitled to tax refunds or credits based on the BIR's own issuances but later was suddenly saddled with
deficiency taxes due to its subsequent ruling changing the category of the taxpayer's transactions for the
purpose of paying its VAT, this Court ruled that applying such ruling retroactively would be prejudicial to
the taxpayer.
WHEREFORE, we DENY the petition and AFFIRM the assailed Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 76449. No costs.
SO ORDERED.

VAT on Toll Fees

EN BANC
[G.R. No. 193007 : July 19, 2011]
RENATO V. DIAZ AND AURORA MA. F. TIMBOL, PETITIONERS, VS. THE SECRETARY OF
FINANCE AND THE COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory
relief [1] assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of
Internal Revenue (BIR) on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular
users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of
Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997
National Internal Revenue Code or the NIRC) at the House of Representatives. Timbol, on the other
hand, claims that she served as Assistant Secretary of the Department of Trade and Industry and
consultant of the Toll Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo
to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent opposition of
Diaz and other sectors to such move. But, upon President Benigno C. Aquino III's assumption of office in
2010, the BIR revived the idea and would impose the challenged tax on toll fees beginning August 16,
2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale
of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT
was never factored into the formula for computing toll fees, its imposition would violate the nonimpairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation
of the VAT. The Court required the government, represented by respondents Cesar V. Purisima,
Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue,
to comment on the petition within 10 days from notice. [2] Later, the Court issued another resolution
treating the petition as one for prohibition. [3]
On August 23, 2010 the Office of the Solicitor General filed the government's comment. [4] The
government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including
tollway operations, except where the law provides otherwise; that the Court should seek the meaning and
intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations
has been the subject as early as 2003 of several BIR rulings and circulars. [5]
The government also argues that petitioners have no right to invoke the non-impairment of contracts
clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between
the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's
sovereign taxing power which is generally read into contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing
toll rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed that the rights of
tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top
of the toll rate. Further, the imposition of VAT on toll fees would have very minimal effect on motorists
using the tollways.
In their reply [6] to the government's comment, petitioners point out that tollway operators cannot be
regarded as franchise grantees under the NIRC since they do not hold legislative franchises. Further, the
BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow
account. But this would be illegal since only the Congress can modify VAT rates and authorize its
disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs
toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010,
contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional
input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be
implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators
and tollway operations in the terms "franchise grantees" and "sale of services" under Section 108 of the
Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on
services; b) will impair the tollway operators' right to a reasonable return of investment under their TOAs;
and c) is not administratively feasible and cannot be implemented.
The Court's Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than
one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The
government has sought reconsideration of the Court's resolution, [7] however, arguing that petitioners'
allegations clearly made out a case for declaratory relief, an action over which the Court has no original
jurisdiction. The government adds, moreover, that the petition does not meet the requirements of Rule 65
for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial functions
when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and
adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the
Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has
far-reaching implications and raises questions that need to be resolved for the public good. [8]The Court
has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive
officials that amount to usurpation of legislative authority. [9]
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not
only on the more than half a million motorists who use the tollways everyday, but more so on the

government's effort to raise revenue for funding various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could
cause more mischief both to the tax-paying public and the government. A belated declaration of nullity of
the BIR action would make any attempt to refund to the motorists what they paid an administrative
nightmare with no solution. Consequently, it is not only the right, but the duty of the Court to take
cognizance of and resolve the issues that the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample
power to waive such technical requirements when the legal questions to be resolved are of great
importance to the public. The same may be said of the requirement of locus standi which is a mere
procedural requisite. [10]
B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed,
and collected, according to Section 108, on the gross receipts derived from the sale or exchange of
services as well as from the use or lease of properties. The third paragraph of Section 108 defines "sale
or exchange of services" as follows:
The phrase `sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to another place in the
Philippines; sales of electricity by generation companies, transmission, and distribution
companies;services of franchise grantees of electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under Section 119 of this
Code and non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties. (Underscoring
supplied)
It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the Philippines
for a fee, including those specified in the list. The enumeration of affected services is not
exclusive. [11] By qualifying "services" with the words "all kinds," Congress has given the term "services"
an all-encompassing meaning. The listing of specific services are intended to illustrate how pervasive
and broad is the VAT's reach rather than establish concrete limits to its application. Thus, every activity
that can be imagined as a form of "service" rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal basis for the services that tollway operators render. Essentially,
tollway operators construct, maintain, and operate expressways, also called tollways, at the operators'
expense. Tollways serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving.
In consideration for constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such operators could fully recover their
expenses and earn reasonable returns from their investments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the
tollway facilities over which the operator enjoys private proprietary rights [12] that its contract and the law
recognize. In this sense, the tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods
or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines.
It does not help petitioners' cause that Section 108 subjects to VAT "all kinds of services" rendered for a
fee "regardless of whether or not the performance thereof calls for the exercise or use of the physical or
mental faculties." This means that "services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require the use of human knowledge and
skills.
And not only do tollway operators come under the broad term "all kinds of services," they also come
under the specific class described in Section 108 as "all other franchise grantees" who are subject to VAT,
"except those under Section 119 of this Code."
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio
and/or television broadcasting companies with gross annual incomes of less than P10 million and gas
and water utilities) that Section 119 [13] spares from the payment of VAT. The word "franchise" broadly
covers government grants of a special right to do an act or series of acts of public concern. [14]
Petitioners of course contend that tollway operators cannot be considered "franchise grantees" under
Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the
"franchise grantees" it speaks of are those who hold legislative franchises. Petitioners give no reason,
and the Court cannot surmise any, for making a distinction between franchises granted by Congress and
franchises granted by some other government agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute
as much a legislative franchise as though the grant had been made by Congress itself. [15] The term
"franchise" has been broadly construed as referring, not only to authorizations that Congress directly
issues in the form of a special law, but also to those granted by administrative agencies to which the
power to grant franchises has been delegated by Congress. [16]
Tollway operators are, owing to the nature and object of their business, "franchise grantees." The
construction, operation, and maintenance of toll facilities on public improvements are activities of public
consequence that necessarily require a special grant of authority from the state. Indeed, Congress
granted special franchise for the operation of tollways to the Philippine National Construction Company,
the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress,
tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers
under P.D. 1112. [17] The franchise in this case is evidenced by a "Toll Operation Certificate." [18]
Petitioners contend that the public nature of the services rendered by tollway operators excludes such
services from the term "sale of services" under Section 108 of the Code. But, again, nothing in Section
108 supports this contention. The reverse is true. In specifically including by way of example electric
utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section
108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a

public nature such as public utilities and the collection of tolls or charges for its use or service is a
franchise. [19]
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of
congressional deliberations of the would-be law. As the Court said in South African Airways v.
Commissioner of Internal Revenue, [20] "statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not
controlling in the interpretation of law." The congressional will is ultimately determined by the language of
the law that the lawmakers voted on. Consequently, the meaning and intention of the law must first be
sought "in the words of the statute itself, read and considered in their natural, ordinary, commonly
accepted and most obvious significations, according to good and approved usage and without resorting to
forced or subtle construction."
Two. Petitioners argue that a toll fee is a "user's tax" and to impose VAT on toll fees is tantamount to
taxing a tax. [21] Actually, petitioners base this argument on the following discussion in Manila
International Airport Authority (MIAA) v. Court of Appeals: [22]
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the
State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
x x x The operation by the government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the road, either the public indirectly
through the taxes they pay the government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is
for public dominion or not. Article 420 of the Civil Code defines property of public dominion as
"one intended for public use." Even if the government collects toll fees, the road is still "intended
for public use" if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the
road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for public use. Such fees are often
termed user's tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A
user's tax is more equitable - a principle of taxation mandated in the 1987
Constitution." [23] (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a "user's tax" must also
pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque City could
sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate
taxes. Since local governments have no power to tax the national government, the Court held that the
City could not proceed with the auction sale. MIAA forms part of the national government although not
integrated in the department framework." [24] Thus, its airport lands and buildings are properties of public
dominion beyond the commerce of man under Article 420(1) [25] of the Civil Code and could not be sold at
public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a

rule that tollway fees are user's tax, but to make the point that airport lands and buildings are properties of
public dominion and that the collection of terminal fees for their use does not make them private
properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do
not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a user's tax, collectible from
motorists, for the construction and maintenance of certain roadways. The tax in such a case goes directly
to the government for the replenishment of resources it spends for the roadways. This is not the case
here. What the government seeks to tax here are fees collected from tollways that are constructed,
maintained, and operated by private tollway operators at their own expense under the build, operate, and
transfer scheme that the government has adopted for expressways. [26] Except for a fraction given to the
government, the toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A
tax is imposed under the taxing power of the government principally for the purpose of raising revenues to
fund public expenditures. [27] Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, therefore, they are not government exactions that can be properly treated as a
tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of ownership. [28]
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an
indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax.
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties
or services to the buyer. In such a case, what is transferred is not the seller's liability but merely the
burden of the VAT. [29]
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden
since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to
be a tax [30] and simply becomes part of the cost that the buyer must pay in order to purchase the good,
property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, [31] VAT is imposed on any person who, in the course of trade or
business, sells or renders services for a fee. In other words, the seller of services, who in this case is the
tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway
user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a
"user's tax." VAT is assessed against the tollway operator's gross receipts and not necessarily on the toll
fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter
directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to
pay in order to use the tollways. [32]
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of
private investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged
diminution in return of investments that may result from the VAT imposition. She has no interest at all in
the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to
the private tollway investors.
Besides, her allegation that the private investors' rate of recovery will be adversely affected by imposing
VAT on tollway operations is purely speculative. Equally presumptuous is her assertion that a stipulation
in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. The
Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the State from
exercising its sovereign taxing power based on uncertain, prophetic grounds.

Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the
VAT on tollway operations impractical and incapable of implementation. They cite the fact that, in order to
claim input VAT, the name, address and tax identification number of the tollway user must be indicated in
the VAT receipt or invoice. The manner by which the BIR intends to implement the VAT - by rounding off
the toll rate and putting any excess collection in an escrow account - is also illegal, while the alternative of
giving "change" to thousands of motorists in order to meet the exact toll rate would be a logistical
nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible. [33]
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system
should be capable of being effectively administered and enforced with the least inconvenience to the
taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except to the
extent that specific constitutional or statutory limitations are impaired." [34] Thus, even if the imposition of
VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some
aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations.
Any declaration by the Court that the manner of its implementation is illegal or unconstitutional would be
premature. Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how
the BIR intends to go about it, [35] the facts pertaining to the matter are not sufficiently established for the
Court to pass judgment on. Besides, any concern about how the VAT on tollway operations will be
enforced must first be addressed to the BIR on whom the task of implementing tax laws primarily and
exclusively rests. The Court cannot preempt the BIR's discretion on the matter, absent any clear violation
of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll
companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, the
date when the VAT imposition was supposed to take effect. The issuance allegedly violates Section
111(A) [36] of the Code which grants first time VAT payers a transitional input VAT of 2% on beginning
inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with
tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll
fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional
input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the 2%
transitional input VAT belongs to the tollway operators who have not questioned the circular's validity.
They are thus the ones who have a right to challenge the circular in a direct and proper action brought for
the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT
law's coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code
clearly states that services of all other franchise grantees are subject to VAT, except as may be provided
under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to
franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions
under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then
it would have been well for the law to clearly say so. Tax exemptions must be justified by clear statutory
grant and based on language in the law too plain to be mistaken. [37] But as the law is written, no such
exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is
found.
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of
Congress. The Court's role is to merely uphold this legislative policy, as reflected first and foremost in the

language of the tax statute. Thus, any unwarranted burden that may be perceived to result from
enforcing such policy must be properly referred to Congress. The Court has no discretion on the matter
but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the
Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly
pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in
matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more
properly suited to deal with the immediate and practical consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal
Revenue's motion for reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners
Renato V. Diaz and Aurora Ma. F. Timbol's petition for lack of merit, and SETS ASIDE the Court's
temporary restraining order dated August 13, 2010.
SO ORDERED.

Franchise Grantees
EN BANC
[G.R. No. 172087, March 15 : 2011]
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), PETITIONER, VS. THE
BUREAU OF INTERNAL REVENUE (BIR), REPRESENTED HEREIN BY HON. JOSE MARIO BUAG,
IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF INTERNAL REVENUE, PUBLIC RESPONDENT,
JOHN DOE AND JANE DOE, WHO ARE PERSONS ACTING FOR, IN BEHALF, OR UNDER THE
AUTHORITY OF RESPONDENT.
PUBLIC AND PRIVATE RESPONDENTS.
DECISION
PERALTA, J.:
For resolution of this Court is the Petition for Certiorari and Prohibition[1] with prayer for the issuance of a
Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine
Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of Section 1 of
Republic Act (R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code
of 1997, by excluding petitioner from exemption from corporate income tax for being repugnant to
Sections 1 and 10 of Article III of the Constitution. Petitioner further seeks to prohibit the implementation
of Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being contrary to law.
The undisputed facts follow.
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A[2] on January 1,
1977. Simultaneous to its creation, P.D. No. 1067-B[3] (supplementing P.D. No. 1067-A) was issued
exempting PAGCOR from the payment of any type of tax, except a franchise tax of five percent (5%) of
the gross revenue.[4] Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of
PAGCOR's exemption.[5]
To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 1869 [6] was
issued. Section 13 thereof reads as follows:
Sec. 13. Exemptions. -- x x x
(1) Customs Duties, taxes and other imposts on importations. - All importations of equipment, vehicles,
automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including accessories
or related facilities, for the sole and exclusive use of the casinos, the proper and efficient management
and administration thereof and such other clubs, recreation or amusement places to be established under
and by virtue of this Franchise shall be exempt from the payment of duties, taxes and other imposts,
including all kinds of fees, levies, or charges of any kind or nature.
Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing
contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to be used
to service the operations and requirements of the casino, shall likewise be totally exempt from the
payment of all customs duties, taxes and other imposts, including all kinds of fees, levies, assessments or
charges of any kind or nature, whether National or Local.
(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise,
as well as fees, charges, or levies of whatever nature, whether National or Local, shall be
assessed and collected under this Franchise from the Corporation; nor shall any form of tax or
charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five
percent (5%)of the gross revenue or earnings derived by the Corporation from its operation under

this Franchise. Such tax shall be due and payable quarterly to the National Government and shall
be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description,
levied, established, or collected by any municipal, provincial or national government authority.
(b) Others: The exemption herein granted for earnings derived from the operations conducted under the
franchise, specifically from the payment of any tax, income or otherwise, as well as any form of charges,
fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or
individual(s) with whom the Corporation or operator has any contractual relationship in connection with
the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation as a result of essential facilities furnished
and/or technical services rendered to the Corporation or operator.
The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance of
this provision shall be free of any tax.
(3) Dividend Income. Notwithstanding any provision of law to the contrary, in the event the Corporation
should declare a cash dividend income corresponding to the participation of the private sector shall, as an
incentive to the beneficiaries, be subject only to a final flat income rate of ten percent (10%) of the regular
income tax rates. The dividend income shall not in such case be considered as part of the beneficiaries'
taxable income; provided, however, that such dividend income shall be totally exempted from income or
other form of taxes if invested within six (6) months from the date the dividend income is received in the
following:
(a) operation of the casino(s) or investments in any affiliate activity that will ultimately redound to the
benefit of the Corporation; or any other corporation with whom the Corporation has any existing
arrangements in connection with or related to the operations of the casino(s);
(b) Government bonds, securities, treasury notes, or government debentures; or
(c) BOI-registered or export-oriented corporation(s).[7]
PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by
Letter of Instruction No. 1430, which was issued in September 1984.
On January 1, 1998, R.A. No. 8424,[8] otherwise known as the National Internal Revenue Code of 1997,
took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled corporations
(GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the Government Service and
Insurance Corporation, the Social Security System, the Philippine Health Insurance Corporation, and the
Philippine Charity Sweepstakes Office, thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of
existing special general laws to the contrary notwithstanding, all corporations, agencies or
instrumentalities owned and controlled by the Government,except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income
as are imposed by this Section upon corporations or associations engaged in similar business, industry,
or activity.[9]
With the enactment of R.A. No. 9337[10] on May 24, 2005, certain sections of the National Internal
Revenue Code of 1997 were amended. The particular amendment that is at issue in this case is Section
1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of 1997 by
excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income
tax, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of

existing special general laws to the contrary notwithstanding, all corporations, agencies, or
instrumentalities owned and controlled by the Government,except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of
tax upon their taxable income as are imposed by this Section upon corporations or associations engaged
in similar business, industry, or activity.
Different groups came to this Court via petitions for certiorari and prohibition[11] assailing the validity and
constitutionality of R.A. No. 9337, in particular:
1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and properties; Section 5,
which imposes a 10% VAT on importation of goods; and Section 6, which imposes a 10% VAT on sale of
services and use or lease of properties, all contain a uniform proviso authorizing the President, upon the
recommendation of the Secretary of Finance, to raise the VAT rate to 12%. The said provisions were
alleged to be violative of Section 28 (2), Article VI of the Constitution, which section vests in Congress the
exclusive authority to fix the rate of taxes, and of Section 1, Article III of the Constitution on due process,
as well as of Section 26 (2), Article VI of the Constitution, which section provides for the "no amendment
rule" upon the last reading of a bill;
2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution, or the
guarantee of equal protection of the laws, and Section 28 (1), Article VI of the Constitution; and
3) other technical aspects of the passage of the law, questioning the manner it was passed.
On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality of R.A. No.
9337.[12]
On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-2005,[13] specifically
identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the
National Internal Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue regulation, in
part, reads:
Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. -xxxx
(h) x x x
Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code,
regardless of how their franchisees may have been granted, shall be subject to the 10% VAT imposed
under Sec.108 of the Tax Code. This includes, among others, the Philippine Amusement and Gaming
Corporation (PAGCOR), and its licensees or franchisees.
Hence, the present petition for certiorari.
PAGCOR raises the following issues:
I
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III OF
THE 1987 CONSTITUTION.
II

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III OF
THE 1987 CONSTITUTION.
III
WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOIDAB
INITIO FOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108, INSOFAR
AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER AS WELL AS
PETITIONER'S LICENSEES OR FRANCHISEES WHEN THE BASIC LAW, AS INTERPRETED BY
APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER OR ON PETITIONER'S
LICENSEES OR FRANCHISEES.[14]
The BIR, in its Comment[15] dated December 29, 2006, counters:
I
SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND
CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED
TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE.
II
SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE III OF
THE 1987 CONSTITUTION.
III
BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL STRICKEN
DOWN BY LAWFUL AUTHORITIES.
The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of Comment,[16] concurred with
the arguments of the petitioner. It added that although the State is free to select the subjects of taxation
and that the inequity resulting from singling out a particular class for taxation or exemption is not an
infringement of the constitutional limitation, a tax law must operate with the same force and effect to all
persons, firms and corporations placed in a similar situation. Furthermore, according to the OSG, public
respondent BIR exceeded its statutory authority when it enacted RR No. 16-2005, because the latter's
provisions are contrary to the mandates of P.D. No. 1869 in relation to R.A. No. 9337.
The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the
enactment of R.A. No. 9337.
After a careful study of the positions presented by the parties, this Court finds the petition partly
meritorious.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of
1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted from
the list of GOCCs that are exempt from it. Petitioner argues that such omission is unconstitutional, as it is
violative of its right to equal protection of the laws under Section 1, Article III of the Constitution:
Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any
person be denied the equal protection of the laws.
In City of Manila v. Laguio, Jr.,[17] this Court expounded the meaning and scope of equal protection, thus:

Equal protection requires that all persons or things similarly situated should be treated alike, both as to
rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated
differently, so as to give undue favor to some and unjustly discriminate against others. The guarantee
means that no person or class of persons shall be denied the same protection of laws which is enjoyed by
other persons or other classes in like circumstances. The "equal protection of the laws is a pledge of the
protection of equal laws." It limits governmental discrimination. The equal protection clause extends to
artificial persons but only insofar as their property is concerned.
xxxx
Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the
law may operate only on some and not all of the people without violating the equal protection clause. The
classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the
following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.[18]
It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs
exempted from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of which,
reads:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of
existing special or general laws to the contrary notwithstanding, all corporations, agencies or
instrumentalities owned and controlled by the Government, except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement
and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are
imposed by this Section upon corporations or associations engaged in similar business, industry, or
activity.[19]
A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on
Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of
corporate income tax was due to the acquiescence of the Committee on Ways on Means to the
request of PAGCOR that it be exempt from such tax.[20] The records of the Bicameral Conference
Meeting reveal:
HON. R. DIAZ. The other thing, sir, is we --- I noticed we imposed a tax on lotto winnings.
CHAIRMAN ENRILE. Wala na, tinanggal na namin yon.
HON. R. DIAZ. Tinanggal na ba natin yon?
CHAIRMAN ENRILE. Oo.
HON. R. DIAZ. Because I was wondering whether we covered the tax on --- Whether on a universal
basis, we included a tax on cockfighting winnings.
CHAIRMAN ENRILE. No, we removed the --HON. R. DIAZ. I . . . (inaudible) natin yong lotto?
CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request.

CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.

CHAIRMAN ENRILE. Philippine Insurance --- Health, health ba. Yon ang request ngChairman, I will
accept. (laughter) Pag-Pag-ibig yon, maliliit na sa tao yon.
HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that would
reflect the VAT and other sales taxes--CHAIRMAN ENRILE. No, we're talking of this measure only. We will not --- (discontinued)
HON. ROXAS. No, no, no, no, from the --- arising from the exemption. Assuming that when we release
the money into the hands of the public, they will not use that to --- for wallpaper. They will spend that eh,
Mr. Chairman. So when they spend that--CHAIRMAN ENRILE. There's a VAT.
HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there a quantification? Is
there an approximation?
CHAIRMAN JAVIER. Not anything.
HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating in the
economy which is unrealistic.
CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government, somebody
receives it in the form of wages and supplies and other services and other goods. They are not being
taken from the public and stored in a vault.
CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income for the
taxpayers.
HON. ROXAS. Precisely, so they will be spending it.[21]
The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying
corporate income tax was not based on a classification showing substantial distinctions which make for
real differences, but to reiterate, the exemption was granted upon the request of PAGCOR that it be
exempt from the payment of corporate income tax.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been
excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. The
records of the Bicameral Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing
Provisions of Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that
PAGCOR be subject to the payment of corporate income tax, thus:
THE CHAIRMAN (SEN. RECTO). Yes, Osmea, the proponent of the amendment.
SEN. OSMEA. Yeah. Mr. Chairman, one of the reasons why we're even considering this VAT bill is we
want to show the world who our creditors, that we are increasing official revenues that go to the national
budget. Unfortunately today, Pagcor is unofficial.
Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying some
small taxes that they are subjected to. Of the 9.7 billion, they claim they remitted to national government
seven billion. Pagkatapos, there are other specific remittances like to the Philippine Sports Commission,
etc., as mandated by various laws, and then about 400 million to the President's Social Fund. But all in
all, their net profit today should be about 12 billion. That's why I am questioning this two billion. Because
while essentially they claim that the money goes to government, and I will accept that just for the

sake of argument. It does not pass through the appropriation process. And I think that at least if
we can capture 35 percent or 32 percent through the budgetary process, first, it is reflected in our
official income of government which is applied to the national budget, and secondly, it goes
through what is constitutionally mandated as Congress appropriating and defining where the
money is spent and not through a board of directors that has absolutely no accountability.
REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up lang.
There is wisdom in the comments of my good friend from Cebu, Senator Osmea.
SEN. OSMEA. And Negros.
REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I would not want to put my
friends from the Department of Finance in a difficult position, but may we know your comments on this
knowing that as Senator Osmea just mentioned, he said, "I accept that that a lot of it is going to
spending for basic services," you know, going to most, I think, supposedly a lot or most of it should go to
government spending, social services and the like. What is your comment on this? This is going to affect
a lot of services on the government side.
THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.
SEN. OSMEA. It goes from pocket to the other, Monico.
REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because you may have your
own pre-judgment on this and I don't blame you. I don't blame you. And I know you have your own
research. But will this not affect a lot, the disbursements on social services and other?
REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldn't it be easier for
you to explain to, say, foreign creditors, how do you explain to them that if there is a fiscal gap some of
our richest corporations has [been] spared [from] taxation by the government which is one rich source of
revenues. Now, why do you save, why do you spare certain government corporations on that, like
Pagcor? So, would it be easier for you to make an argument if everything was exposed to taxation?
REP. TEVES. Mr. Chair, please.
THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before we call Congressman
Teves?
MR. PURISIMA. Thank you, Mr. Chair.
Yes, from definitely improving the collection, it will help us because it will then enter as an official
revenue although when dividends declare it also goes in as other income. (sic)
xxxx
REP. TEVES. Mr. Chairman.
xxxx
THE CHAIRMAN (REP. LAPUS). Congressman Teves.
REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on income tax. Now, we are
talking here on value-added tax. Do you mean to say we are going to amend it from income tax to
value-added tax, as far as Pagcor is concerned?
THE CHAIRMAN (SEN. RECTO). No. We are just amending that section with regard to the

exemption from income tax of Pagcor.

xxxx
REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman.
THE CHAIRMAN (REP. LAPUS). Congressman Nograles.
REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are the functions of Pagcor that
are VATable? What will we VAT in Pagcor?
THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor income tax.
REP. NOGRALES. No, that's why. Anong i-va-Vat natin sa kanya. Sale of what?
xxxx
REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . .
REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way they craft their contract, which
basis?
THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate version does not discuss a
VAT on Pagcor but it just takes away their exemption from non-payment of income tax.[22]
Taxation is the rule and exemption is the exception.[23] The burden of proof rests upon the party claiming
exemption to prove that it is, in fact, covered by the exemption so claimed. [24] As a rule, tax exemptions
are construed strongly against the claimant.[25] Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provision.[26]
In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax,
considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue
Code of 1997 by omitting PAGCOR from the exemption. The legislative intent, as shown by the
discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate income tax;
hence, the omission or removal of PAGCOR from exemption from the payment of corporate income
tax. It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.[27] Thus, the express mention of the GOCCs exempted from payment of corporate income tax
excludes all others. Not being excepted, petitioner PAGCOR must be regarded as coming within the
purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim:exceptio
firmat regulam in casibus non exceptis.[28]
PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative records
of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways and Means,
show that PAGCOR's exemption from payment of corporate income tax, as provided in Section 27 (c) of
R.A. No. 8424, or the National Internal Revenue Code of 1997, was not made pursuant to a valid
classification based on substantial distinctions and the other requirements of a reasonable classification
by legislative bodies, so that the law may operate only on some, and not all, without violating the equal
protection clause. The legislative records show that the basis of the grant of exemption to PAGCOR from
corporate income tax was PAGCOR's own request to be exempted.
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the
non-impairment clause of the Constitution. Petitioner avers that laws form part of, and is read into, the
contract even without the parties expressly saying so. Petitioner states that the private parties/investors
transacting with it considered the tax exemptions, which inure to their benefit, as the main consideration
and inducement for their decision to transact/invest with it. Petitioner argues that the withdrawal of its

exemption from corporate income tax by R.A. No. 9337 has the effect of changing the main consideration
and inducement for the transactions of private parties with it; thus, the amendatory provision is violative of
the non-impairment clause of the Constitution.
Petitioner's contention lacks merit.
The non-impairment clause is contained in Section 10, Article III of the Constitution, which provides that
no law impairing the obligation of contracts shall be passed. The non-impairment clause is limited in
application to laws that derogate from prior acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties.[29] There is impairment if a subsequent law changes the terms of a
contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws
remedies for the enforcement of the rights of the parties.[30]
As regards franchises, Section 11, Article XII of the Constitution[31] provides that no franchise or right
shall be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires.[32]
In Manila Electric Company v. Province of Laguna,[33] the Court held that a franchise partakes the
nature of a grant, which is beyond the purview of the non-impairment clause of the
Constitution.[34] The pertinent portion of the case states:
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as
being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in
the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked,
are those agreed to by the taxing authority in contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions
of this kind may not be revoked without impairing the obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions
in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public
utility shall be granted except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common good so requires.[35]
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and
other recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc.,
whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines. [36] Under
Section 11, Article XII of the Constitution, PAGCOR's franchise is subject to amendment, alteration or
repeal by Congress such as the amendment under Section 1 of R.A. No. 9377. Hence, the provision in
Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of
PAGCOR from corporate income tax, which may affect any benefits to PAGCOR's transactions with
private parties, is not violative of the non-impairment clause of the Constitution.
Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT
is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can
be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the
payment of corporate income tax, which was already addressed above by this Court.
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k)
thereof, which reads:
Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows:

Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value-added tax:
xxxx
(k) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except Presidential Decree No. 529. [37]
Petitioner is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special
law that grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which
retained Section 108 (B) (3) of R.A. No. 8424, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby further
amended to read as follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. -(A) Rate and Base of Tax. -- There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or
lease of properties: x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. -- The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;
x x x x[38]
As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No.
8424 by imposing VAT on other services not previously covered, it did not amend the portion of Section
108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or
entities whose exemption under special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to 0% rate.
Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and
extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation.[39] Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a
portion of the hotel's premises to PAGCOR. It incurred VAT amounting to P30,152,892.02 from its rental
income and sale of food and beverages to PAGCOR from January 1996 to April 1997. Acesite tried to
shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. However,
PAGCOR refused to pay the taxes because of its tax-exempt status. PAGCOR paid only the amount due
to Acesite minus VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02
to the Commissioner of Internal Revenue, fearing the legal consequences of its non-payment. In May
1998, Acesite sought the refund of the amount it paid as VAT on the ground that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. The Court ruled that
PAGCOR and Acesite were both exempt from paying VAT, thus:

xxxx
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions. -xxxx
(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as
well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and
collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way
to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or
earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and
payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any municipal,
provincial, or national government authority.
(b) Others: The exemptions herein granted for earnings derived from the operations conducted under the
franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges,
fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or
individual(s) with whom the Corporation or operator has any contractual relationship in connection with
the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation or operator as a result of essential facilities
furnished and/or technical services rendered to the Corporation or operator.
Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not to
indirect taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with
no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that
PAGCOR is also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to
PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect
taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting
tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is Acesite as the latter
is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly
granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services
subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with
PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax.
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.

Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales
and rentals. Be that as it may, the use of either method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable
for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax.
Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec.
108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services.- (a) Rate and base of tax - There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person
engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by
VAT registered persons shall be subject to 0%.
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
(0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute
tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to mean that the entity or
person exempt is the contractor itself who constructed the building owned by contractee WHO, and such
does not violate the rule that tax exemptions are personal because the manifest intention of the
agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee
WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing
with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be
shifted to PAGCOR.[40]

Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner
of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code,
as amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424, [41] it is still applicable to
this case, since the provision relied upon has been retained in R.A. No. 9337. [42]
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the
terms and provisions of the basic law.[43] RR No. 16-2005, therefore, cannot go beyond the provisions of
R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority
in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is
hereby nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending
Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner Philippine
Amusement and Gaming Corporation from the enumeration of government-owned and controlled
corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue
Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to
the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337.
No costs.

Zero Rated Sale of Services / Destination Principle and Cross Border Doctrine

THIRD DIVISION
[G.R. NO. 152609 : June 29, 2005]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. AMERICAN EXPRESS INTERNATIONAL,
INC. (PHILIPPINE BRANCH), Respondent.
DECISION
PANGANIBAN, J.:
As a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT
law itself provides for a clear exception, under which the supply of service shall be zero-rated when the
following requirements are met: (1) the service is performed in the Philippines; (2) the service falls under
any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in acceptable
foreign currency that is accounted for in accordance with the regulations of the Bangko Sentral ng
Pilipinas. Since respondent's services meet these requirements, they are zero-rated. Petitioner's Revenue
Regulations that alter or revoke the above requirements areultra vires and invalid.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28, 2002
Decision2 of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed as
follows:
"WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. The assailed
decision of the Court of Tax Appeals (CTA) is AFFIRMED in toto."3
The Facts
Quoting the CTA, the CA narrated the undisputed facts as follows:
"[Respondent] is a Philippine branch of American Express International, Inc., a corporation duly organized
and existing under and by virtue of the laws of the State of Delaware, U.S.A., with office in the Philippines
at the Ground Floor, ACE Building, corner Rada and de la Rosa Streets, Legaspi Village, Makati City. It is
a servicing unit of American Express International, Inc. - Hongkong Branch (Amex-HK) and is engaged
primarily to facilitate the collections of Amex-HK receivables from card members situated in the
Philippines and payment to service establishments in the Philippines.
"Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District Office No.
47 (East Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was issued VAT
Registration Certificate No. 088445 bearing VAT Registration No. 32A-3-004868. For the period January
1, 1997 to December 31, 1997, [respondent] filed with the BIR its quarterly VAT returns as follows:
Exhibit

Period Covered

Date Filed

1997 1st Qtr.

April 18, 1997

2nd Qtr.

July 21, 1997

3rd Qtr.

October 2, 1997

4th Qtr.

January 20, 1998

"On March 23, 1999, however, [respondent] amended the aforesaid returns and declared the following:
Exh 1997

Taxable Sales

Output
VAT

Zero-rated
Sales

Domestic
Purchases

Input
VAT

I 1st qtr

P59,597.20

P5,959.72

P17,513,801.11

P6,778,182.30

P677,818.23

J 2nd qtr

67,517.20

6,751.72

17,937,361.51

9,333,242.90

933,324.29

K 3rd qtr

51,936.60

5,193.66

19,627,245.36

8,438,357.00

843,835.70

L 4th qtr

67,994.30

6,799.43

25,231,225.22

13,080,822.10

1,308,082.21

P247,045.30

P24,704.53

P80,309,633.20

P37,630,604.30

P3,763,060.43

Total

"On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess input
taxes in the amount of P3,751,067.04, which amount was arrived at after deducting from its total input
VAT paid of P3,763,060.43 its applied output VAT liabilities only for the third and fourth quarters of 1997
amounting to P5,193.66 and P6,799.43, respectively. [Respondent] cites as basis therefor, Section 110
(B) of the 1997 Tax Code, to state:
'Section 110. Tax Credits. xxx
'(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of
capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112.'
"There being no immediate action on the part of the [petitioner], [respondent's] petition was filed on April
15, 1999.
"In support of its Petition for Review, the following arguments were raised by [respondent]:
A. Export sales by a VAT-registered person, the consideration for which is paid for in acceptable foreign
currency inwardly remitted to the Philippines and accounted for in accordance with existing regulations of
the Bangko Sentral ng Pilipinas, are subject to [VAT] at zero percent (0%). According to [respondent],
being a VAT-registered entity, it is subject to the VAT imposed under Title IV of the Tax Code, to wit:
'Section 102.(sic) Value-added tax on sale of services. - (a) Rate and base of tax. - There shall be
levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by
any person engaged in the sale of services. The phrase "sale of services" means the performance of all
kinds of services for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors: stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for others; and similar

services regardless of whether o[r] not the performance thereof calls for the exercise or use of the
physical or mental faculties:Provided That the following services performed in the Philippines by VATregistered persons shall be subject to 0%:
(1) x x x
(2) Services other than those mentioned in the preceding subparagraph, the consideration is paid for in
acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance
with the rules and regulations of the BSP. x x x.'
In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent portion of
which reads as follows:
'In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable
foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the
rules and regulations of the Central [B]ank of the Philippines, your service income is automatically zero
rated effective January 1, 1998. [Section 102(a)(2) of the Tax Code as amended]. 4 For this, there is no
need to file an application for zero-rate.'
B. Input taxes on domestic purchases of taxable goods and services related to zero-rated revenues are
available as tax refund in accordance with Section 106 (now Section 112) of the [Tax Code] and Section
8(a) of [Revenue] Regulations [(RR)] No. 5-87, to state:
'Section 106. Refunds or tax credits of input tax. (A) Zero-rated or effectively Zero-rated Sales. - Any VAT-registered person, except those covered by
paragraph (a) above, whose sales are zero-rated or are effectively zero-rated, may, within two (2) years
after the close of the taxable quarter when such sales were made, apply for the issuance of tax credit
certificate or refund of the input taxes due or attributable to such sales, to the extent that such input tax
has not been applied against output tax. x x x. [Section 106(a) of the Tax Code]' 5
'Section 8. Zero-rating. - (a) In general. - A zero-rated sale is a taxable transaction for value-added tax
purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not result
in any output tax. The input tax on his purchases of goods or services related to such zero-rated sale
shall be available as tax credit or refundable in accordance with Section 16 of these Regulations. x x x.
'[Section 8(a), [RR] 5-87]. '6
"[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and Affirmative Defenses that:
7. The claim for refund is subject to investigation by the Bureau of Internal Revenue;
8. Taxes paid and collected are presumed to have been made in accordance with laws and regulations,
hence, not refundable. Claims for tax refund are construed strictly against the claimant as they partake of
the nature of tax exemption from tax and it is incumbent upon the [respondent] to prove that it is entitled
thereto under the law and he who claims exemption must be able to justify his claim by the clearest grant
of organic or statu[t]e law. An exemption from the common burden [cannot] be permitted to exist upon
vague implications;
9. Moreover, [respondent] must prove that it has complied with the governing rules with reference to tax
recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code, as amended, which are
quoted as follows:

'Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may - x x x.
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in
his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after
payment of the tax or penalty: Provided, however, That a return filed with an overpayment shall be
considered a written claim for credit or refund.'
'Section 229. Recovery of tax erroneously or illegally collected. - No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun (sic) after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however,That the Commissioner may, even without written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid.'
"From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a decision 7 in
favor of the herein respondent holding that its services are subject to zero-rate pursuant to Section 108(b)
of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations 5-96, the decretal
portion of which reads as follows:
'WHEREFORE, in view of all the foregoing, this Court finds the [petition] meritorious and in accordance
with law. Accordingly, [petitioner] is hereby ORDERED to REFUND to [respondent] the amount
of P3,352,406.59 representing the latter's excess input VAT paid for the year 1997. '"8
Ruling of the Court of Appeals
In affirming the CTA, the CA held that respondent's services fell under the first type enumerated in
Section 4.102-2(b)(2) of RR 7-95, as amended by RR 5-96. More particularly, its "services were not of the
same class or of the same nature as project studies, information, or engineering and architectural
designs" for non-resident foreign clients; rather, they were "services other than the processing,
manufacturing or repacking of goods for persons doing business outside the Philippines." The
consideration in both types of service, however, was paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring
that respondent's services be consumed abroad in order to be zero-rated, petitioner went beyond the
sphere of interpretation and into that of legislation. Even granting that it is valid, the ruling cannot be given
retroactive effect, for it will be harsh and oppressive to respondent, which has already relied upon VAT
Ruling No. 080-89 for zero rating.
Hence, this Petition.9
The Issue

Petitioner raises this sole issue for our consideration:

"Whether or not the Court of Appeals committed reversible error in holding that respondent is entitled to
the refund of the amount of P3,352,406.59 allegedly representing excess input VAT for the year 1997."10
The Court's Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code11 provides:
"Sec. 102. Value-added tax on sale of services and use or lease of properties. - - (a) Rate and base of tax.
- - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of
gross receipts derived from the sale or exchange of services x x x.
"The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered by x
x x persons engaged in milling, processing, manufacturing or repacking goods for others; x x x services of
banks, non-bank financial intermediaries and finance companies; x x x and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.
The phrase 'sale or exchange of services' shall likewise include:
xxx
'(3) The supply of x x x commercial knowledge or information;
'(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of x x x any such knowledge or information as is mentioned in
subparagraph (3);
xxx
'(6) The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any x x x commercial undertaking, venture, project or scheme;
xxx
"The term 'gross receipts' means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding value-added
tax.
"(b) Transactions subject to zero percent (0%) rate. - - The following services performed in the Philippines
by VAT-registered persons shall be subject to zero percent (0%) rate[:]
'(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign

currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
'(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the [BSP];' "
xxx
Zero Rating of "Other" Services
The law is very clear. Under the last paragraph quoted above, services performed by VAT-registered
persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons
doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the collection and payment of receivables
belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly
remitted and accounted for in conformity with BSP rules and regulations. Certainly, the service it renders
in the Philippines is not in the same category as "processing, manufacturing or repacking of goods" and
should, therefore, be zero-rated. In reply to a query of respondent, the BIR opined in VAT Ruling No. 08089 that the income respondent earned from its parent company's regional operating centers (ROCs) was
automatically zero-rated effective January 1, 1988.12
Service has been defined as "the art of doing something useful for a person or company for a fee"13 or
"useful labor or work rendered or to be rendered by one person to another."14 For facilitating in the
Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client,
and getting paid for it in duly accounted acceptable foreign currency, respondent renders service falling
under the category of zero rating. Pursuant to the Tax Code, a VAT of zero percent should, therefore, be
levied upon the supply of that service.15
The Credit Card System and Its Components
For sure, the ancillary business of facilitating the said collection is different from the main business of
issuing credit cards.16 Under the credit card system, the credit card company extends credit
accommodations to its card holders for the purchase of goods and services from its member
establishments, to be reimbursed by them later on upon proper billing. Given the complexities of presentday business transactions, the components of this system can certainly function as separate billable
services.
Under RA 8484,17 the credit card that is issued by banks18 in general, or by non-banks in particular, refers
to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services
x x x on credit;"19and is being used "usually on a revolving basis."20 This means that the consumer-credit
arrangement that exists between the issuer and the holder of the credit card enables the latter to procure
goods or services "on a continuing basis as long as the outstanding balance does not exceed a specified
limit."21 The card holder is, therefore, given "the power to obtain present control of goods or service on a
promise to pay for them in the future."22
Business establishments may extend credit sales through the use of the credit card facilities of a nonbank credit card company to avoid the risk of uncollectible accounts from their customers. Under this
system, the establishments do not deposit in their bank accounts the credit card drafts 23 that arise from
the credit sales. Instead, they merely record their receivables from the credit card company and
periodically send the drafts evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments, but it does
not redeem the drafts at full price. The agreement between them usually provides for discounts to be
taken by the company upon its redemption of the drafts.24 At the end of each month, it then bills its credit
card holders for their respective drafts redeemed during the previous month. If the holders fail to pay the
amounts owed, the company sustains the loss.25
In the present case, respondent's role in the consumer credit 26 process described above primarily
consists of gathering the bills and credit card drafts of different service establishments located in the
Philippines and forwarding them to the ROCs outside the country. Servicing the bill is not the same as
billing. For the former type of service alone, respondent already gets paid.
The parent company - - to which the ROCs and respondent belong - - takes charge not only of redeeming
the drafts from the ROCs and sending the checks to the service establishments, but also of billing the
credit card holders for their respective drafts that it has redeemed. While it usually imposes finance
charges27 upon the holders, none may be exacted by respondent upon either the ROCs or the card
holders.
Branch and Home Office
By designation alone, respondent and the ROCs are operated as branches. This means that each of
them is a unit, "an offshoot, lateral extension, or division"28 located at some distance from the home
office29 of the parent company; carrying separate inventories; incurring their own expenses; and
generating their respective incomes. Each may conduct sales operations in any locality as an extension
of the principal office.30
The extent of accounting activity at any of these branches depends upon company policy,31 but the
financial reports of the entire business enterprise - - the credit card company to which they all belong - must always show its financial position, results of operation, and changes in its financial position as a
single unit.32 Reciprocal accounts are reconciled or eliminated, because they lose all significance when
the branches and home office are viewed as a single entity.33 In like manner, intra-company profits or
losses must be offset against each other for accounting purposes.
Contrary to petitioner's assertion,34 respondent can sell its services to another branch of the same parent
company.35In fact, the business concept of a transfer price allows goods and services to be sold between
and among intra-company units at cost or above cost.36 A branch may be operated as a revenue center,
cost center, profit center or investment center, depending upon the policies and accounting system of its
parent company.37 Furthermore, the latter may choose not to make any sale itself, but merely to function
as a control center, where most or all of its expenses are allocated to any of its branches. 38
Gratia argumenti that the sending of drafts and bills by service establishments to respondent is equivalent
to the act of sending them directly to its parent company abroad, and that the parent company's
subsequent redemption of these drafts and billings of credit card holders is also attributable to respondent,
then with greater reason should the service rendered by respondent be zero-rated under our VAT system.
The service partakes of the nature of export sales as applied to goods,39 especially when rendered in the
Philippines by a VAT-registered person40 that gets paid in acceptable foreign currency accounted for in
accordance with BSP rules and regulations.
VAT Requirements for the Supply of Service
The VAT is a tax on consumption41 "expressed as a percentage of the value added to goods or
services"42 purchased by the producer or taxpayer.43 As an indirect tax44 on services,45 its main object is
the transaction46 itself or, more concretely, the performance of all kinds of services47 conducted in the
course of trade or business in the Philippines.48These services must be regularly conducted in this

country; undertaken in "pursuit of a commercial or an economic activity;"49 for a valuable consideration;

and not exempt under the Tax Code, other special laws, or any international agreement. 50
Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all these
requirements.
First, respondent regularly renders in the Philippines the service of facilitating the collection and payment
of receivables belonging to a foreign company that is a clearly separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained period of time; on a significant
scale; with a reasonable degree of frequency; and not at random, fortuitous or attenuated.
Third, for this service, respondent definitely receives consideration in foreign currency that is accounted
for in conformity with law.
Finally, respondent is not an entity exempt under any of our laws or international agreements.
Services Subject to Zero VAT
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of
the tax.51Goods and services are taxed only in the country where they are consumed. Thus, exports are
zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of service
with theconsumption of its output abroad. In the present case, the facilitation of the collection of
receivables is different from the utilization or consumption of the outcome of such service. While
the facilitation is done in the Philippines, theconsumption is not. Respondent renders assistance to its
foreign clients - - the ROCs outside the country - - by receiving the bills of service establishments located
here in the country and forwarding them to the ROCs abroad. Theconsumption contemplated by law,
contrary to petitioner's administrative interpretation,52 does not imply that the service be done abroad in
order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it."53 Applied to services, the term
means the performance or "successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x."54 The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client the drafts and bills it has
gathered from service establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination is
determined. Instead, there can only be a "predetermined end of a course"55 when determining the service
"location or position x x x for legal purposes."56 Respondent's facilitation service has no physical
existence, yet takes place upon rendition, and therefore upon consumption, in the Philippines. Under the
destination principle, as petitioner asserts, such service is subject to VAT at the rate of 10 percent.
Respondent's Services Exempt from the Destination Principle
However, the law clearly provides for an exception to the destination principle; that is, for a zero percent
VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the [BSP]."57 Thus, for the supply of service
to be zero-rated as an exception, the law merely requires that first, the service be performed in the
Philippines; second, the service fall under any of the categories in Section 102(b) of the Tax Code;

and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rules and
regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent. Its
facilitation service is performed in the Philippines. It falls under the second category found in Section
102(b) of the Tax Code, because it is a service other than "processing, manufacturing or repacking of
goods" as mentioned in the provision. Undisputed is the fact that such service meets the statutory
condition that it be paid in acceptable foreign currency duly accounted for in accordance with BSP rules.
Thus, it should be zero-rated.
Performance of Service v. Product Arising from Performance
Again, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not be
tacked in as part of the cost of goods exported.58 The law neither imposes such requirement nor
associates services with exported goods. It simply states that the services performed by VAT-registered
persons in the Philippines - - services other than the processing, manufacturing or repacking of goods for
persons doing business outside this country - - if paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated. The service rendered by
respondent is clearly different from the product that arises from the rendition of such service. The activity
that creates the income must not be confused with the main business in the course of which that income
is realized.59
Tax Situs of a Zero-Rated Service
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated
service. Under this criterion, the place where the service is rendered determines the jurisdiction 60 to
impose the VAT.61 Performed in the Philippines, such service is necessarily subject to its jurisdiction, 62 for
the State necessarily has to have "a substantial connection"63 to it, in order to enforce a zero rate.64 The
place of payment is immaterial;65 much less is the place where the output of the service will be further or
ultimately used.
Statutory Construction or Interpretation Unnecessary
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory
construction or interpretation is needed. Neither can conditions or limitations be introduced where none is
provided for. Rewriting the law is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt. 66 "[W]here the law speaks in clear and
categorical language, there is no room for interpretation. There is only room for application."67 The Court
has no choice but to "see to it that its mandate is obeyed." 68
No Qualifications Under RR 5-87
In implementing the VAT provisions of the Tax Code, RR 5-87 provides for the zero rating of services
other than the processing, manufacturing or repacking of goods - - in general and without qualifications - when paid for by the person to whom such services are rendered in acceptable foreign currency inwardly
remitted and duly accounted for in accordance with the BSP (then Central Bank) regulations. Section 8 of
RR 5-87 states:
"SECTION 8. Zero-rating. - - (a) In general. - - A zero-rated sale is a taxable transaction for value-added
tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not
result in any output tax. The input tax on his purchases of goods or services related to such zero-rated
sale shall be available as tax credit or refundable in accordance with Section 16 of these Regulations.

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

architectural designs and other similar services, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP. '"
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the
amendment introduced by RR 5-96 further enumerates specific services entitled to zero rating. Although
superfluous, these sample services are meant to be merely illustrative. In this provision, the use of the
term "as well as" is not restrictive. As a prepositional phrase with an adverbial relation to some other word,
it simply means "in addition to, besides, also or too."70
Neither the law nor any of the implementing revenue regulations aforequoted categorically defines or
limits the services that may be sold or exchanged for a fee, remuneration or consideration. Rather, both
merely enumerate the items of service that fall under the term "sale or exchange of services." 71
Ejusdem Generis
Inapplicable
The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does not
apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words, followed
by the general phrase "and other similar services," such words do not constitute a readily discernible
class and are patently not of the same kind.72 Project studies involve investments or marketing;
information services focus on data technology; engineering and architectural designs require creativity.
Aside from calling for the exercise or use of mental faculties or perhaps producing written technical
outputs, no common denominator to the exclusion of all others characterizes these three services.
Nothing sets them apart from other and similar general services that may involve advertising, computers,
consultancy, health care, management, messengerial work - - to name only a few.
Second, there is the regulatory intent to give the general phrase "and other similar services" a broader
meaning.73 Clearly, the preceding phrase "as well as" is not meant to limit the effect of "and other similar
services."
Third, and most important, the statutory provision upon which this regulation is based is by itself not
restrictive. The scope of the word "services" in Section 102(b)(2) of the Tax Code is broad; it is not
susceptible of narrow interpretation.74 rbl r l l lbrr
VAT Ruling Nos. 040-98 and 080-89
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative
level,75 rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the
VAT law. As correctly held by the CA, when this ruling states that the service must be "destined for
consumption outside of the Philippines"76 in order to qualify for zero rating, it contravenes both the law
and the regulations issued pursuant to it.77 This portion of VAT Ruling No. 040-98 is clearly ultra vires and
invalid.78
Although "[i]t is widely accepted that the interpretation placed upon a statute by the executive officers,
whose duty is to enforce it, is entitled to great respect by the courts,"79 this interpretation is not conclusive
and will have to be "ignored if judicially found to be erroneous"80 and "clearly absurd x x x or
improper."81 An administrative issuance that overrides the law it merely seeks to interpret, instead of
remaining consistent and in harmony with it, will not be countenanced by this Court. 82

In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly recognizes its zero
rating. Changing this status will certainly deprive respondent of a refund of the substantial amount of
excess input taxes to which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such revocation
could not be given retroactive effect if the application of the latter ruling would only be prejudicial to
respondent.83 Section 246 of the Tax Code categorically declares that "[a]ny revocation x x x of x x x any
of the rulings x x x promulgated by the Commissioner shall not be given retroactive application if the
revocation x x x will be prejudicial to the taxpayers."84
It is also basic in law that "no x x x rule x x x shall be given retrospective effect85 unless explicitly
stated."86 No indication of such retroactive application to respondent does the Court find in VAT Ruling No.
040-98. Neither do the exceptions enumerated in Section 246 87 of the Tax Code apply.
Though vested with the power to interpret the provisions of the Tax Code88 and not bound by
predecessors' acts or rulings, the BIR commissioner may render a different construction to a
statute89 only if the new interpretation is in congruence with the law. Otherwise, no amount of
interpretation can ever revoke, repeal or modify what the law says.
"Consumed Abroad" Not Required by Legislature
Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the
legislators not to impose the condition of being "consumed abroad" in order for services performed in the
Philippines by a VAT-registered person to be zero-rated. We quote the relevant portions of the
proceedings:
"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly explain to
me - I am referring to the lower part of the first paragraph with the 'Provided'. Section 102. Provided that
the following services performed in the Philippines by VAT registered persons shall be subject to zero
percent. 'There are three here. What is the difference between the three here which is subject to zero
percent and Section 103 which is exempt transactions, to being with?cralawlibrary
"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking goods for
persons doing business outside the Philippines which are subsequently exported, and where the services
are paid for in acceptable foreign currencies inwardly remitted, this is considered as subject to 0%. But if
these conditions are not complied with, they are subject to the VAT.
"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the other one
that he indicated are exempted from the very beginning. These three enumerations under Section 102
are zero-rated provided that these conditions indicated in these three paragraphs are also complied with.
If they are not complied with, then they are not entitled to the zero ratings. Just like in the export of
minerals, if these are not exported, then they cannot qualify under this provision of zero rating.
"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it is
required that the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above includes, let us say, manufacturing computers
and computer chips or repacking goods for persons doing business outside the Philippines. Meaning to
say, we ship the goods to them in Chicago or Washington and they send the payment inwardly to the
Philippines in foreign currency, and that is, of course, zerorated.rbl r l l lbrr

"Now, when we say 'services other than those mentioned in the preceding subsection[,'] may I have some
examples of these?cralawlibrary
"Senator Herrera: Which portion is the Gentleman referring to?cralawlibrary
"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first paragraph
is when one manufactures or packages something here and he sends it abroad and they pay him, that is
covered. That is clear to me. The second paragraph says 'Services other than those mentioned in the
preceding subparagraph, the consideration of which is paid for in acceptable foreign currency''
"One example I could immediately think of - - I do not know why this comes to my mind tonight - - is for
tourism or escort services. For example, the services of the tour operator or tour escort - - just a good
name for all kinds of activities - - is made here at the Midtown Ramada Hotel or at the Philippine Plaza,
but the payment is made from outside and remitted into the country.
"Senator Herrera: What is important here is that these services are paid in acceptable foreign currency
remitted inwardly to the Philippines.
"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the services of a
woman or a tourist guide, it is zero-rated when it is remitted here.
"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also be
considered as among the professionals. If they earn more than P200,000, they should be covered.
xxx
Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT, and I
am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?cralawlibrary
"Senator Herrera: This provision applies to a VAT-registered person. When he performs services in the
Philippines, that is zero-rated.
"Senator Maceda: That is right."90
Legislative Approval By Reenactment
Finally, upon the enactment of RA 8424, which substantially carries over the particular provisions on zero
rating of services under Section 102(b) of the Tax Code, the principle of legislative approval of
administrative interpretation by reenactment clearly obtains. This principle means that "the reenactment of
a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior
executive construction."91
The legislature is presumed to have reenacted the law with full knowledge of the contents of the revenue
regulations then in force regarding the VAT, and to have approved or confirmed them because they would
carry out the legislative purpose. The particular provisions of the regulations we have mentioned earlier
are, therefore, re-enforced. "When a statute is susceptible of the meaning placed upon it by a ruling of the
government agency charged with its enforcement and the [l]egislature thereafter [reenacts] the provisions
[without] substantial change, such action is to some extent confirmatory that the ruling carries out the
legislative purpose."92
In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the former's
entitlement to the refund as determined by the appellate court. Moreover, there is no conflict between the
decisions of the CTA and CA. This Court respects the findings and conclusions of a specialized court like

the CTA "which, by the nature of its functions, is dedicated exclusively to the study and consideration of
tax cases and has necessarily developed an expertise on the subject." 93
Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely freed
from the VAT, because the seller is entitled to recover, by way of a refund or as an input tax credit, the tax
that is included in the cost of purchases attributable to the sale or exchange. 94 "[T]he tax paid or withheld
is not deducted from the tax base."95 Having been applied for within the reglementary
period,96 respondent's refund is in order.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

Zero Rates Sale of Services

SECOND DIVISION
[G.R. NO. 153205 : January 22, 2007]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. BURMEISTER AND WAIN SCANDINAVIAN
CONTRACTOR MINDANAO, INC., Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review 1 seeks to set aside the 16 April 2002 Decision2 of the Court of Appeals in CAG.R. SP No. 66341 affirming the 8 August 2001 Decision3 of the Court of Tax Appeals (CTA). The CTA
ordered the Commissioner of Internal Revenue (petitioner) to issue a tax credit certificate
forP6,994,659.67 in favor of Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (respondent).
The Antecedents
The CTA summarized the facts, which the Court of Appeals adopted, as follows:
[Respondent] is a domestic corporation duly organized and existing under and by virtue of the laws of the
Philippines with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao
City.
It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian Contractor
A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a
contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of
[NAPOCOR's] two power barges. The Consortium appointed BWSC-Denmark as its coordination
manager.
BWSC-Denmark established [respondent] which subcontracted the actual operation and maintenance of
NAPOCOR's two power barges as well as the performance of other duties and acts which necessarily
have to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and
Peso). The freely convertible non-Peso component is deposited directly to the Consortium's bank
accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and
special designated bank account in the Philippines. On the other hand, the Consortium pays [respondent]
in foreign currency inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from the
BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein that if
[respondent] chooses to register as a VAT person and the consideration for its services is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate.

[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of Registration
bearing RDO Control No. 95-113-007556 was issued in favor of [respondent] by the Revenue District
Office No. 113 of Davao City.
For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns reflecting, among
others, a total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14, detailed as
follows:
Qtr. Exh. Date Filed Zero-Rated Sales VAT Input Tax

1st

04-18-96

P 33,019,651.07

P608,953.48

2nd F

07-16-96

37,108,863.33

756,802.66

3rd

10-14-96

34,196,372.35

930,279.14

4th

01-20-97

42,992,302.87

1,065,138.86

Totals

P147,317,189.62

P3,361,174.14

On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR. It
allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable to its
case. Revenue Regulations No. 5-96 provides in part thus:
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue Regulations No. 7-95 are hereby amended to
read as follows:
Section 4.102-2(b)(2) - "Services other than processing, manufacturing or repacking for other persons
doing business outside the Philippines for goods which are subsequently exported, as well as services by
a resident to a non-resident foreign client such as project studies, information services, engineering and
architectural designs and other similar services, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP."
x x x x x x x x x x.
In [conformity] with the aforecited Revenue Regulations, [respondent] subjected its sale of services to the
Consortium to the 10% VAT in the total amount of P103,558,338.11 representing April to December 1996
sales since said Revenue Regulations No. 5-96 became effective only on April 1996. The sum
of P43,893,951.07, representing January to March 1996 sales was subjected to zero rate. Consequently,
[respondent] filed its 1996 amended VAT return consolidating therein the VAT output and input taxes for
the four calendar quarters of 1996. It paid the amount of P6,994,659.67 through BIR's collecting agent,
PCIBank, as its output tax liability for the year 1996, computed as follows:
Amount subject to 10% VAT P103,558,338.11
Multiply by 10%
VAT Output Tax P 10,355,833.81
Less: 1996 Input VAT P 3,361,174.14

VAT Output Tax Payable P 6,994,659.67

On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT Review
Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the services being rendered
by BWSCMI is subject to VAT at zero percent (0%)."
On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for the
issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent] believed that it
erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program
(VAP) of the BIR.4
On 27 December 1999, respondent filed a Petition for Review with the CTA in order to toll the running of
the two-year prescriptive period under the Tax Code.
The Ruling of the Court of Tax Appeals
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate forP6,994,659.67
in favor of respondent. The CTA's ruling stated:
[Respondent's] sale of services to the Consortium [was] paid for in acceptable foreign currency inwardly
remitted to the Philippines and accounted for in accordance with the rules and regulations of Bangko
Sentral ng Pilipinas. These were established by various BPI Credit Memos showing remittances in Danish
Kroner (DKK) and US dollars (US$) as payments for the specific invoices billed by [respondent] to the
consortium. These remittances were further certified by the Branch Manager x x x of BPI-Davao Lanang
Branch to represent payments for sub-contract fees that came from Den Danske Aktieselskab BankDenmark for the account of [respondent]. Clearly, [respondent's] sale of services to the Consortium is
subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code.
x

The zero-rating of [respondent's] sale of services to the Consortium was even confirmed by the
[petitioner] in BIR Ruling No. 023-95 dated February 15, 1995, and later by VAT Ruling No. 003-99 dated
January 7,1999, x x x.
Since it is apparent that the payments for the services rendered by [respondent] were indeed subject to
VAT at zero percent, it follows that it mistakenly availed of the Voluntary Assessment Program by paying
output tax for its sale of services. x x x
x x x Considering the principle of solutio indebiti which requires the return of what has been delivered by
mistake, the [petitioner] is obligated to issue the tax credit certificate prayed for by [respondent]. x x x 5
Petitioner filed a Petition for Review with the Court of Appeals, which dismissed the petition for lack of
merit and affirmed the CTA decision.6
Hence, this petition.
The Court of Appeals' Ruling
In affirming the CTA, the Court of Appeals rejected petitioner's view that since respondent's services are
not destined for consumption abroad, they are not of the same nature as project studies, information
services, engineering and architectural designs, and other similar services mentioned in Section 4.1022(b)(2) of Revenue Regulations No. 5-967 as subject to 0% VAT. Thus, according to petitioner,
respondent's services cannot legally qualify for 0% VAT but are subject to the regular 10% VAT. 8

The Court of Appeals found untenable petitioner's contention that under VAT Ruling No. 040-98,
respondent's services should be destined for consumption abroad to enjoy zero-rating. Contrary to
petitioner's interpretation, there are two kinds of transactions or services subject to zero percent VAT
under VAT Ruling No. 040-98. These are (a) services other than repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported; and (b) services by a resident
to a non-resident foreign client, such as project studies, information services, engineering and
architectural designs and other similar services, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of theBangko Sentral ng
Pilipinas (BSP).9
The Court of Appeals stated that "only the first classification is required by the provision to be consumed
abroad in order to be taxed at zero rate. In x x x the absence of such express or implied stipulation in the
statute, the second classification need not be consumed abroad."10
The Court of Appeals further held that assuming petitioner's interpretation of Section 4.102-2(b)(2) of
Revenue Regulations No. 5-96 is correct, such administrative provision is void being an amendment to
the Tax Code. Petitioner went beyond merely providing the implementing details by adding another
requirement to zero-rating. "This is indicated by the additional phrase 'as well as services by a resident to
a non-resident foreign client, such as project studies, information services and engineering and
architectural designs and other similar services.' In effect, this phrase adds not just one but two requisites:
(a) services must be rendered by a resident to a non-resident; and (b) these must be in the nature of
project studies, information services, etc."11
The Court of Appeals explained that under Section 108(b)(2) of the Tax Code,12 for services which were
performed in the Philippines to enjoy zero-rating, these must comply only with two requisites, to wit: (1)
payment in acceptable foreign currency and (2) accounted for in accordance with the rules of the BSP.
Section 108(b)(2) of the Tax Code does not provide that services must be "destined for consumption
abroad" in order to be VAT zero-rated.13
The Court of Appeals disagreed with petitioner's argument that our VAT law generally follows the
destination principle (i.e., exports exempt, imports taxable).14 The Court of Appeals stated that "if indeed
the 'destination principle' underlies and is the basis of the VAT laws, then petitioner's proper remedy
would be to recommend an amendment of Section 108(b)(2) to Congress. Without such amendment,
however, petitioner should apply the terms of the basic law. Petitioner could not resort to administrative
legislation, as what [he] had done in this case."15
The Issue
The lone issue for resolution is whether respondent is entitled to the refund of P6,994,659.67 as
erroneously paid output VAT for the year 1996.16
The Ruling of the Court
We deny the petition.
At the outset, the Court declares that the denial of the instant petition is not on the ground that
respondent's services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial
revocation of BIR Ruling No. 023-9517 and VAT Ruling No. 003-99,18 which held that respondent's
services are subject to 0% VAT and which respondent invoked in applying for refund of the output VAT.
Section 102(b) of the Tax Code,19 the applicable provision in 1996 when respondent rendered the
services and paid the VAT in question, enumerates which services are zero-rated, thus:

(b) Transactions subject to zero-rate. The following services performed in the Philippines by VATregistered persons shall be subject to 0%:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(2) Services other than those mentioned in the preceding sub-paragraph, the consideration for which
is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
rate;
(4) Services rendered to vessels engaged exclusively in international shipping; andcralawlibrary
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
(Emphasis supplied)cralawlibrary
In insisting that its services should be zero-rated, respondent claims that it complied with the
requirements of the Tax Code for zero rating under the second paragraph of Section 102(b). Respondent
asserts that (1) the payment of its service fees was in acceptable foreign currency, (2) there was inward
remittance of the foreign currency into the Philippines, and (3) accounting of such remittance was in
accordance with BSP rules. Moreover, respondent contends that its services which "constitute the actual
operation and management of two (2) power barges in Mindanao" are not "even remotely similar to
project studies, information services and engineering and architectural designs under Section 4.1022(b)(2) of Revenue Regulations No. 5-96." As such, respondent's services need not be "destined to be
consumed abroad in order to be VAT zero-rated."
Respondent is mistaken.
The Tax Code not only requires that the services be other than "processing, manufacturing or repacking
of goods" and that payment for such services be in acceptable foreign currency accounted for in
accordance with BSP rules. Another essential condition for qualification to zero-rating under Section
102(b)(2) is that the recipient of such services is doing business outside the Philippines. While this
requirement is not expressly stated in the second paragraph of Section 102(b), this is clearly provided in
the first paragraph of Section 102(b) where the listed services must be "for other persons doing business
outside the Philippines." The phrase "for other persons doing business outside the Philippines" not only
refers to the services enumerated in the first paragraph of Section 102(b), but also pertains to the general
term "services" appearing in the second paragraph of Section 102(b). In short, services other than
processing, manufacturing, or repacking of goods must likewise be performed for persons doing business
outside the Philippines.
This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient of the "other
services" are both doing business in the Philippines, the payment of foreign currency is irrelevant.
Otherwise, those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply
stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret Section
102(b)(2) to apply to a payer-recipient of services doing business in the Philippines is to make the
payment of the regular VAT under Section 102(a) dependent on the generosity of the taxpayer. The
provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign
currency inwardly remitted by the payer-recipient. Such interpretation removes Section 102(a) as a tax

measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not
a voluntary contribution.
When Section 102(b)(2) stipulates payment in "acceptable foreign currency" under BSP rules, the law
clearly envisions the payer-recipient of services to be doing business outside the Philippines. Only those
not doing business in the Philippines can be required under BSP rules20 to pay in acceptable foreign
currency for their purchase of goods or services from the Philippines. In a domestic transaction, where
the provider and recipient of services are both doing business in the Philippines, the BSP cannot require
any party to make payment in foreign currency.
Services covered by Section 102(b) (1) and (2) are in the nature of export sales since the payer-recipient
of services is doing business outside the Philippines. Under BSP rules, 21 the proceeds of export sales
must be reported to the Bangko Sentral ng Pilipinas. Thus, there is reason to require the provider of
services under Section 102(b) (1) and (2) to account for the foreign currency proceeds to the BSP. The
same rationale does not apply if the provider and recipient of the services are both doing business in the
Philippines since their transaction is not in the nature of an export sale even if payment is denominated in
foreign currency.
Further, when the provider and recipient of services are both doing business in the Philippines, their
transaction falls squarely under Section 102(a) governing domestic sale or exchange of services. Indeed,
this is a purely local sale or exchange of services subject to the regular VAT, unless of course the
transaction falls under the other provisions of Section 102(b).
Thus, when Section 102(b)(2) speaks of "[s]ervices other than those mentioned in the preceding
subparagraph," the legislative intent is thatonly the services are different between subparagraphs 1 and
2. The requirements for zero-rating, including the essential condition that the recipient of services is doing
business outside the Philippines, remain the same under both subparagraphs.
Significantly, the amended Section 108(b)22 [previously Section 102(b)] of the present Tax Code clarifies
this legislative intent. Expressly included among the transactions subject to 0% VAT are "[s]ervices other
than those mentioned in the [first] paragraph [of Section 108(b)] rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP."
In this case, the payer-recipient of respondent's services is the Consortium which is a joint-venture doing
business in the Philippines. While the Consortium's principal members are non-resident foreign
corporations, the Consortium itself is doing business in the Philippines. This is shown clearly in BIR
Ruling No. 023-95 which states that the contract between the Consortium and NAPOCOR is for a 15-year
term, thus:
This refers to your letter dated January 14, 1994 requesting for a clarification of the tax implications of a
contract between a consortium composed of Burmeister & Wain Scandinavian Contractor A/S ("BWSC"),
Mitsui Engineering & Shipbuilding, Ltd. (MES), and Mitsui & Co., Ltd. ("MITSUI"), all referred to
hereinafter as the "Consortium", and the National Power Corporation ("NAPOCOR") for the operation
and maintenance of two 100-Megawatt power barges ("Power Barges") acquired by NAPOCOR for
a 15-year term.23 (Emphasis supplied)cralawlibrary
Considering this length of time, the Consortium's operation and maintenance of NAPOCOR's power
barges cannot be classified as a single or isolated transaction. The Consortium does not fall under
Section 102(b)(2) which requires that the recipient of the services must be a person doing business
outside the Philippines. Therefore, respondent's services to the Consortium, not being supplied to a
person doing business outside the Philippines, cannot legally qualify for 0% VAT.

Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR's power barges in
the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign
currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly
remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle
respondent to 0% VAT. As the Court held in Commissioner of Internal Revenue v. American Express
International, Inc. (Philippine Branch),24 the place of payment is immaterial, much less is the place where
the output of the service is ultimately used. An essential condition for entitlement to 0% VAT under
Section 102(b)(1) and (2) is that the recipient of the services is a person doing business outside the
Philippines. In this case, the recipient of the services is the Consortium, which is doing business not
outside, but within the Philippines because it has a 15-year contract to operate and maintain NAPOCOR's
two 100-megawatt power barges in Mindanao.
The Court recognizes the rule that the VAT system generally follows the "destination principle" (exports
are zero-rated whereas imports are taxed). However, as the Court stated in American Express, there is
an exception to this rule.25 This exception refers to the 0% VAT on services enumerated in Section 102
and performed in the Philippines. For services covered by Section 102(b)(1) and (2), the recipient of the
services must be a person doing business outside the Philippines. Thus, to be exempt from the
destination principle under Section 102(b)(1) and (2), the services must be (a) performed in the
Philippines; (b) for a person doing business outside the Philippines; and (c) paid in acceptable foreign
currency accounted for in accordance with BSP rules.
Respondent's reliance on the ruling in American Express 26 is misplaced. That case involved a recipient of
services, specifically American Express International, Inc. (Hongkong Branch), doing business outside the
Philippines. There, the Court stated:
Respondent [American Express International, Inc. (Philippine Branch)] is a VAT-registered person that
facilitates the collection and payment of receivables belonging to its non-resident foreign client [American
Express International, Inc. (Hongkong Branch)], for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in accordance with BSP rules and regulations. x x x x27(Emphasis
supplied)cralawlibrary
In contrast, this case involves a recipient of services - the Consortium - which is doing business in the
Philippines. Hence, American Express' services were subject to 0% VAT, while respondent's services
should be subject to 10% VAT.
Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 00399,28 which reconfirmed BIR Ruling No. 023-9529 "insofar as it held that the services being rendered by
BWSCMI is subject to VAT at zero percent (0%)." Respondent's reliance on these BIR rulings binds
petitioner.
Petitioner's filing of his Answer before the CTA challenging respondent's claim for refund effectively
serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation
cannot be given retroactive effect since it will prejudice respondent. Changing respondent's status will
deprive respondent of a refund of a substantial amount representing excess output tax. 30Section 246 of
the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not
be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no showing
of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the retroactive
application of such revocation.
However, upon the filing of petitioner's Answer dated 2 March 2000 before the CTA contesting
respondent's claim for refund, respondent's services shall be subject to the regular 10% VAT. 31 Such filing
is deemed a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
WHEREFORE, the Court DENIES the petition.

Zero Rated Sale of Services

SECOND DIVISION
[G.R. NO. 147295 : February 16, 2007]
THE COMMISIONER OF INTERNAL REVENUE, Petitioner, v. ACESITE (PHILIPPINES) HOTEL
CORPORATION, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the
November 17, 2000 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 56816, which affirmed the
January 3, 2000 Decision3 of the Court of Tax Appeals (CTA) in CTA Case No. 5645 entitled Acesite
(Philippines) Hotel Corporation v. The Commissioner of Internal Revenue for Refund of VAT Payments.
The Facts
The facts as found by the appellate court are undisputed, thus:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue
in Manila. It leases 6,768.53 square meters of the hotel's premises to the Philippine Amusement and
Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to
PAGCOR's casino patrons through the hotel's restaurant outlets. For the period January (sic) 96 to April
1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and
beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of
its tax exempt status.rbl r l l lbrr
Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the
VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of
non-payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite
filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29
May 1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in
this wise:
As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)]
insofar as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special
law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its
sales of food and services and gross rentals, respectively from PAGCOR shall, as a matter of course, be
refunded to the petitioner for having been inadvertently remitted to the respondent.
Thus, taking into consideration the prescribed portion of Petitioner's claim for refund of P98,743.40, and
considering further the principle of 'solutio indebiti' which requires the return of what has been delivered
through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64 computed as
follows:

Total amount per claim

30,152,892.02

Less Prescribed amount (Exhs A, X, & X-20)

January 1996

P 2,199.94

February 1996 26,205.04

March 1996

70,338.42

98,743.40
P30,054,148.64
vvvvvvvvvvvvvv

WHEREFORE, in view of all the foregoing, the instant Petition for Review is partially GRANTED. The
Respondent is hereby ORDERED to REFUND to the petitioner the amount of THIRTY MILLION FIFTY
FOUR THOUSAND ONE HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR CENTAVOS
(P30,054,148.64) immediately.
SO ORDERED.4
The Ruling of the Court of Appeals
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not
only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the
transactions between respondent Acesite and PAGCOR were "effectively zero-rated" because they
involved the rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTA's
determination by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64 from
petitioner.
The Issues
Hence, we have the instant petition with the following issues: (1) whether PAGCOR's tax exemption
privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether
the zero percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3) of
the Tax Code of 1997) legally applies to Acesite.
The petition is devoid of merit.
In resolving the first issue on whether PAGCOR's tax exemption privilege includes the indirect tax of VAT
to entitle Acesite to zero percent (0%) VAT rate, we answer in the affirmative. We will however discuss
both issues together.
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions.'
x

(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise,
as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed
and collected under this Franchise from the Corporation; nor shall any form of tax or charge
attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of
the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such
tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes,
levies, fees or assessments of any kind, nature or description, levied, established or collected by any
municipal, provincial, or national government authority.
x

(b) Others: The exemptions herein granted for earnings derived from the operations conducted
under the franchise specifically from the payment of any tax, income or otherwise, as well as any
form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the Corporation or operator has any
contractual relationship in connection with the operationsof the casino(s) authorized to be
conducted under this Franchise and to those receiving compensation or other remuneration from the
Corporation or operator as a result of essential facilities furnished and/or technical services rendered to
the Corporation or operator. (Emphasis supplied.)
Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not to
indirect taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also
exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to
PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect
taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting
tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly
granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services
subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales
and rentals. Be that as it may, the use of either method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable
for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax.
Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec.
108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services - (a) Rate and base of tax - There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person
engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by
VAT-registered persons shall be subject to 0%.
x

(b) Transactions subject to zero percent (0%) rated.'

x

(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
(0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5where the absolute
tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to mean that the entity or
person exempt is the contractor itself who constructed the building owned by contractee WHO, and such
does not violate the rule that tax exemptions are personal because the manifest intention of the
agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee
WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with
PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to
PAGCOR.
Acesite paid VAT by mistake
Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining
to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown
that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it
had with PAGCOR were zero-rated at the time it made the payments. In UST Cooperative Store v. City of
Manila,6 we explained that "there is erroneous payment of taxes when a taxpayer pays under a mistake of
fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time
the payment was made."7 Such payment is held to be not voluntary and, therefore, can be recovered or
refunded.8
Moreover, it must be noted that aside from not raising the issue of Acesite's compliance with pertinent
Revenue Regulations on exemptions during the proceedings in the CTA, it cannot be gainsaid that
Acesite should have done so as it paid the VAT under a mistake of fact. Hence, petitioner's argument on
this point is utterly tenuous.
Solutio indebiti applies to the Government
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws
governing this principle are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus:

Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or benefited at the expense of another.
Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken
supposition of the existence of a specific fact, where it would not have been known that the fact was
otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid
through misapprehension of facts belongs in equity and in good conscience to the person who paid it. 9
The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of
Internal Revenue v. Fireman's Fund Insurance Company, where we held that: "Enshrined in the basic
legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of
another. It goes without saying that the Government is not exempted from the application of this
doctrine."10
Action for refund strictly construed; Acesite discharged the burden of proof
Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless
granted in the most explicit and categorical language, it is strictly construed against the claimant who
must discharge such burden convincingly. 11 In the instant case, respondent Acesite had discharged this
burden as found by the CTA and the CA. Indeed, the records show that Acesite proved its actual VAT
payments subject to refund, as attested to by an independent Certified Public Accountant who was duly
commissioned by the CTA. On the other hand, petitioner never disputed nor contested respondent's
testimonial and documentary evidence. In fact, petitioner never presented any evidence on its behalf.
One final word. The BIR must release the refund to respondent without any unreasonable delay. Indeed,
fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund
without any unreasonable delay what it has erroneously collected.12
WHEREFORE, the petition is DENIED for lack of merit and the November 17, 2000 Decision of the CA is
hereby AFFIRMED. No costs.
SO ORDERED.

Auto Zero Rate v Effectively Zero-rate / Destination Principle and Cross Border Doctrine
SECOND DIVISION
[G.R. NO. 150154 : August 9, 2005]
COMMISSIONER OF INTERNAL REVENUE, Petitioners, v. TOSHIBA INFORMATION EQUIPMENT
(PHILS.), INC., Respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review under Rule 45 of the Rules of Court, petitioner Commissioner of Internal
Revenue (CIR) prays for the reversal of the decision of the Court of Appeals in CA-G.R. SP No.
59106,1 affirming the order of the Court of Tax Appeals (CTA) in CTA Case No. 5593,2 which ordered
said petitioner CIR to refund or, in the alternative, to issue a tax credit certificate to respondent Toshiba
Information Equipment (Phils.), Inc. (Toshiba), in the amount of P16,188,045.44, representing unutilized
input value-added tax (VAT) payments for the first and second quarters of 1996.
There is hardly any dispute as to the facts giving rise to the present Petition.
Respondent Toshiba was organized and established as a domestic corporation, duly-registered with the
Securities and Exchange Commission on 07 July 1995,3 with the primary purpose of engaging in the
business of manufacturing and exporting of electrical and mechanical machinery, equipment, systems,
accessories, parts, components, materials and goods of all kinds, including, without limitation, to those
relating to office automation and information technology, and all types of computer hardware and software,
such as HDD, CD-ROM and personal computer printed circuit boards.4
On 27 September 1995, respondent Toshiba also registered with the Philippine Economic Zone Authority
(PEZA) as an ECOZONE Export Enterprise, with principal office in Laguna Technopark, Bian,
Laguna.5 Finally, on 29 December 1995, it registered with the Bureau of Internal Revenue (BIR) as a VAT
taxpayer and a withholding agent.6
Respondent Toshiba filed its VAT returns for the first and second quarters of taxable year 1996, reporting
input VAT in the amount of P13,118,542.007 and P5,128,761.94,8 respectively, or a total
ofP18,247,303.94. It alleged that the said input VAT was from its purchases of capital goods and services
which remained unutilized since it had not yet engaged in any business activity or transaction for which it
may be liable for any output VAT.9 Consequently, on 27 March 1998, respondent Toshiba filed with the
One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF)
applications for tax credit/refund of its unutilized input VAT for 01 January to 31 March 1996 in the
amount of P14,176,601.28,10 and for 01 April to 30 June 1996 in the amount of P5,161,820.79,11 for a
total of P19,338,422.07. To toll the running of the two-year prescriptive period for judicially claiming a tax
credit/refund, respondent Toshiba, on 31 March 1998, filed with the CTA a Petition for Review. It would
subsequently file an Amended Petition for Review on 10 November 1998 so as to conform to the
evidence presented before the CTA during the hearings.
In his Answer to the Amended Petition for Review before the CTA, petitioner CIR raised several Special
and Affirmative Defenses, to wit'
5. Assuming without admitting that petitioner filed a claim for refund/tax credit, the same is subject to
investigation by the Bureau of Internal Revenue.

6. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that
the taxes sought to be refunded were erroneously or illegally collected.
7. Petitioner must prove the allegations supporting its entitlement to a refund.
8. Petitioner must show that it has complied with the provisions of Sections 204(c) and 229 of the 1997
Tax Code on the filing of a written claim for refund within two (2) years from the date of payment of the tax.
9. Claims for refund of taxes are construed strictly against claimants, the same being in the nature of an
exemption from taxation.12
After evaluating the evidence submitted by respondent Toshiba, 13 the CTA, in its Decision dated 10
March 2000, ordered petitioner CIR to refund, or in the alternative, to issue a tax credit certificate to
respondent Toshiba in the amount of P16,188,045.44.14
In a Resolution, dated 24 May 2000, the CTA denied petitioner CIR's Motion for Reconsideration for lack
of merit.15
The Court of Appeals, in its Decision dated 27 September 2001, dismissed petitioner CIR's Petition for
Review and affirmed the CTA Decision dated 10 March 2000.
Comes now petitioner CIR before this Court assailing the above-mentioned Decision of the Court of
Appeals based on the following grounds'
1. The Court of Appeals erred in holding that petitioner's failure to raise in the Tax Court the arguments
relied upon by him in the petition, is fatal to his cause.
2. The Court of Appeals erred in not holding that respondent being registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone Export Enterprise, its business is not subject to VAT
pursuant to Section 24 of Republic Act No. 7916 in relation to Section 103 (now 109) of the Tax Code.
3. The Court of Appeals erred in not holding that since respondent's business is not subject to VAT, the
capital goods and services it purchased are considered not used in VAT taxable business, and, therefore,
it is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106-1 of Revenue
Regulations No. 7-95 and of input taxes on services pursuant to Section 4.103-1 of said Regulations.
4. The Court of Appeals erred in holding that respondent is entitled to a refund or tax credit of input taxes
it paid on zero-rated transactions.16
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.
I
An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by
persons from the Customs Territory to ECOZONE enterprises shall be subject to VAT at zero
percent (0%).
Respondent Toshiba bases its claim for tax credit/refund on Section 106(b) of the Tax Code of 1977, as
amended, which reads:
SEC. 106. Refunds or tax credits of creditable input tax. '

(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. 17
Petitioner CIR, on the other hand, opposes such claim on account of Section 4.106-1(b) of Revenue
Regulations (RR) No. 7-95, otherwise known as the VAT Regulations, as amended, which provides as
follows'
Sec. 4.106-1. Refunds or tax credits of input tax. '
...
(b) Capital Goods. - - Only a VAT-registered person may apply for issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased. The refund shall be allowed to
the extent that such input taxes have not been applied against output taxes. The application should be
made within two (2) years after the close of the taxable quarter when the importation or purchase was
made.
Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are
used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only
be the ratable portion corresponding to the taxable operations.
"Capital goods or properties" refer to goods or properties with estimated useful life greater than one year
and which are treated as depreciable assets under Section 29(f), used directly or indirectly in the
production or sale of taxable goods or services. (Underscoring ours.)
Petitioner CIR argues that although respondent Toshiba may be a VAT-registered taxpayer, it is not
engaged in a VAT-taxable business. According to petitioner CIR, respondent Toshiba is actually VATexempt, invoking the following provision of the Tax Code of 1977, as amended'
SEC. 103. Exempt transactions. - The following shall be exempt from value-added tax.
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
No. 66, 529, 972, 1491, and 1590, and non-electric cooperatives under Republic Act No. 6938, or
international agreements to which the Philippines is a signatory. 18
Since respondent Toshiba is a PEZA-registered enterprise, it is subject to the five percent (5%)
preferential tax rate imposed under Chapter III, Section 24 of Republic Act No. 7916, otherwise known as
The Special Economic Zone Act of 1995, as amended. According to the said section, "[e]xcept for real
property taxes on land owned by developers, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income
earned by all business enterprises within the ECOZONE shall be paid' " The five percent (5%) preferential
tax rate imposed on the gross income of a PEZA-registered enterprise shall be in lieu of all national taxes,
including VAT. Thus, petitioner CIR contends that respondent Toshiba is VAT-exempt by virtue of a
special law, Rep. Act No. 7916, as amended.
It would seem that petitioner CIR failed to differentiate between VAT-exempt transactions from VATexempt entities. In the case of Commissioner of Internal Revenue v. Seagate Technology
(Philippines),19 this Court already made such distinction'

An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax
status - VAT-exempt or not - of the party to the transaction'
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a
special law or an international agreement to which the Philippines is a signatory, and by virtue of which its
taxable transactions become exempt from VAT'
Section 103(q) of the Tax Code of 1977, as amended, relied upon by petitioner CIR, relates to VATexempt transactions. These are transactions exempted from VAT by special laws or international
agreements to which the Philippines is a signatory. Since such transactions are not subject to VAT, the
sellers cannot pass on any output VAT to the purchasers of goods, properties, or services, and they may
not claim tax credit/refund of the input VAT they had paid thereon.
Section 103(q) of the Tax Code of 1977, as amended, cannot apply to transactions of respondent
Toshiba because although the said section recognizes that transactions covered by special laws may be
exempt from VAT, the very same section provides that those falling under Presidential Decree No. 66 are
not. Presidential Decree No. 66, creating the Export Processing Zone Authority (EPZA), is the precursor
of Rep. Act No. 7916, as amended,20 under which the EPZA evolved into the PEZA. Consequently, the
exception of Presidential Decree No. 66 from Section 103(q) of the Tax Code of 1977, as amended,
extends likewise to Rep. Act No. 7916, as amended.
This Court agrees, however, that PEZA-registered enterprises, which would necessarily be located within
ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended,
which imposes the five percent (5%) preferential tax rate on gross income of PEZA-registered enterprises,
in lieu of all taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory.
It is important to note herein that respondent Toshiba is located within an ECOZONE. An ECOZONE or a
Special Economic Zone has been described as'
. . . [S]elected areas with highly developed or which have the potential to be developed into agroindustrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose
metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any
or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and
tourist/recreational centers.21
The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be
referred to as the Customs Territory.22
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the
ECOZONES as a separate customs territory;23 thus, creating the fiction that the ECOZONE is a foreign
territory.24 As a result, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE
shall be treated as an exportation from the Customs Territory. Conversely, sales made by a supplier from
the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the
Customs Territory.
Given the preceding discussion, what would be the VAT implication of sales made by a supplier from the
Customs Territory to an ECOZONE enterprise?chanroblesvirtualawlibrary
The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the territorial border of the
taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country

must be free of VAT; while, those destined for use or consumption within the Philippines shall be imposed
with ten percent (10%) VAT.25
Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES, 26the
BIR issued Revenue Memorandum Circular (RMC) No. 74-99, on 15 October 1999. Of particular interest
to the present Petition is Section 3 thereof, which reads'
SECTION 3. Tax Treatment Of Sales Made By a VAT Registered Supplier from The Customs
Territory, To a PEZA Registered Enterprise.'
(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all
taxes, except real property tax, pursuant to R.A. No. 7916, as amended:
(a) Sale of goods (i.e., merchandise). 'This shall be treated as indirect export hence, considered subject
to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in
relation to ART. 77(2) of the Omnibus Investments Code.
(b) Sale of service. 'This shall be treated subject to zero percent (0%) VAT under the "cross border
doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime, hence,
subject to taxes under the NIRC, e.g., Service Establishments which are subject to taxes under the NIRC
rather than the 5% special tax regime:
(a) Sale of goods (i.e., merchandise). 'This shall be treated as indirect export hence, considered subject
to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916 in
relation to ART. 77(2) of the Omnibus Investments Code.
(b) Sale of Service. 'This shall be treated subject to zero percent (0%) VAT under the "cross border
doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier from
the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or
type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%)
VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier
from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in
relation to ART. 77(2) of the Omnibus Investments Code, while all sales of services to the said
enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively
subject to the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. No. 7916
and the "Cross Border Doctrine" of the VAT system.
This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the
benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and
shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by
Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular.
Indubitably, no output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt entity.
The VAT treatment of sales to it, however, varies depending on whether the supplier from the Customs
Territory is VAT-registered or not.
Sales of goods, properties and services by a VAT-registered supplier from the Customs Territory to an
ECOZONE enterprise shall be treated as export sales. If such sales are made by a VAT-registered
supplier, they shall be subject to VAT at zero percent (0%). In zero-rated transactions, the VAT-registered

supplier shall not pass on any output VAT to the ECOZONE enterprise, and at the same time, shall be
entitled to claim tax credit/refund of its input VAT attributable to such sales. Zero-rating of export sales
primarily intends to benefit the exporter (i.e., the supplier from the Customs Territory), who is directly and
legally liable for the VAT, making it internationally competitive by allowing it to credit/refund the input VAT
attributable to its export sales.
Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered supplier would only be
exempt from VAT and the supplier shall not be able to claim credit/refund of its input VAT.
Even conceding, however, that respondent Toshiba, as a PEZA-registered enterprise, is a VAT-exempt
entity that could not have engaged in a VAT-taxable business, this Court still believes, given the particular
circumstances of the present case, that it is entitled to a credit/refund of its input VAT.
II
Prior to RMC No. 74-99, however, PEZA-registered enterprises availing of the income tax holiday
under Executive Order No. 226, as amended, were deemed subject to VAT.
In his Petition, petitioner CIR opposed the grant of tax credit/refund to respondent Toshiba, reasoning
thus'
In the first place, respondent could not have paid input taxes on its purchases of goods and services from
VAT-registered suppliers because such purchases being zero-rated, that is, no output tax was paid by the
suppliers, no input tax was shifted or passed on to respondent. The VAT 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
(Section 105, 1997 Tax Code).
Secondly, Section 4.100-2 of Revenue Regulations No. 7-95 provides:
"SEC. 4.100-2. Zero-rated sales. A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations."
From the foregoing, the VAT-registered person who can avail as tax credit or refund of the input tax on
his purchases of goods, services or properties is the seller whose sale is zero-rated. Applying the
foregoing provision to the case at bench, the VAT-registered supplier, whose sale of goods and services
to respondent is zero-rated, can avail as tax credit or refund the input taxes on its (supplier) own
purchases of goods and services related to its zero-rated sale of goods and services to respondent. On
the other hand, respondent, as the buyer in such zero-rated sale of goods and services, could not have
paid input taxes for which it can claim as tax credit or refund.27
Before anything else, this Court wishes to point out that petitioner CIR is working on the erroneous
premise that respondent Toshiba is claiming tax credit or refund of input VAT based on Section 4.1002,28 in relation to Section 4.106-1(a),29 of RR No. 7-95, as amended, which allows the tax credit/refund of
input VAT on zero-rated sales of goods, properties or services. Instead, respondent Toshiba is basing its
claim for tax credit or refund on Sec. 4.106-1(b) of the same regulations, which allows a VAT-registered
person to apply for tax credit/refund of the input VAT on its capital goods. While in the former, the seller of
the goods, properties or services is the one entitled to the tax credit/refund; in the latter, it is the
purchaser of the capital goods.
Nevertheless, regardless of his mistake as to the basis for respondent Toshiba's application for tax
credit/refund, petitioner CIR validly raised the question of whether any output VAT was actually passed on
to respondent Toshiba which it could claim as input VAT subject to credit/refund. If the VAT-registered
supplier from the Customs Territory did not charge any output VAT to respondent Toshiba believing that it

is exempt from VAT or it is subject to zero-rated VAT, then respondent Toshiba did not pay any input VAT
on its purchase of capital goods and it could not claim any tax credit/refund thereof.
The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-registered
enterprise shall be considered an export sale and subject to zero percent (0%) VAT was clearly
established only on 15 October 1999, upon the issuance of RMC No. 74-99. Prior to the said date,
however, whether or not a PEZA-registered enterprise was VAT-exempt depended on the type of fiscal
incentives availed of by the said enterprise. This old rule on VAT-exemption or liability of PEZA-registered
enterprises, followed by the BIR, also recognized and affirmed by the CTA, the Court of Appeals, and
even this Court,30 cannot be lightly disregarded considering the great number of PEZA-registered
enterprises which did rely on it to determine its tax liabilities, as well as, its privileges.
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-registered
enterprise the option to choose between two sets of fiscal incentives: (a) The five percent (5%)
preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and (b) the income tax
holiday provided under Executive Order No. 226, otherwise known as the Omnibus Investment Code of
1987, as amended.31
The five percent (5%) preferential tax rate on gross income under Rep. Act No. 7916, as amended, is in
lieu of all taxes. Except for real property taxes, no other national or local tax may be imposed on a PEZAregistered enterprise availing of this particular fiscal incentive, not even an indirect tax like VAT.
Alternatively, Book VI of Exec. Order No. 226, as amended, grants income tax holiday to registered
pioneer and non-pioneer enterprises for six-year and four-year periods, respectively.32 Those availing of
this incentive are exempt only from income tax, but shall be subject to all other taxes, including the ten
percent (10%) VAT.
This old rule clearly did not take into consideration the Cross Border Doctrine essential to the VAT system
or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal incentives of the
PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZA-registered enterprises was
based on their choice of fiscal incentives: (1) If the PEZA-registered enterprise chose the five percent
(5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916, as
amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax
holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent (10%). Such
distinction was abolished by RMC No. 74-99, which categorically declared that all sales of goods,
properties, and services made by a VAT-registered supplier from the Customs Territory to an ECOZONE
enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latter's type or class of
PEZA registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as a
VAT-exempt entity.
The sale of capital goods by suppliers from the Customs Territory to respondent Toshiba in the present
Petition took place during the first and second quarters of 1996, way before the issuance of RMC No. 7499, and when the old rule was accepted and implemented by no less than the BIR itself. Since
respondent Toshiba opted to avail itself of the income tax holiday under Exec. Order No. 226, as
amended, then it was deemed subject to the ten percent (10%) VAT. It was very likely therefore that
suppliers from the Customs Territory had passed on output VAT to respondent Toshiba, and the latter,
thus, incurred input VAT. It bears emphasis that the CTA, with the help of SGV & Co., the independent
accountant it commissioned to make a report, already thoroughly reviewed the evidence submitted by
respondent Toshiba consisting of receipts, invoices, and vouchers, from its suppliers from the Customs
Territory. Accordingly, this Court gives due respect to and adopts herein the CTA's findings that the
suppliers of capital goods from the Customs Territory did pass on output VAT to respondent Toshiba and
the amount of input VAT which respondent Toshiba could claim as credit/refund.

Moreover, in another circular, Revenue Memorandum Circular (RMC) No. 42-2003, issued on 15 July
2003, the BIR answered the following question'
Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by PEZA-registered firms
automatically qualify as zero-rated without seeking prior approval from the BIR effective October 1999.
1) Will the OSS-DOF Center still accept applications from PEZA-registered claimants who were allegedly
billed VAT by their suppliers before and during the effectivity of the RMC by issuing VAT
invoices/receipts?chanroblesvirtualawlibrary
A-5(1): If the PEZA-registered enterprise is paying the 5% preferential tax in lieu of all other taxes, the
said PEZA-registered taxpayer cannot claim TCC or refund for the VAT paid on purchases. However, if
the taxpayer is availing of the income tax holiday, it can claim VAT credit provided:
A. The taxpayer-claimant is VAT-registered;
b. Purchases are evidenced by VAT invoices or receipts, whichever is applicable, with shifted VAT to the
purchaser prior to the implementation of RMC No. 74-99; andcralawlibrary
c. The supplier issues a sworn statement under penalties of perjury that it shifted the VAT and declared
the sales to the PEZA-registered purchaser as taxable sales in its VAT returns.
For invoices/receipts issued upon the effectivity of RMC No. 74-99, the claims for input VAT by PEZAregistered companies, regardless of the type or class of PEZA registration, should be denied.
Under RMC No. 42-2003, the DOF would still accept applications for tax credit/refund filed by PEZAregistered enterprises, availing of the income tax holiday, for input VAT on their purchases made prior to
RMC No. 74-99. Acceptance of applications essentially implies processing and possible approval thereof
depending on whether the given conditions are met. Respondent Toshiba's claim for tax credit/refund
arose from the very same circumstances recognized by Q-5(1) and A-5(1) of RMC No. 42-2003. It
therefore seems irrational and unreasonable for petitioner CIR to oppose respondent Toshiba's
application for tax credit/refund of its input VAT, when such claim had already been determined and
approved by the CTA after due hearing, and even affirmed by the Court of Appeals; while it could accept,
process, and even approve applications filed by other similarly-situated PEZA-registered enterprises at
the administrative level.
III
Findings of fact by the CTA are respected and adopted by this Court.
Finally, petitioner CIR, in a last desperate attempt to block respondent Toshiba's claim for tax
credit/refund, challenges the allegation of said respondent that it availed of the income tax holiday under
Exec. Order No. 226, as amended, rather than the five percent (5%) preferential tax rate under Rep. Act
No. 7916, as amended. Undoubtedly, this is a factual matter that should have been raised and threshed
out in the lower courts. Giving it credence would belie petitioner CIR's assertion that it is raising only
issues of law in its Petition that may be resolved without need for reception of additional evidences. Once
more, this Court respects and adopts the finding of the CTA, affirmed by the Court of Appeals, that
respondent Toshiba had indeed availed of the income tax holiday under Exec. Order No. 226, as
amended.
WHEREFORE, based on the foregoing, this Court AFFIRMS the decision of the Court of Appeals in CAG.R. SP. No. 59106, and the order of the CTA in CTA Case No. 5593, ordering said petitioner CIR to
refund or, in the alternative, to issue a tax credit certificate to respondent Toshiba, in the amount
ofP16,188,045.44, representing unutilized input VAT for the first and second quarters of 1996.

Zero Rated Sales v Exempt Sales

FIRST DIVISION
[G.R. NO. 149073 : February 16, 2005]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CEBU TOYO CORPORATION, Respondent.
DECISION
QUISUMBING, J.:
In its Decision1 dated July 6, 2001, the Court of Appeals, in CA-G.R. SP No. 60304, affirmed
theResolutions dated May 31, 20002 and August 2, 2000,3 of the Court of Tax Appeals (CTA) ordering
the Commissioner of Internal Revenue (CIR) to allow a partial refund or, alternatively, to issue a tax credit
certificate in favor of Cebu Toyo Corporation in the sum of P2,158,714.46, representing the unutilized
input value-added tax (VAT) payments.
The facts, as culled from the records, are as follows:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and
various optical components used in television sets, cameras, compact discs and other similar devices. Its
principal office is located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a
subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the laws of Japan.
Respondent is a zone export enterprise registered with the Philippine Economic Zone Authority (PEZA),
pursuant to the provisions of Presidential Decree No. 66.4 It is also registered with the Bureau of Internal
Revenue (BIR) as a VAT taxpayer.5
As an export enterprise, respondent sells 80% of its products to its mother corporation, the Japan-based
Toyo Lens Corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises
doing business in the MEPZ. Inasmuch as both sales are considered export sales subject to Value-Added
Tax (VAT) at 0% rate under Section 106(A)(2)(a)6 of the National Internal Revenue Code, as amended,
respondent filed its quarterly VAT returns from April 1, 1996 to December 31, 1997 showing a total input
VAT of P4,462,412.63.
On March 30, 1998, respondent filed with the Tax and Revenue Group of the One-Stop Inter-Agency Tax
Credit and Duty Drawback Center of the Department of Finance, an application for tax credit/refund of
VAT paid for the period April 1, 1996 to December 31, 1997 amounting toP4,439,827.21 representing
excess VAT input payments.
Respondent, however, did not bother to wait for the Resolution of its claim by the CIR. Instead, on June
26, 1998, it filed a Petition for Review with the CTA to toll the running of the two-year prescriptive period
pursuant to Section 2307 of the Tax Code.
Before the CTA, the respondent posits that as a VAT-registered exporter of goods, it is subject to VAT at
the rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input
taxes on its purchases of goods and services related to such zero-rated activities are available as tax
credits or refunds.
The petitioner's position is that respondent was not entitled to a refund or tax credit since: (1) it failed to
show that the tax was erroneously or illegally collected; (2) the taxes paid and collected are presumed to
have been made in accordance with law; and (3) claims for refund are strictly construed against the
claimant as these partake of the nature of tax exemption.

Initially, the CTA denied the petition for insufficiency of evidence.8 The tax court sustained respondent's
argument that it was a VAT-registered entity. It also found that the petition was timely, as it was filed
within the prescription period. The CTA also ruled that the respondent's sales to Toyo Lens Corporation
and to certain establishments in the Mactan Export Processing Zone were export sales subject to VAT at
0% rate. It found that the input VAT covered by respondent's claim was not applied against any output
VAT. However, the tax court decreed that the petition should nonetheless be denied because of the
respondent's failure to present documentary evidence to show that there were foreign currency exchange
proceeds from its export sales. The CTA also observed that respondent failed to submit the approval by
Bangko Sentral ng Pilipinas (BSP) of its Agreement of Offsetting with Toyo Lens Corporation and the
certification of constructive inward remittance.
Undaunted, respondent filed on February 21, 2000, a Motion for Reconsideration arguing that: (1) proof
of its inward remittance was not required by law; (2) BSP and BIR regulations do not require BSP
approval on its Agreement of Offsetting nor do they require certification on the amount constructively
remitted; (3) it was not legally required to prove foreign currency payments on the remaining sales to
MEPZ enterprises; and (4) it had complied with the substantiation requirements under Section
106(A)(2)(a) of the Tax Code. Hence, it was entitled to a refund of unutilized VAT input tax.
On May 31, 2000, the tax court partly granted the motion for reconsideration in a Resolution, to wit:
WHEREFORE, finding the motion of petitioner to be meritorious, the same is hereby partially granted.
Accordingly, the Court hereby MODIFIES its decision in the above-entitled case, the dispositive portion of
which shall now read as follows:
WHEREFORE, finding the Petition for Review partially meritorious, respondent is hereby ORDERED to
REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of Petitioner in the
amount of P2,158,714.46 representing unutilized input tax payments.
SO ORDERED.9
In granting partial reconsideration, the tax court found that there was no need for BSP approval of the
Agreement of Offsetting since the same may be categorized as an inter-company open account offset
arrangement. Hence, the respondent need not present proof of foreign currency exchange proceeds from
its sales to MEPZ enterprises pursuant to Section 106(A)(2)(a)10 of the Tax Code. However, the CTA
stressed that respondent must still prove that there was an actual offsetting of accounts to prove that
constructive foreign currency exchange proceeds were inwardly remitted as required under Section
106(A)(2)(a).
The CTA found that only the amount of Y274,043,858.00 covering respondent's sales to Toyo Lens
Corporation and purchases from said mother company for the period August 7, 1996 to August 26, 1997
were actually offset against respondent's related accounts receivable and accounts payable as shown by
the Agreement for Offsetting dated August 30, 1997. Resort to the respondent's Accounts Receivable and
Accounts Payable subsidiary ledgers corroborated the amount. The tax court also found that out of the
total export sales for the period April 1, 1996 to December 31, 1997 amounting to Y700,654,606.15,
respondent's sales to MEPZ enterprises amounted only to Y136,473,908.05 of said total. Thus, allocating
the input taxes supported by receipts to the export sales, the CTA determined that the refund/credit
amounted to only P2,158,714.46,11 computed as follows:
Total Input Taxes Claimed by respondent

P4,439,827.21

Less: Exceptions made by SGV

a.) 1996

P651,256.17

b.) 1997

104,129.13

Validly Supported Input Taxes

755,385.30
P3,684,441.91

Allocation:
Verified Zero-Rated Sales
a.) Toyo Lens Corporation

Y274,043,858.00

b.) MEPZ Enterprises

136,473,908.05

Y410,517,766.05

Divided by Total Zero-Rated Sales

Y700,654,606.15

Quotient

0.5859

Multiply by Allowable Input Tax

P3,684,441.91

Amount Refundable

P2,158,714.[52]12

On June 21, 2000, petitioner Commissioner filed a Motion for Reconsideration arguing that respondent
was not entitled to a refund because as a PEZA-registered enterprise, it was not subject to VAT pursuant
to Section 2413 of Republic Act No. 7916,14 as amended by Rep. Act No. 8748.15Thus, since respondent
was not subject to VAT, the Commissioner contended that the capital goods it purchased must be
deemed not used in VAT taxable business and therefore it was not entitled to refund of input taxes on
such capital goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95.16
Petitioner filed a Motion for Reconsideration on June 21, 2000 based on the following theories: (1) that
respondent being registered with the PEZA as an ecozone enterprise is not subject to VAT pursuant to
Sec. 24 of Rep. Act No. 7916; and (2) since respondent's business is not subject to VAT, the capital
goods it purchased are considered not used in a VAT taxable business and therefore is not entitled to a
refund of input taxes.17
The respondent opposed the Commissioner's Motion for Reconsideration and prayed that the CTA
resolution be modified so as to grant it the entire amount of tax refund or credit it was seeking.
On August 2, 2000, the Court of Tax Appeals denied the petitioner's motion for reconsideration. It held
that the grounds relied upon were only raised for the first time and that Section 24 of Rep. Act No. 7916
was not applicable since respondent has availed of the income tax holiday incentive under Executive
Order No. 226 or the Omnibus Investment Code of 1987 pursuant to Section 23 18 of Rep. Act No. 7916.
The tax court pointed out that E.O. No. 226 granted PEZA-registered enterprises an exemption from
payment of income taxes for 4 or 6 years depending on whether the registration was as a pioneer or as a
non-pioneer enterprise, but subject to other national taxes including VAT.
The petitioner then filed a Petition for Review with the Court of Appeals (CA), docketed as CA-G.R. SP
No. 60304, praying for the reversal of the CTA Resolutions dated May 31, 2000 and August 2, 2000, and
reiterating its claim that respondent is not entitled to a refund of input taxes since it is VAT-exempt.
On July 6, 2001, the appellate court decided CA-G.R. SP No. 60304 in respondent's favor, thus:
WHEREFORE, finding no merit in the petition, this Court DISMISSES it and AFFIRMS the Resolutions
dated May 31, 2000 and August 2, 2000 . . . of the Court of Tax Appeals.
SO ORDERED.19

The Court of Appeals found no reason to set aside the conclusions of the Court of Tax Appeals. The
appellate court held as untenable herein petitioner's argument that respondent is not entitled to a refund
because it is VAT-exempt since the evidence showed that it is a VAT-registered enterprise subject to VAT
at the rate of 0%. It agreed with the ruling of the tax court that respondent had two options under Section
23 of Rep. Act No. 7916, namely: (1) to avail of an income tax holiday under E.O. No. 226 and be subject
to VAT at the rate of 0%; or (2) to avail of the 5% preferential tax under P.D. No. 66 and enjoy VAT
exemption. Since respondent availed of the incentives under E.O. No. 226, then the 0% VAT rate would
be applicable to it and any unutilized input VAT should be refunded to respondent upon proper application
with and substantiation by the BIR.rbl r l l lbrr
Hence, the instant Petition for Review now before us, with herein petitioner alleging that:
I. RESPONDENT BEING REGISTERED WITH THE PHILIPPINE ECONOMIC ZONE AUTHORITY
(PEZA) AS AN ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS NOT SUBJECT TO VAT
PURSUANT TO SECTION 24 OF REPUBLIC ACT NO. 7916 IN RELATION TO SECTION 103 OF THE
TAX CODE, AS AMENDED BY RA NO. 7716.
II. SINCE RESPONDENT'S BUSINESS IS NOT SUBJECT TO VAT, IT IS NOT ENTITLED TO REFUND
OF INPUT TAXES PURSUANT TO SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95.20
In our view, the main issue for our resolution is whether the Court of Appeals erred in affirming the Court
of Tax Appeals resolution granting a refund in the amount of P2,158,714.46 representing unutilized input
VAT on goods and services for the period April 1, 1996 to December 31, 1997.
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 10921 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 4.103-122 of Revenue Regulations No. 7-95, notwithstanding its
registration as a VAT taxpayer. For petitioner claims that said registration was erroneous and did not
confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from
August 7, 1995 making it exempt from income tax but not from other taxes such as VAT. Hence,
according to respondent, its export sales are not exempt from VAT, contrary to petitioner's claim, but its
export sales is subject to 0% VAT. Moreover, it argues that it was able to establish through a report
certified by an independent Certified Public Accountant that the input taxes it incurred from April 1, 1996
to December 31, 1997 were directly attributable to its export sales. Since it did not have any output tax
against which said input taxes may be offset, it had the option to file a claim for refund/tax credit of its
unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioner's contention that respondent is not entitled to refund for being exempt from VAT is untenable.
This argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under
Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had two options with
respect to its tax burden. It could avail of an income tax holiday pursuant to provisions of E.O. No. 226,
thus exempt it from income taxes for a number of years but not from other internal revenue taxes such as
VAT; or it could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only
the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court of Tax
Appeals found that respondent availed of the income tax holiday for four (4) years starting from August 7,
1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax Returns, where respondent
specified that it was availing of the tax relief under E.O. No. 226. Hence, respondent is not exempt from

VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than
exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten
percent (10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the
value-added tax paid on purchases and leases of goods, properties or services. 23
An exemption means that the sale of goods, properties or services and the use or lease of properties is
not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously
paid. The person making the exempt sale of goods, properties or services shall not bill any output tax to
his customers because the said transaction is not subject to VAT. Thus, a VAT-registered purchaser of
goods, properties or services that are VAT-exempt, is not entitled to any input tax on such purchases
despite the issuance of a VAT invoice or receipt.24
Now, having determined that respondent is engaged in taxable transactions subject to VAT, let us then
proceed to determine whether it is subject to 10% or zero (0%) rate of VAT. To begin with, it must be
recalled that generally, sale of goods and supply of services performed in the Philippines are taxable at
the rate of 10%. However, export sales, or sales outside the Philippines, shall be subject to value-added
tax at 0% if made by a VAT-registered person.25 Under the value-added tax system, a zero-rated sale by
a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output
tax. However, the input tax on his purchase of goods, properties or services related to such zero-rated
sale shall be available as tax credit or refund. 26 rbl r l l lbrr
In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the
transaction completely from VAT previously collected on inputs. It is thus the only true way to ensure that
goods are provided free of VAT. While the zero rating and the exemption are computationally the same,
they actually differ in several aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted
transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as
tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register
while registration is optional for VAT-exempt persons.
In this case, it is undisputed that respondent is engaged in the export business and is registered as a VAT
taxpayer per Certificate of Registration of the BIR.27 Further, the records show that the respondent is
subject to VAT as it availed of the income tax holiday under E.O. No. 226. Perforce, respondent is subject
to VAT at 0% rate and is entitled to a refund or credit of the unutilized input taxes, which the Court of Tax
Appeals computed at P2,158,714.46, but which we find after recomputation'should be P2,158,714.52.
The Supreme Court will not set aside lightly the conclusions reached by the Court of Tax Appeals which,
by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has
accordingly developed an expertise on the subject, unless there has been an abuse or improvident
exercise of authority.28 In this case, we find no cogent reason to deviate from this well-entrenched
principle. Thus, we are persuaded that indeed the Court of Appeals committed no reversible error in
affirming the assailed ruling of the Court of Tax Appeals.
WHEREFORE, the petition is DENIED for lack of merit.rbl r l l lbrr

The assailed Decision dated July 6, 2001 of the Court of Appeals, in CA-G.R. SP No. 60304 is
AFFIRMED with very slight modification. Petitioner is hereby ORDERED to REFUND or, in the alternative,
to ISSUE a TAX CREDIT CERTIFICATE in favor of respondent in the amount ofP2,158,714.52
representing unutilized input tax payments. No pronouncement as to costs.
SO ORDERED.

Transitional and Presumptive Input Tax

EN BANC
[G.R. NO. 158885 : April 2, 2009]
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, CHIEF, ASSESSMENT DIVISION,
REVENUE REGION NO. 8, BIR, Respondents.
[G.R. NO. 170680 : April 2, 2009]
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and
PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.
DECISION
TINGA, J.:
The value-added tax (VAT) system was first introduced in the Philippines on 1 January 1988, with the tax
imposable on "any person who, in the course of trade or business, sells, barters or exchanges goods,
renders services, or engages in similar transactions and any person who imports goods." 1 The first VAT
law is found in Executive Order No. 273 (E.O. 273), which amended several provisions of the then
National Internal Revenue Code of 1986 (Old NIRC). E.O. No. 273 likewise accommodated the potential
burdens of the shift to the VAT system by allowing newly liable VAT-registered persons to avail of a
transitional input tax credit, as provided for in Section 105 of the old NIRC, as amended by E.O. No. 273.
Said Section 105 is quoted, thus:
SEC. 105. Transitional input tax credits. - A person who becomes liable to value-added tax or any person
who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by
regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to
8% of the value of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax. 2
There are other measures contained in E.O. No. 273 which were similarly intended to ease the shift to the
VAT system. These measures also took the form of "transitional input taxes which can be credited against
output tax,"3 and are found in Section 25 of E.O. No. 273, the section entitled "Transitory Provisions."
Said transitory provisions, which were never incorporated in the Old NIRC, read:
Sec. 25. Transitory provisions. (a) All VAT-registered persons shall be allowed transitional input taxes
which can be credited against output tax in the same manner as provided in Sections 104 of the National
Internal Revenue Code as follows:
1) The balance of the deferred sales tax credit account as of December 31, 1987 which are accounted for
in accordance with regulations prescribed therefor;
2) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31, 1987 of
materials and supplies which are not for sale, the tax on which was not taken up or claimed as deferred
sales tax credit; andcralawlibrary
3) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31, 1987 as
goods for sale, the tax on which was not taken up or claimed as deferred sales tax credit.

Tax credit prescribed in paragraphs (2) and (3) above shall be allowed only to a VAT-registered person
who files an inventory of the goods referred to in said paragraphs as provided in regulations.
(b) Any unused tax credit certificate issued prior to January 1, 1988 for excess tax credits which are
applicable against advance sales tax shall be surrendered to, and replaced by the Commissioner with
new tax credit certificates which can be used in payment for value-added tax liabilities.
(c) Any person already engaged in business whose gross sales or receipts for a 12-month period from
September 1, 1986 to August 1, 1987, exceed the amount of P200,000.00, or any person who has been
in business for less than 12 months as of August 1, 1987 but expects his gross sales or receipts to
exceed P200,000 on or before December 31, 1987, shall apply for registration on or before October 29,
1987.4
On 1 January 1996, Republic Act (Rep. Act) No. 7716 took effect.5 It amended provisions of the Old NIRC
principally by restructuring the VAT system. It was under Rep. Act No. 7716 that VAT was imposed for the
first time on the sale of real properties. This was accomplished by amending Section 100 of the NIRC to
include "real properties" among the "goods or properties," the sale, barter or exchange of which is made
subject to VAT. The relevant portions of Section 100, as amended by Rep. Act No. 7716, thus read:
Sec. 100. Value-added-tax on sale of goods or properties.'
(a) Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross
value in money of the goods, or properties sold, bartered or exchanged, such tax to be paid by the seller
or transferor.
(1) The term 'goods or properties' shall mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business; xxx6
The provisions of Section 105 of the NIRC, on the transitional input tax credit, had remained intact despite
the enactment of Rep. Act No. 7716. Said provisions would however be amended following the passage
of the new National Internal Revenue Code of 1997 (New NIRC), also officially known as Rep Act No.
8424. The section on the transitional input tax credit was renumbered from Section 105 of the Old NIRC
to Section 111(A) of the New NIRC. The new amendments on the transitional input tax credit are
relatively minor, hardly material to the case at bar. They are highlighted below for easy reference:
Section 111. Transitional/Presumptive Input Tax Credits. (A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods, materials and supplies equivalent for eight percent
(8%) of the value of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax. 7(Emphasis supplied).
Rep. Act No. 8424 also made part of the NIRC, for the first time, the concept of "presumptive input tax
credits," with Section 111(b) of the New NIRC providing as follows:
(B) Presumptive Input Tax Credits. -

(1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing
refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable against the output tax,
equivalent to one and one-half percent (1 1/2%) of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their production.
As used in this Subsection, the term 'processing' shall mean pasteurization, canning and activities which
through physical or chemical process alter the exterior texture or form or inner substance of a product in
such manner as to prepare it for special use to which it could not have been put in its original form or
condition.
(2) Public works contractors shall be allowed a presumptive input tax equivalent to one and one-half
percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input
taxes therefrom.8
What we have explained above are the statutory antecedents that underlie the present petitions for
review. We now turn to the factual antecedents.
I.
Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development and sale of
real property. On 8 February 1995, FBDC acquired by way of sale from the national government, a vast
tract of land that formerly formed part of the Fort Bonifacio military reservation, located in what is now the
Fort Bonifacio Global City (Global City) in Taguig City.9 Since the sale was consummated prior to the
enactment of Rep. Act No. 7716, no VAT was paid thereon. FBDC then proceeded to develop the tract of
land, and from October, 1966 onwards it has been selling lots located in the Global City to interested
buyers.10
Following the effectivity of Rep. Act No. 7716, real estate transactions such as those regularly engaged in
by FBDC have since been made subject to VAT. As the vendor, FBDC from thereon has become obliged
to remit to the Bureau of Internal Revenue (BIR) output VAT payments it received from the sale of its
properties to the Bureau of Internal Revenue (BIR). FBDC likewise invoked its right to avail of the
transitional input tax credit and accordingly submitted an inventory list of real properties it owned, with a
total book value of P71,227,503,200.00.11
On 14 October 1996, FBDC executed in favor of Metro Pacific Corporation two (2) contracts to sell,
separately conveying two (2) parcels of land within the Global City in consideration of the purchase prices
at P1,526,298,949.00 and P785,009,018.00, both payable in installments.12 For the fourth quarter of 1996,
FBDC earned a total of P3,498,888,713.60 from the sale of its lots, on which the output VAT payable to
the BIR was P318,080,792.14. In the context of remitting its output VAT payments to the BIR, FBDC paid
a total of P269,340,469.45 and utilized (a) P28,413,783.00 representing a portion of its then total
transitional/presumptive input tax credit of P5,698,200,256.00, which petitioner allocated for the two (2)
lots sold to Metro Pacific; and (b) its regular input tax credit of P20,326,539.69 on the purchase of goods
and services.13
Between July and October 1997, FBDC sent two (2) letters to the BIR requesting appropriate action on
whether its use of its presumptive input VAT on its land inventory, to the extent of P28,413,783.00 in
partial payment of its output VAT for the fourth quarter of 1996, was in order. After investigating the
matter, the BIR recommended that the claimed presumptive input tax credit be disallowed. 14Consequently,
the BIR issued to FBDC a Pre-Assessment Notice (PAN) dated 23 December 1997 for deficiency VAT for
the 4th quarter of 1996. This was followed by a letter of respondent Commissioner of Internal Revenue
(CIR),15 addressed to and received by FBDC on 5 March 1998, disallowing the presumptive input tax
credit arising from the land inventory on the basis of Revenue Regulation 7-95 (RR 7-95) and Revenue
Memorandum Circular 3-96 (RMC 3-96). Section 4.105-1 of RR 7-95 provided the basis in main for the
CIR's opinion, the section reading, thus:

Sec. 4.105-1. Transitional input tax on beginning inventories. - Taxpayers who became VAT-registered
persons upon effectivity of RA No. 7716 who have exceeded the minimum turnover ofP500,000.00 or
who voluntarily register even if their turnover does not exceed P500,000.00 shall be entitled to a
presumptive input tax on the inventory on hand as of December 31, 1995 on the following: (a) goods
purchased for resale in their present condition; (b) materials purchased for further processing, but which
have not yet undergone processing; (c) goods which have been manufactured by the taxpayer; (d) goods
in process and supplies, all of which are for sale or for use in the course of the taxpayer's trade or
business as a VAT-registered person.
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on
or after the effectivity of EO 273 (January 1, 1988).
The transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher,
which amount may be allowed as tax credit against the output tax of the VAT-registered person.
The CIR likewise cited from the Transitory Provisions of RR 7-95, particularly the following:
(a) Presumptive Input Tax Credits xxx
(iii) For real estate dealers, the presumptive input tax of 8% of the book value of improvements on or after
January 1, 1988 (the effectivity of E.O. 273) shall be allowed.
For purposes of sub-paragraphs (i), (ii) and (iii) above, an inventory as of December 31, 1995 of such
goods or properties and improvements showing the quantity, description and amount filed with the RDO
not later than Janaury 31, 1996.
xxx
Consequently, FBDC received an Assessment Notice in the amount of P45,188,708.08, representing
deficiency VAT for the 4th quarter of 1996, including surcharge, interest and penalty. After respondent
Regional Director denied FBDC's motion for reconsideration/protest, FBDC filed a Petition for Review with
the Court of Tax Appeals (CTA), docketed as C.T.A. Case No. 5665.16 On 11 August 2000, the CTA
rendered a decision affirming the assessment made by the respondents. 17 FBDC assailed the CTA
decision through a Petition for Review filed with the Court of Appeals, docketed as CA-G.R. SP No.
60477. On 15 November 2002, the Court of Appeals rendered a decision affirming the CTA decision, but
removing the surcharge, interests and penalties, thus reducing the amount due toP28,413,783.00.18 From
said decision, FBDC filed a Petition for Review with this Court, the first of the two petitions now before us,
seeking the reversal of the CTA decision dated 11 August 2000 and a pronouncement that FBDC is
entitled to the transitional/presumptive input tax credit of P28,413,783.00. This petition has been docketed
as G.R. No. 158885.
The second petition, which is docketed as G.R. No. 170680, involves the same parties and legal issues,
but concerns the claim of FBDC that it is entitled to claim a similar transitional/presumptive input tax credit,
this time for the third quarter of 1997. A brief recital of the anteceding facts underlying this second claim is
in order.
For the third quarter of 1997, FBDC derived the total amount of P3,591,726,328.11 from its sales and
lease of lots, on which the output VAT payable to the BIR was P359,172,632.81.19 Accordingly, FBDC
made cash payments totaling P347,741,695.74 and utilized its regular input tax credit ofP19,743,565.73
on purchases of goods and services.20 On 11 May 1999, FBDC filed with the BIR a claim for refund of the

amount of P347,741,695.74 which it had paid as VAT for the third quarter of 1997.21 No action was taken
on the refund claim, leading FBDC to file a Petition for Review with the CTA, docketed as CTA Case No.
5926. Utilizing the same valuation22 of 8% of the total book value of its beginning inventory of real
properties (or P71,227,503,200.00) FBDC argued that its input tax credit was more than enough to offset
the VAT paid by it for the third quarter of 1997.23
On 17 October 2000, the CTA promulgated its decision24 in CTA Case No. 5926, denying the claim for
refund. FBDC then filed a Petition for Review with the Court of Appeals, docketed as CA-G.R. SP No.
61517. On 3 October 2003, the Court of Appeals rendered a decision 25 affirming the judgment of the CTA.
As a result, FBDC filed its second petition, docketed as G.R. No. 170680.
II.
The two petitions were duly consolidated26 and called for oral argument on 18 April 2006. During the oral
arguments, the parties were directed to discuss the following issues:
1. In determining the 10% value-added tax in Section 100 of the [Old NIRC] on the sale of real properties
by real estate dealers, is the 8% transitional input tax credit in Section 105 applied only to the
improvements on the real property or is it applied on the value of the entire real property?cralawred
2. Are Section 4.105.1 and paragraph (a)(III) of the Transitory Provisions of Revenue Regulations No. 795 valid in limiting the 8% transitional input tax to the improvements on the real property?
While the two issues are linked, the main issue is evidently whether Section 105 of the Old NIRC may be
interpreted in such a way as to restrict its application in the case of real estate dealers only to the
improvements on the real property belonging to their beginning inventory, and not the entire real property
itself. There would be no controversy before us if the Old NIRC had itself supplied that limitation, yet the
law is tellingly silent in that regard. RR 7-95, which imposes such restrictions on real estate dealers, is
discordant with the Old NIRC, so it is alleged.
III.
On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties,
together with the improvements thereon, in the beginning inventory of goods, materials and supplies,
based on which inventory the transitional input tax credit is computed. It can be conceded that when it
was drafted Section 105 could not have possibly contemplated concerns specific to real properties, as
real estate transactions were not originally subject to VAT. At the same time, when transactions on real
properties were finally made subject to VAT beginning with Rep. Act No. 7716, no corresponding
amendment was adopted as regards Section 105 to provide for a differentiated treatment in the
application of the transitional input tax credit with respect to real properties or real estate dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate
transactions subject to VAT for the first time. Prior to the amendment, Section 100 had imposed the VAT
"on every sale, barter or exchange of goods," without however specifying the kind of properties that fall
within or under the generic class "goods" subject to the tax.
Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax (EVAT) law,
expanded the coverage of the VAT by amending Section 100 of the Old NIRC in several respects, some
of which we will enumerate. First, it made every sale, barter or exchange of "goods or properties" subject
to VAT.27 Second, it generally defined "goods or properties" as "all tangible and intangible objects which
are capable of pecuniary estimation."28 Third, it included a non-exclusive enumeration of various objects
that fall under the class "goods or properties" subject to VAT, including "[r]eal properties held primarily for
sale to customers or held for lease in the ordinary course of trade or business."29

From these amendments to Section 100, is there any differentiated VAT treatment on real properties or
real estate dealers that would justify the suggested limitations on the application of the transitional input
tax on them? We see none.
Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for
lease in the ordinary course of trade or business" that are subject to the VAT, and not when the real
estate transactions are engaged in by persons who do not sell or lease properties in the ordinary course
of trade or business. It is clear that those regularly engaged in the real estate business are accorded the
same treatment as the merchants of other goods or properties available in the market. In the same way
that a milliner considers hats as his goods and a rancher considers cattle as his goods, a real estate
dealer holds real property, whether or not it contains improvements, as his goods.
Had Section 100 itself supplied any differentiation between the treatment of real properties or real estate
dealers and the treatment of the transactions involving other commercial goods, then such differing
treatment would have constituted the statutory basis for the CIR to engage in such differentiation which
said respondent did seek to accomplish in this case through Section 4.105-1 of RR 7-95. Yet the
amendments introduced by Rep. Act No. 7716 to Section 100, coupled with the fact that the said law left
Section 105 intact, reveal the lack of any legislative intention to make persons or entities in the real estate
business subject to a VAT treatment different from those engaged in the sale of other goods or properties
or in any other commercial trade or business.
If the plain text of Rep. Act No. 7716 fails to supply any apparent justification for limiting the beginning
inventory of real estate dealers only to the improvements on their properties, how then were the CIR and
the courts a quo able to justify such a view?
IV.
The fact alone that the denial of FBDC's claims is in accord with Section 4.105-1 of RR 7-95 does not, of
course, put this inquiry to rest. If Section 4.105-1 is itself incongruent to Rep. Act No. 7716, the
incongruence cannot by itself justify the denial of the claims. We need to inquire into the rationale behind
Section 4.105-1, as well as the question whether the interpretation of the law embodied therein is
validated by the law itself.
The CTA, in its rulings, proceeded from a thesis which is not readily apparent from the texts of the laws
we have cited. The transitional input tax credit is conditioned on the prior payment of sales taxes or the
VAT, so the CTA observed. The introduction of the VAT through E.O. No. 273 and its subsequent
expansion through Rep. Act No. 7716 subjected various persons to the tax for the very first time, leaving
them unable to claim the input tax credit based on their purchases before they became subject to the VAT.
Hence, the transitional input tax credit was designed to alleviate that relatively iniquitous loss. Given that
rationale, according to the CTA, it would be improper to allow FBDC, which had acquired its properties
through a tax-free purchase, to claim the transitional input tax credit. The CTA added that Section 105.4.1
of RR 7-95 is consonant with its perceived rationale behind the transitional input tax credit since the
materials used for the construction of improvements would have most likely involved the payment of VAT
on their purchase.
Concededly, this theory of the CTA has some sense, extravagantly extrapolated as it is though from the
seeming silence on the part of the provisions of the law. Yet ultimately, the theory is woefully limited in
perspective.
It is correct, as pointed out by the CTA, that upon the shift from sales taxes to VAT in 1987 newly-VAT
registered people would have been prejudiced by the inability to credit against the output VAT their
payments by way of sales tax on their existing stocks in trade. Yet that inequity was precisely addressed
by a transitory provision in E.O. No. 273 found in Section 25 thereof. The provision authorized VATregistered persons to invoke a "presumptive input tax equivalent to 8% of the value of the inventory as of

December 31, 1987 of materials and supplies which are not for sale, the tax on which was not taken up or
claimed as deferred sales tax credit", and a similar presumptive input tax equivalent to 8% of the value of
the inventory as of December 31, 1987 of goods for sale, the tax on which was not taken up or claimed as
deferred sales tax credit.30
Section 25 of E.O. No. 273 perfectly remedies the problem assumed by the CTA as the basis for the
introduction of transitional input tax credit in 1987. If the core purpose of the tax credit is only, as hinted
by the CTA, to allow for some mode of accreditation of previously-paid sales taxes, then Section 25 alone
would have sufficed. Yet E.O. No. 273 amended the Old NIRC itself by providing for the transitional input
tax credit under Section 105, thereby assuring that the tax credit would endure long after the last goods
made subject to sales tax have been consumed.
If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the purported
causal link between those two would have been nonetheless extinguished long ago. Yet Congress has
reenacted the transitional input tax credit several times; that fact simply belies the absence of any
relationship between such tax credit and the long-abolished sales taxes. Obviously then, the purpose
behind the transitional input tax credit is not confined to the transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its possible meaning to the shift
from the sales tax regime to the VAT regime. Indeed, it could also allude to the transition one undergoes
from not being a VAT-registered person to becoming a VAT-registered person. Such transition does not
take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in particular. It could also occur
when one decides to start a business. Section 105 states that the transitional input tax credits become
available either to (1) a person who becomes liable to VAT; or (2) any person who elects to be VATregistered. The clear language of the law entitles new trades or businesses to avail of the tax credit once
they become VAT-registered. The transitional input tax credit, whether under the Old NIRC or the New
NIRC, may be claimed by a newly-VAT registered person such as when a business as it commences
operations. If we view the matter from the perspective of a starting entrepreneur, greater clarity emerges
on the continued utility of the transitional input tax credit.
Following the theory of the CTA, the new enterprise should be able to claim the transitional input tax
credit because it has presumably paid taxes, VAT in particular, in the purchase of the goods, materials
and supplies in its beginning inventory. Consequently, as the CTA held below, if the new enterprise has
not paid VAT in its purchases of such goods, materials and supplies, then it should not be able to claim
the tax credit. However, it is not always true that the acquisition of such goods, materials and supplies
entail the payment of taxes on the part of the new business. In fact, this could occur as a matter of course
by virtue of the operation of various provisions of the NIRC, and not only on account of a specially
legislated exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or properties are not acquired from a
person in the course of trade or business, the transaction would not be subject to VAT under Section
105.31 The sale would be subject to capital gains taxes under Section 24(D),32 but since capital gains is a
tax on passive income it is the seller, not the buyer, who generally would shoulder the tax.
If the goods or properties are acquired through donation, the acquisition would not be subject to VAT but
to donor's tax under Section 98 instead.33 It is the donor who would be liable to pay the donor's tax,34 and
the donation would be exempt if the donor's total net gifts during the calendar year does not
exceed P100,000.00.35
If the goods or properties are acquired through testate or intestate succession, the transfer would not be
subject to VAT but liable instead for estate tax under Title III of the New NIRC.36 If the net estate does not
exceed P200,000.00, no estate tax would be assessed.37

The interpretation proffered by the CTA would exclude goods and properties which are acquired through
sale not in the ordinary course of trade or business, donation or through succession, from the beginning
inventory on which the transitional input tax credit is based. This prospect all but highlights the ultimate
absurdity of the respondents' position. Again, nothing in the Old NIRC (or even the New NIRC) speaks of
such a possibility or qualifies the previous payment of VAT or any other taxes on the goods, materials and
supplies as a pre-requisite for inclusion in the beginning inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition from non-VAT to VAT status, the transitional input
tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VATregistered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output
VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's income by affording
the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the
person is yet unable to credit input VAT payments.
There is another point that weighs against the CTA's interpretation. Under Section 105 of the Old NIRC,
the rate of the transitional input tax credit is "8% of the value of such inventory or the actual value-added
tax paid on such goods, materials and supplies, whichever is higher."38 If indeed the transitional input tax
credit is premised on the previous payment of VAT, then it does not make sense to afford the taxpayer
the benefit of such credit based on "8% of the value of such inventory" should the same prove higher than
the actual VAT paid. This intent that the CTA alluded to could have been implemented with ease had the
legislature shared such intent by providing the actual VAT paid as the sole basis for the rate of the
transitional input tax credit.
The CTA harped on the circumstance that FBDC was excused from paying any tax on the purchase of its
properties from the national government, even claiming that to allow the transitional input tax credit is
"tantamount to giving an undeserved bonus to real estate dealers similarly situated as [FBDC] which the
Government cannot afford to provide." Yet the tax laws in question, and all tax laws in general, are
designed to enforce uniform tax treatment to persons or classes of persons who share minimum
legislated standards. The common standard for the application of the transitional input tax credit, as
enacted by E.O. No. 273 and all subsequent tax laws which reinforced or reintegrated the tax credit, is
simply that the taxpayer in question has become liable to VAT or has elected to be a VAT-registered
person. E.O. No. 273 and the subsequent tax laws are all decidedly neutral and accommodating in
ascertaining who should be entitled to the tax credit, and it behooves the CIR and the CTA to adopt a
similarly judicious perspective.
IV.
Given the fatal flaws in the theory offered by the CTA as supposedly underlying the transitional input tax
credit, is there any other basis to justify the limitations imposed by the CIR through RR 7-95? We discern
nothing more. As seen in our discussion, there is no logic that coheres with either E.O. No. 273 or Rep.
Act No. 7716 which supports the restriction imposed on real estate brokers and their ability to claim the
transitional input tax credit based on the value of their real properties. In addition, the very idea of
excluding the real properties itself from the beginning inventory simply runs counter to what the
transitional input tax credit seeks to accomplish for persons engaged in the sale of goods, whether or not
such "goods" take the form of real properties or more mundane commodities.
Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input
tax credit. Goods, as commonly understood in the business sense, refers to the product which the VATregistered person offers for sale to the public. With respect to real estate dealers, it is the real properties
themselves which constitute their "goods." Such real properties are the operating assets of the real estate
dealer.

Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such "real
properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business." Said definition was taken from the very statutory language of Section 100 of the Old NIRC. By
limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only contravened the
definition of "goods" as provided in the Old NIRC, but also the definition which the same revenue
regulation itself has provided.
The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the basis for the inventory of
goods, materials and supplies upon which the transitional input VAT would be based "shall be left to
regulation by the appropriate administrative authority". This is based on the phrase "filing of an inventory
as prescribed by regulations" found in Section 105. Nonetheless, Section 105 does include the particular
properties to be included in the inventory, namely goods, materials and supplies. It is questionable
whether the CIR has the power to actually redefine the concept of "goods," as she did when she excluded
real properties from the class of goods which real estate companies in the business of selling real
properties may include in their inventory. The authority to prescribe regulations can pertain to more
technical matters, such as how to appraise the value of the inventory or what papers need to be filed to
properly itemize the contents of such inventory. But such authority cannot go as far as to amend Section
105 itself, which the Commissioner had unfortunately accomplished in this case.
It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of
the enabling statute if such rule or regulation is to be valid.39 In case of conflict between a statute and an
administrative order, the former must prevail.40 Indeed, the CIR has no power to limit the meaning and
coverage of the term "goods" in Section 105 of the Old NIRC absent statutory authority or basis to make
and justify such limitation. A contrary conclusion would mean the CIR could very well moot the law or
arrogate legislative authority unto himself by retaining sole discretion to provide the definition and scope
of the term "goods."
V.
At this juncture, we turn to some of the points raised in the dissent of the esteemed Justice Antonio T.
Carpio.
The dissent adopts the CTA's thesis that the transitional input tax credit applies only when taxes were
previously paid on the properties in the beginning inventory. Had the dissenting view won, it would have
introduced a new requisite to the application of the transitional input tax credit and required the taxpayer
to supply proof that it had previously paid taxes on the acquisition of goods, materials and supplies
comprising its beginning inventory. We have sufficiently rebutted this thesis, but the dissent adds a twist
to the argument by using the term "presumptive input tax credit" to imply that the transitional input tax
credit involves a presumption that there was a previous payment of taxes.
Let us clarify the distinction between the presumptive input tax credit and the transitional input tax credit.
As with the transitional input tax credit, the presumptive input tax credit is creditable against the output
VAT. It necessarily has come into existence in our tax structure only after the introduction of the VAT. As
quoted earlier,41 E.O. No. 273 provided for a "presumptive input tax credit" as one of the transitory
measures in the shift from sales taxes to VAT, but such presumptive input tax credit was never integrated
in the NIRC itself. It was only in 1997, or eleven years after the VAT was first introduced, that the
presumptive input tax credit was first incorporated in the NIRC, more particularly in Section 111(B) of the
New NIRC. As borne out by the text of the provision,42 it is plain that the presumptive input tax credit is
highly limited in application as it may be claimed only by "persons or firms engaged in the processing of
sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil;" 43 and "public works
contractors."44
Clearly, for more than a decade now, the term "presumptive input tax credit" has contemplated a
particularly idiosyncratic tax credit far divorced from its original usage in the transitory provisions of E.O.

No. 273. There is utterly no sense then in latching on to the term as having any significant meaning for
the purpose of the cases at bar.
The dissent, in arguing for the effectivity of Section 4.105-1 of RR 7-95, ratiocinates in this manner: (1)
Section 4.105-1 finds basis in Section 105 of the Old NIRC, which provides that the input tax is allowed
on the "beginning inventory of goods, materials and supplies;" (2) input taxes must have been paid on
such goods, materials and supplies; (3) unlike real property itself, the improvements thereon were already
subject to VAT even prior to the passage of Rep. Act No. 7716; (4) since no VAT was paid on the real
property prior to the passage of Rep. Act No. 7716, it could not form part of the "beginning inventory of
goods, materials and supplies."
This chain of premises have already been debunked. It is apparent that the dissent believes that only
those "goods, materials and supplies" on which input VAT was paid could form the basis of valuation of
the input tax credit. Thus, if the VAT-registered person acquired all the goods, materials and supplies of
the beginning inventory through a sale not in the ordinary course of trade or business, or through
succession or donation, said person would be unable to receive a transitional input tax credit. Yet even
RR 7-95, which imposes the restriction only on real estate dealers permits such other persons who
obtained their beginning inventory through tax-free means to claim the transitional input tax credit. The
dissent thus betrays a view that is even more radical and more misaligned with the language of the law
than that expressed by the CIR.
VI.
A final observation. Section 4.105.1 of RR No. 7-95, insofar as it disallows real estate dealers from
including the value of their real properties in the beginning inventory of goods, materials and supplies, has
in fact already been repealed. The offending provisions were deleted with the enactment of Revenue
Regulation No. 6-97 (RR 6-97) dated 2 January 1997, which amended RR 7-95.45 The repeal of the basis
for the present assessments by RR 6-97 only highlights the continuing absurdity of the position of the BIR
towards FBDC.
FBDC points out that while the transactions involved in G.R. No. 158885 took place during the effectivity
of RR 7-95, the transactions involved in G.R. No. 170680 in fact took place after RR No. 6-97 had taken
effect. Indeed, the assessments subject of G.R. No. 170680 were for the third quarter of 1997, or several
months after the effectivity of RR 6-97. That fact provides additional reason to sustain FBDC's claim for
refund of its 1997 Third Quarter VAT payments. Nevertheless, since the assailed restrictions implemented
by RR 7-95 were not sanctioned by law in the first place there is no longer need to dwell on such fact.
WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals and the
Court of Appeals are REVERSED and SET ASIDE. Respondents are hereby (1) restrained from
collecting from petitioner the amount of P28,413,783.00 representing the transitional input tax credit due it
for the fourth quarter of 1996; and (2) directed to refund to petitioner the amount ofP347,741,695.74 paid
as output VAT for the third quarter of 1997 in light of the persisting transitional input tax credit available to
petitioner for the said quarter, or to issue a tax credit corresponding to such amount. No pronouncement
as to costs.
SO ORDERED.

Transitional and Presumptive Input Tax

FIRST DIVISION
G.R. No. 175707, November 19, 2014
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE AND REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG AND
PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
The Court has consolidated these three petitions as they involve the same parties, similar facts and
common questions of law. This is not the first time that Fort Bonifacio Development Corporation (FBDC)
has come to this Court about these issues against the very same respondents, and the CourtEn Banc has
resolved them in two separate, recent cases1 that are applicable here for reasons to be discussed below.
G.R. No. 175707 is an appeal by certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure from
(a) the Decision2 dated April 22, 2003 of the Court of Appeals in CA-G.R. SP No. 61516
dismissing FBDCs Petition for Review with regard to the Decision of the Court of Tax Appeals (CTA)
dated October 13, 2000 in CTA Case No. 5885, and from (b) the Court of Appeals Resolution3dated
November 30, 2006 denying its Motion for Reconsideration.
G.R. No. 180035 is likewise an appeal by certiorari pursuant to Rule 45 from (a) the Court of
Appeals Decision4 dated April 30, 2007 in CA-G.R. SP No. 76540 denying FBDCs Petition for Review
with respect to the CTA Resolution5 dated March 28, 2003 in CTA Case No. 6021, and from (b) the
Court of Appeals Resolution6 dated October 8, 2007 denying its Motion for Reconsideration.
The CTA Resolution reconsidered and reversed its earlier Decision7 dated January 30, 2002 ordering
respondents in CTA Case No. 6021 to refund or issue a tax credit certificate in favor of petitioner in the
amount of P77,151,020.46, representing VAT erroneously paid by or illegally collected from petitioner for
the first quarter of 1998, and instead denied petitioners Claim for Refund therefor. 8
G.R. No. 181092 is also an appeal by certiorari pursuant to Rule 45 from the Court of
AppealsDecision9 dated December 28, 2007 in CA-G.R. SP No. 61158 dismissing FBDCs petition for
review with respect to the CTA Decision10 dated September 29, 2000 in CTA Case No. 5694. The
aforesaid CTA Decision, which the Court of Appeals affirmed, denied petitioners Claim for Refund in the
amount of P269,340,469.45, representing VAT erroneously paid by or illegally collected from petitioner
for the fourth quarter of 1996.11
The facts are not in dispute.
Petitioner FBDC (petitioner) is a domestic corporation duly registered and existing under Philippine
laws. Its issued and outstanding capital stock is owned in part by the Bases Conversion Development
Authority, a wholly-owned government corporation created by Republic Act No. 7227 for the purpose of
accelerating the conversion of military reservations into alternative productive uses and raising funds
through the sale of portions of said military reservations in order to promote the economic and social
development of the country in general.12 The remaining fifty-five per cent (55%) is owned by Bonifacio
Land Corporation, a consortium of private domestic corporations.13
Respondent Commissioner of Internal Revenue is the head of the Bureau of Internal Revenue
(BIR). Respondent Revenue District Officer, Revenue District No. 44, Taguig and Pateros, BIR, is the
chief of the aforesaid District Office.

The parties entered into a Stipulation of Facts, Documents, and Issue14 before the CTA for each
case. It was established before the CTA that petitioner is engaged in the development and sale of real
property. It is the owner of, and is developing and selling, parcels of land within a newtown development
area known as the Fort Bonifacio Global City (the Global City), located within the former military camp
known as Fort Bonifacio, Taguig, Metro Manila.15 The National Government, by virtue of Republic Act No.
722716 and Executive Order No. 40,17 was the one that conveyed to petitioner these parcels of land on
February 8, 1995.
In May 1996, petitioner commenced developing the Global City, and since October 1996, had been
selling lots to interested buyers.18 At the time of acquisition, value-added tax (VAT) was not yet imposed
on the sale of real properties. Republic Act No. 7716 (the Expanded Value-Added Tax [E-VAT]
Law),19 which took effect on January 1, 1996, restructured the VAT system by further amending pertinent
provisions of the National Internal Revenue Code (NIRC). Section 100 of the old NIRCwas so amended
by including real properties in the definition of the term goods or properties, thereby subjecting the sale
of real properties to VAT. The provision, as amended, reads:
SEC. 100. Value-Added Tax on Sale of Goods or Properties. (a) Rate and Base of Tax. There shall
be levied, assessed and collected on every sale, barter or exchange of goods or properties, a valueadded tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties
sold, bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term goods or properties shall mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business[.]
While prior to Republic Act No. 7716, real estate transactions were not subject to VAT, they became
subject to VAT upon the effectivity of said law. Thus, the sale of the parcels of land by petitioner became
subject to a 10% VAT, and this was later increased to 12%, pursuant to Republic Act No.
9337.20 Petitioner afterwards became a VAT-registered taxpayer.
On September 19, 1996, in accordance with Revenue Regulations No. 7-95 (Consolidated VAT
Regulations), petitioner submitted to respondent BIR, Revenue District No. 44, Taguig and Pateros, an
inventory list of its properties as of February 29, 1996. The total book value of petitioners land inventory
amounted to P71,227,503,200.00.21
On the basis of Section 105 of the NIRC,22 petitioner claims a transitional or presumptive input tax
credit of 8% of P71,227,503,200.00, the total value of the real properties listed in its inventory, or a total
input tax credit of P5,698,200,256.00.23 After the value of the real properties was reduced due to a
reconveyance by petitioner to BCDA of a parcel of land, petitioner claims that it is entitled to input tax
credit in the reduced amount of P4,250,475,000.48.24
What petitioner seeks to be refunded are the actual VAT payments made by it in cash, which it claims
were either erroneously paid by or illegally collected from it.25 Each Claim for Refund is based on
petitioners position that it is entitled to a transitional input tax credit under Section 105 of the old NIRC,
which more than offsets the aforesaid VAT payments.
G.R. No. 175707
Petitioners VAT returns filed with the BIR show that for the second quarter of 1997, petitioner received
the total amount of P5,014,755,287.40 from its sales and lease of lots, on which the output VAT payable
was P501,475,528.74.26 The VAT returns likewise show that petitioner made cash payments totaling
P486,355,846.78 and utilized its input tax credit of P15,119,681.96 on purchases of goods and services. 27
On February 11, 1999, petitioner filed with the BIR a claim for refund of the amount of P486,355,846.78

which it paid in cash as VAT for the second quarter of 1997.28

On May 21, 1999, petitioner filed with the CTA a petition for review29 by way of appeal, docketed as CTA
Case No. 5885, from the alleged inaction by respondents of petitioners claim for refund with the BIR. On
October 1, 1999, the parties submitted to the CTA a Stipulation of Facts, Documents and Issue. 30 On
October 13, 2000, the CTA issued its Decision31 in CTA Case No. 5885 denying petitioners claim for
refund for lack of merit.
On November 23, 2000, petitioner filed with the Court of Appeals a Petition for Review of the aforesaid
CTA Decision, which was docketed as CA-G.R SP No. 61516. On April 22, 2003, the CA issued its
Decision32 dismissing the Petition for Review. On November 30, 2006, the Court of Appeals issued its
Resolution33 denying petitioners Motion for Reconsideration.
On December 21, 2006, this Petition for Review was filed.
Petitioner submitted its Memorandum 34 on November 7, 2008 while respondents filed their
Comment35 on May 4, 2009.36
On December 2, 2009, petitioner submitted a Supplement37 to its Memorandum dated November 6, 2008,
stating that the said case is intimately related to the cases of Fort Bonifacio Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 158885, and Fort Bonifacio Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 170680, which were already decided by this Court, and
which involve the same parties and similar facts and issues.38
Except for the amounts of tax refund being claimed and the periods covered for each claim, the
facts in this case and in the other two consolidated cases below are the same. The parties
entered into similar Stipulations in the other two cases consolidated here.39
G.R. No. 180035
We quote relevant portions of the parties Stipulation of Facts, Documents and Issue in CTA Case No.
602140 below:
1.11. Per VAT returns filed by petitioner with the BIR, for the second quarter of 1998, petitioner
derived the total amount of P903,427,264.20 from its sales and lease of lots, on which the output
VAT payable to the Bureau of Internal Revenue was P90,342,726.42.
1.12. The VAT returns filed by petitioner likewise show that to pay said amount of P90,342,726.42
due to the BIR, petitioner made cash payments totalling P77,151,020.46 and utilized its regular
input tax credit of P39,878,959.37 on purchases of goods and services.
1.13. On November 22, 1999, petitioner filed with the BIR a claim for refund of the amount of
P77,151,020.46 which it paid as value-added tax for the first quarter of 1998.
1.14. Earlier, on October 8, 1998 and November 17, 1998, February 11, 1999, May 11, 1999, and
September 10, 1999, based on similar grounds, petitioner filed with the BIR claims for refund of the
amounts of P269,340,469.45, P359,652,009.47, P486,355,846.78, P347,741,695.74, and
P15,036,891.26, representing value-added taxes paid by it on proceeds derived from its sales and lease
of lots for the quarters ended December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997,
and December 31, 1997, respectively. After deducting these amounts of P269,340,469.45,
P359,652,009.47, P486,355,846.78, P347,741,695.74, and P15,036,891.26 from the total amount of
P5,698,200,256.00 claimed by petitioner as input tax credit, the remaining input tax credit more than
sufficiently covers the amount of P77,151,020.46 subject of petitioners claim for refund of November 22,
1999.

1.15. As of the date of the Petition, no action had been taken by respondents on petitioners claim for
refund of November 22, 1999.41 (Emphases ours.)
The petition in G.R. No. 180035 seeks to correct the unauthorized limitation of the term real properties
to improvements thereon by Revenue Regulations 7-95 and the error of the Court of Tax Appeals and
Court of Appeals in sustaining the aforesaid Regulations. 42 This theory of petitioner is the same for all
three cases now before us.
On March 14, 2013, petitioner filed a Motion for Consolidation 43 of G.R. No. 180035 with G.R. No. 175707.
Petitioner submitted its Memorandum 44 on September 15, 2009 while respondents filed theirs on
September 22, 2009.45
G.R. No. 181092
The facts summarized below are found in the parties Stipulation of Facts, Documents and Issue in CTA
Case No. 569446:
1.09. Per VAT returns filed by petitioner with the BIR, for the fourth quarter of 1996, petitioner derived
the total amount of P3,498,888,713.60 from its sales and lease of lots, on which the output VAT
payable to the Bureau of Internal Revenue wasP318,080,792.14.
1.10. The VAT returns filed by petitioner likewise show that to pay said amount of P318,080,792.14 due
to the BIR, petitioner made cash payments totalling P269,340,469.45 and utilized (a) part of the total
transitional/presumptive input tax credit of P5,698,200,256.00 being claimed by it to the extent of
P28,413,783.00; and (b) its regular input tax credit of P20,326,539.69 on purchases of goods and
services.
1.11. On October 8, 1998 petitioner filed with the BIR a claim for refund of the amounts of
P269,340,469.45, which it paid as value-added tax.
1.12. As of the date of the Petition, no action had been taken by respondents on petitioners claim for
refund.47 (Emphases ours.)
Petitioner submitted its Memorandum 48 on January 18, 2010 while respondents filed theirs on October 14,
2010.49
On March 14, 2013, petitioner filed a Motion for Consolidation 50 of G.R. No. 181092 with G.R. No. 175707.
On January 23, 2014, petitioner filed a Motion to Resolve51 these consolidated cases, alleging that the
parties had already filed their respective memoranda; and, more importantly, that the principal issue in
these cases, whether petitioner is entitled to the 8% transitional input tax granted in Section 105 (now
Section 111[A]) of the NIRC based on the value of its inventory of land, and as a consequence, to a
refund of the amounts it paid as VAT for the periods in question, had already been resolved by the
Supreme Court En Banc in its Decision dated April 2, 2009 in G.R. Nos. 158885 and 170680, as well as
its Decision dated September 4, 2012 in G.R. No. 173425. Petitioner further alleges that said decided
cases involve the same parties, facts, and issues as the cases now before this Court. 52
THEORY OF PETITIONER
Petitioner claims that the 10% value-added tax is based on the gross selling price or gross value in
money of the goods sold, bartered or exchanged.53 Petitioner likewise claims that by definition, the
term goods was limited to movable, tangible objects which is appropriable or transferable and that said
term did not originally include real property.54 It was previously defined as follows under Revenue
Regulations No. 5-87:

(p) Goods means any movable, tangible objects which is appropriable or transferrable.
Republic Act No. 7716 (E-VAT Law, January 1, 1996) expanded the coverage of the original VAT Law
(Executive Order No. 273), specifically Section 100 of the old NIRC. According to petitioner, while under
Executive Order No. 273, the term goods did not include real properties, Republic Act No. 7716, in
amending Section 100, explicitly included in the term goods real properties held primarily for sale to
customers or held for lease in the ordinary course of trade or business. Consequently, the sale, barter,
or exchange of real properties was made subject to a VAT equivalent to 10% (later increased to 12%,
pursuant to Republic Act No. 9337) of the gross selling price of real properties.
Among the new provisions included by Executive Order No. 273 in the NIRC was the following:
SEC. 105. Transitional Input Tax Credits. A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed
by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies
equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable against the output tax.
According to petitioner, the E-VAT Law, Republic Act No. 7716, did not amend Section 105. Thus,
Section 105, as quoted above, remained effective even after the enactment of Republic Act No. 7716.
Previously, or on December 9, 1995, the Secretary of Finance and the Commissioner of Internal Revenue
issued Revenue Regulations No. 7-95, which included the following provisions:
SECTION 4.100-1. Value-added tax on sale of goods or properties. VAT is imposed and collected on
every sale, barter or exchange or transactions deemed sale of taxable goods or properties at the rate of
10% of the gross selling price.
Gross selling price means the total amount of money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties,
excluding the value-added tax. The excise tax, if any, on such goods or properties shall form part of the
gross selling price. In the case of sale, barter or exchange of real property subject to VAT, gross selling
price shall mean the consideration stated in the sales document or the zonal value whichever is higher.
Provided however, in the absence of zonal value, gross selling price refers to the market value shown in
the latest declaration or the consideration whichever is higher.
Taxable sale refers to the sale, barter, exchange and/or lease of goods or properties, including
transactions deemed sale and the performance of service for a consideration, all of which are subject to
tax under Sections 100 and 102 of the Code.
Any person otherwise required to register for VAT purposes who fails to register shall also be liable to
VAT on his sale of taxable goods or properties as defined in the preceding paragraph. The sale of goods
subject to excise tax is also subject to VAT, except manufactured petroleum products (other than
lubricating oil, processed gas, grease, wax and petrolatum).
Goods or properties refer to all tangible and intangible objects which are capable of pecuniary
estimation and shall include:
1. Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business.
xxxx
SECTION 4.104-1. Credits for input tax.
Input tax means the value-added tax due from or paid by a VAT-registered person on importation of
goods or local purchases of goods or services, including lease or use of property, from another VATregistered person in the course of his trade or business. It shall also include the transitional or

presumptive input tax determined in accordance with Section 105 of the Code.
xxxx
SECTION 4.105-1. Transitional input tax on beginning inventories. Taxpayers who became VATregistered persons upon effectivity of RA No. 7716 who have exceeded the minimum turnover of
P500,000.00 or who voluntarily register even if their turnover does not exceed P500,000.00 shall be
entitled to a presumptive input tax on the inventory on hand as of December 31, 1995 on the following; (a)
goods purchased for sale in their present condition; (b) materials purchased for further processing, but
which have not yet undergone processing; (c) goods which have been manufactured by the taxpayer; (d)
goods in process and supplies, all of which are for sale or for use in the course of the taxpayer's trade or
business as a VAT-registered person.
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements, such as buildings, roads, drainage systems, and other similar structures,
constructed on or after effectivity of E.O. 273 (January 1, 1988).
The transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher,
which amount may be allowed as tax credit against the output tax of the VAT-registered person.
The value allowed for income tax purposes on inventories shall be the basis for the computation of the
8% excluding goods that are exempt from VAT under SECTION 103. Only VAT-registered persons shall
be entitled to presumptive input tax credits.
xxxx
TRANSITORY PROVISIONS
(a) Presumptive Input Tax Credits
(i)

(ii)

(iii)

For goods, materials or supplies not for sale but purchased for use in business in their present
condition, which are not intended for further processing and are on hand as of December 31,
1995, a presumptive input tax equivalent to 8% of the value of the goods or properties shall be
allowed.
For goods or properties purchased with the object of resale in their present condition, the same
presumptive input tax equivalent to 8% of the value of the goods unused as of December 31,
1995 shall be allowed, which amount may also be credited against the output tax of a VATregistered person.
For real estate dealers, the presumptive input tax of 8% of the book value of improvements
constructed on or after January 1, 1988 (the effectivity of E.O. 273) shall be allowed.

For purposes of sub-paragraph (i), (ii) and (iii) above, an inventory as of December 31, 1995 of such
goods or properties and improvements showing the quantity, description, and amount should be filed with
the RDO not later than January 31, 1996. (Emphases supplied.)
Petitioner argues that Section 4.100-1 of Revenue Regulations No. 7-95 explicitly limited the term goods
as regards real properties to improvements, such as buildings, roads, drainage systems, and other
similar structures, thereby excluding the real property itself from the coverage of the term goods as it is
used in Section 105 of the NIRC. This has brought about, as a consequence, the issues involved in the
instant case.
Petitioner claims that the Court of Appeals erred in not holding that Revenue Regulations No. 6-97 has
effectively repealed or repudiated Revenue Regulations No. 7-95 insofar as the latter limited the
transitional/presumptive input tax credit which may be claimed under Section 105 of the NIRC to the
improvements on real properties.55 Petitioner argues that the provision in Section 4.105-1 of Revenue
Regulations No. 7-95 stating that in the case of real estate dealers, the basis of the input tax credit shall

be the improvements, has been deleted by Revenue Regulations No. 6-97, dated January 2, 1997, which
amended Revenue Regulations No. 7-95. Revenue Regulations No. 6-97 was issued to implement
Republic Act No. 8241 (the law amending Republic Act No. 7716, the E-VAT Law), which took effect on
January 1, 1997.
Petitioner notes that Section 4.105-1 of Revenue Regulations No. 6-97 is but a reenactment of Section
4.105-1 of Revenue Regulations No. 7-95, with the only difference being that the following paragraph in
Revenue Regulations No. 7-95 was deleted:
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on
or after the effectivity of E.O. 273 (January 1, 1988).
Petitioner calls this an express repeal, and with the deletion of the above paragraph, what stands and
should be applied is the statutory definition in Section 100 of the NIRC of the term goods in Section 105
thereof.56
Petitioner contends that the relevant provision now states that [t]he transitional input tax credit shall be
eight percent (8%) of the value of the beginning inventory x x x on such goods, materials and supplies. It
no longer limits the allowable transitional input tax credit to improvements on the real properties. The
amendment recognizes that the basis of the 8% input tax credit should not be confined to the value of the
improvements. Petitioner further contends that the Commissioner of Internal Revenue has in fact
corrected the mistake in Revenue Regulations No. 7-95.57
Petitioner argues that Revenue Regulations No. 6-97, being beneficial to the taxpayer, should be given a
retroactive application.58 Petitioner states that the transactions involved in these consolidated cases took
place after Revenue Regulations No. 6-97 took effect, under the provisions of which the transitional input
tax credit with regard to real properties would be based on the value of the land inventory and not limited
to the value of the improvements.
Petitioner assigns another error: the Court of Appeals erred in holding that Revenue Regulations No. 7-95
is a valid implementation of the NIRC and in according it great respect, and should have held that the
same is invalid for being contrary to the provisions of Section 105 of the NIRC. 59
Petitioner contends that Revenue Regulations No. 7-95 is not valid for being contrary to the express
provisions of Section 105 of the NIRC, and in fact amends the same, for it limited the scope of Section
105 to less than what the law provides.60 Petitioner elaborates:
[Revenue Regulations No. 7-95] illegally constricted the provisions of the aforesaid section. It delimited
the coverage of Section 105 and practically amended it in violation of the fundamental principle that
administrative regulations are subordinate to the law. Based on the numerous authorities cited above,
Section 4.105-1 and the Transitory Provisions of Revenue Regulations No. 7-95 are invalid and
ineffective insofar as they limit the input tax credit to 8% of the value of the improvements on land, for
being contrary to the express provisions of Section 105, in relation to Section 100, of the NIRC, and the
Court of Appeals should have so held.61
Petitioner likewise raises the following arguments:

The rule that the construction given by the administrative agency charged with the enforcement of
the law should be accorded great weight by the courts, does not apply here. 62
x x x Section 4.105-1 of Revenue Regulations No. 7-95 neither exclude[s] nor prohibit[s] that the
8% input tax credit may also [be] based on the taxpayers inventory of land. 63
The issuance of Revenue Regulations No. 7-95 by the [BIR], which changed the statutory
definition of goods with regard to the application of Section 105 of the NIRC, and the declaration

of validity of said regulations by the Court of Appeals and Court of Tax Appeals, was in violation
of the fundamental principle of separation of powers.64
xxxx
Insofar, therefore, as Revenue Regulation[s] No. 7-95 limited the scope of the term goods under Section
105, to improvements on real properties, contrary to the definition of goods in Section 100, [RR] No. 795 decreed what the law shall be, now how the law may be enforced, and is, consequently, of no effect
because it constitutes undue delegation of legislative power.
xxxx
[T]he transgression by the BIR and the CTA and CA of the basic principle of separation of powers,
including the fundamental rule of non-delegation of legislative power, is clear.65
Furthermore, petitioner claims that:
SINCE THE PROVISIONS OF SECTION 105 OF THE [NIRC] IN RELATION TO SECTION 100
THEREOF, ARE CLEAR, THERE WAS NO BASIS AND NECESSITY FOR THE BUREAU OF
INTERNAL REVENUE AND THE COURT OF APPEALS AND THE COURT OF TAX APPEALS TO
INTERPRET AND CONSTRUE THE SAME.66
PETITIONER IS CLEARLY ENTITLED TO THE TRANSITIONAL/PRESUMPTIVE INPUT TAX CREDIT
GRANTED IN SECTION 105 OF THE NIRC AND HENCE TO A REFUND OF THE VALUE-ADDED TAX
PAID BY IT FOR THE SECOND QUARTER OF 1997.67
Petitioner insists that there was no basis and necessity for the BIR, the CTA, and the Court of Appeals to
interpret and construe Sections 100 and 105 of the NIRC because where the law speaks in clear and
categorical language, or the terms of the statute are clear and unambiguous and free from doubt, there is
no room for interpretation or construction and no interpretation or construction is called for; there is only
room for application.68 Petitioner asserts that legislative intent is determined primarily from the language
of the statute; legislative intent has to be discovered from the four corners of the law; and thus, where no
ambiguity appears, it may be presumed conclusively that the clear and explicit terms of a statute express
the legislative intention.69
So looking at the cases now before us, petitioner avers that the Court of Appeals, the CTA, and the BIR
did not merely interpret and construe Section 105, and that they virtually amended the said section, for it
is allegedly clear from Section 105 of the old NIRC, in relation to Section 100, that legislative intent is to
the effect that the taxpayer is entitled to the input tax credit based on the value of the beginning inventory
of land, not merely on the improvements thereon, and irrespective of any prior payment of sales tax or
VAT.70
THEORY OF RESPONDENTS
Petitioners claims for refund were consistently denied in the three cases now before us. Even if in one
case, G.R. No. 180035, petitioner succeeded in getting a favorable decision from the CTA, the grant of
refund or tax credit was subsequently reversed on respondents Motion for Reconsideration, and such
denial of petitioners claim was affirmed by the Court of Appeals.
Respondents reasons for denying petitioners claims are summarized in their Comment in G.R. No.
175707, and we quote:
REASONS WHY PETITION SHOULD BE
DENIED OR DISMISSED

1. The 8% input tax credit provided for in Section 105 of the NIRC, in relation to Section 100
thereof, is based on the value of the improvements on the land.
2. The taxpayer is entitled to the input tax credit provided for in Section 105 of the NIRC
only if it has previously paid VAT or sales taxes on its inventory of land.
3. Section 4.105-1 of Revenue Regulations No. 7-95 of the BIR is valid, effective and has
the force and effect of law, which implemented Section 105 of the NIRC. 71

In respondents Comment72 dated November 3, 2008 in G.R. No. 180035, they averred that petitioners
claim for the 8% transitional/presumptive input tax is inconsistent with the purpose and intent of the law
in granting such tax refund or tax credit.73 Respondents raise the following arguments:
1. The transitional input tax provided under Section 105 in relation to Section 100 of the Tax Code,
as amended by EO No. 273 effective January 1, 1988, is subject to certain conditions which
petitioner failed to meet.74
2. The claim for petitioner for transitional input tax is in the nature of a tax exemption which should
be strictly construed against it.75
3. Revenue Regulations No. 7-95 is valid and consistent with provisions of the NIRC.76

Moreover, respondents contend that:

[P]etitioner is not legally entitled to any transitional input tax credit, whether it be the 8% presumptive
input tax credit or any actual input tax credit in respect of its inventory of land brought into the VAT regime
beginning January 1, 1996, in view of the following:
VAT free acquisition of the raw land. petitioner purchased and acquired, from the Government, the
aforesaid raw land under a VAT-free sale transaction. The Government, as a vendor, was tax-exempt
and accordingly did not pass on any VAT or sales tax as part of the price paid therefor by the petitioner.
No transitory input tax on inventory of land is allowed. Section 105 of the Code, as amended by
Republic Act No. 7716, and as implemented by Section 4.105-1 of Revenue Regulations No. 7-95,
expressly provides that no transitional input tax credit shall be allowed to real estate dealers in respect of
their beginning inventory of land brought into the VAT regime beginning January 1, 1996 (supra).
Likewise, the Transitory Provisions [(a) (iii)] of Revenue Regulations No. 7-95 categorically states that for
real estate dealers, the presumptive input tax of 8% of the book value of improvements constructed on or
after January 1, 1998 (effectivity of E.O. 273) shall be allowed. For purposes of subparagraphs (i), (ii)
and (iii) above, an inventory as of December 31, 1995 of such goods or properties and improvements
showing the quantity, description, and amount should be filed with the RDO not later than January 31,
1996. It is admitted that petitioner filed its inventory listing of real properties on September 19, 1996 or
almost nine (9) months late in contravention [of] the requirements in Revenue Regulations No. 7-95.77
Respondents, quoting the Civil Code,78 argue that Section 4.105-1 of Revenue Regulations No. 7-95 has
the force and effect of a law since it is not contrary to any law or the Constitution. Respondents add that
[w]hen the administrative agency promulgates rules and regulations, it makes a new law with the force
and effect of a valid law x x x.79
ISSUES
The main issue before us now is whether or not petitioner is entitled to a refund of the amounts of:
1) P486,355,846.78 in G.R. No. 175707, 2) P77,151,020.46 for G.R. No. 180035, and 3)

P269,340,469.45 in G.R. No. 181092, which it paid as value-added tax, or to a tax credit for said
amounts.
To resolve the issue stated above, it is also necessary to determine:

Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be
claimed only on the improvements on real properties;
Whether there must have been previous payment of sales tax or value-added tax by petitioner on
its land before it may claim the input tax credit granted by Section 105 of the NIRC;
Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC;
and
Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity of
said Regulations by the Court of Tax Appeals and the Court of Appeals, was in violation of the
fundamental principle of separation of powers.

THE RULINGS BELOW

G.R. No. 175707
CTA Case No. 5885 Decision (October 13, 2000) The CTA traced the history of transitional input tax
credit from the original VAT Law of 1988 (Executive Order No. 273) up to the Tax Reform Act of 1997
and looked into Section 105 of the Tax Code. According to the CTA, the BIR issued Revenue
Regulations No. 5-87, specifically Section 26(b),80 to implement the provisions of Section 105. The CTA
concluded from these provisions that the purpose of granting transitional input tax credit to be utilized as
payment for output VAT is primarily to give recognition to the sales tax component of inventories which
would qualify as input tax credit had such goods been acquired during the effectivity of the VAT Law of
1988.81 The CTA stated that the purpose of transitional input tax credit remained the same even after
the amendments introduced by the E-VAT Law.82 The CTA held that the rationale in granting the
transitional input tax credit also serves as its condition for its availment as a benefit 83 and that [i]nherent
in the law is the condition of prior payment of VAT or sales taxes.84 The CTA excluded petitioner from
availing of the transitional input tax credit provided by law, reasoning that to base the 8% transitional
input tax on the book value of the land is to negate the purpose of the law in granting such benefit. It
would be tantamount to giving an undeserved bonus to real estate dealers similarly situated as petitioner
which the Government cannot afford to provide.85 Furthermore, the CTA held that respondent was
correct in basing the 8% transitional input tax credit on the value of the improvements on the land, citing
Section 4.105-1 of Revenue Regulations No. 7-95, which the CTA claims is consistent and in harmony
with the law it seeks to implement. Thus, the CTA denied petitioners claim for refund.86
CA-G.R. No. 61516 Decision (April 22, 2003) The Court of Appeals affirmed the CTA and ruled that
petitioner is not entitled to refund or tax credit in the amount of P486,355,846.78 and stated
that Revenue Regulations No. 7-95 is a valid implementation of the NIRC.87 According to the Court of
Appeals:
[P]etitioner acquired the contested property from the National Government under a VAT-free
transaction. The Government, as a vendor was outside the operation of the VAT and ergo, could not
possibly have passed on any VAT or sales tax as part of the purchase price to the petitioner as
vendee.88
x x x [T]he grant of transitional input tax credit indeed presupposes that the manufacturers, producers and
importers should have previously paid sales taxes on their inventories. They were given the benefit of
transitional input tax credits, precisely, to make up for the previously paid sales taxes which were now
abolished by the VAT Law. It bears stressing that the VAT Law took the place of privilege taxes,
percentage taxes and sales taxes on original or subsequent sale of articles. These taxes were
substituted by the VAT at the constant rate of 0% or 10%.8

3. CA-G.R. No. 61516 Resolution (November 30, 2006)

Upon petitioners Motion for Reconsideration, the Court of Appeals affirmed its decision, but we find the
following statement by the appellate court worthy of note:
We concede that the inventory restrictions under Revenue Regulation No. 7-95 limiting the coverage of
the inventory only to acquisition cost of the materials used in building improvements has already been
deleted by Revenue Regulation 6-97. This notwithstanding, we are poised to sustain our earlier ruling as
regards the refund presently claimed.90
G.R. No. 180035
CTA Case No. 6021 Decision (January 30, 2002) The CTA sustained petitioners position and held that
respondent erred in basing the transitional input tax credit of real estate dealers on the value of the
improvements.91 The CTA ratiocinated as follows:
This Court, in upholding the position taken by the petitioner, is convinced that Section 105 of the Tax
Code is clear in itself. Explicit therefrom is the fact that a taxpayer shall be allowed a
transitional/presumptive input tax credit based on the value of its beginning inventory of goods which is
defined in Section 100 as to encompass even real property. x x x.92
The CTA went on to point out inconsistencies it had found between the transitory provisions of Revenue
Regulations No. 7-95 and the law it sought to implement, in the following manner:
Notice that letter (a)(ii) of the x x x transitory provisions 93 states that goods or properties purchased with
the object of resale in their present condition comes with the corresponding 8% presumptive input tax of
the value of the goods, which amount may also be credited against the output tax of a VAT-registered
person. It must be remembered that Section 100 as amended by Republic Act No. 7716 extends the
term goods or properties to real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business. This provision alone entitles Petitioner to the 8% presumptive input
tax of the value of the land (goods or properties) sold. However in letter (a)(iii) of the same Transitory
Provisions, Respondent apparently changed his (sic) course when it declared that real estate dealers are
only entitled to the 8% of the value of the improvements. This glaring inconsistency between the two
provisions prove that Revenue Regulations No. 7-95 was not a result of an intensive study and analysis
and may have been haphazardly formulated.94
The CTA held that the implementing regulation, which provides that the 8% transitional input tax shall be
based on the improvements only of the real properties, is neither valid nor effective.95 The CTA also
sustained petitioners argument that Revenue Regulations No. 7-95 provides no specific date as to when
the inventory list should be submitted. The relevant portion of the CTA decision reads:
The only requirement is that the presumptive input tax shall be supported by an inventory of goods as
shown in a detailed list to be submitted to the BIR. Moreover, the requirement of filing an inventory of
goods not later than January 31, 1996 in the transitory provision of the same regulation refers to the
recognition of presumptive input tax on goods or properties on hand as of December 31, 1995 of
taxpayers already liable to VAT as of that date.
Clearly, Petitioner is entitled to the presumptive input tax in the amount of P5,698,200,256.00, computed
as follows:
Book Value of Inventory x x x
P71,227,503,200.00
Multiply by Presumptive
Input Tax rate
8%
Available Presumptive Input Tax
P5,698,200,256.00
The failure of the Petitioner to consider the presumptive input tax in the computation of its output tax
liability for the 1st quarter of 1998 results to overpayment of the VAT for the same period.

To prove the fact of overpayment, Petitioner presented the original Monthly VAT Declaration for the
month of January 1998 showing the amount of P77,151,020.46 as the cash component of the valueadded taxes paid (Exhibits E-14 & E-14-A) which is the subject matter of the instant claim for refund.
In Petitioners amended quarterly VAT return for the 1st quarter of 1998 (Exhibit D-1), Petitioner deducted
the amount of P77,151,020.46 from the total available input tax to show that the amount being claimed
would no longer be available as input tax credit.
In conclusion, the Petitioner has satisfactorily proven its entitlement to the refund of value-added taxes
paid for the first quarter of taxable year 1998.
WHEREFORE, in view of the foregoing, the Petition for Review is GRANTED. Respondents are
hereby ORDERED to REFUND or issue a TAX CREDIT CERTIFICATEin favor of the Petitioner the total
amount of P77,151,020.46 representing the erroneously paid value-added tax for the first quarter of
1998.96
CTA Case No. 6021 Resolution (March 28, 2003)
The CTA reversed its earlier ruling upon respondents motion for reconsideration and thus denied
petitioners claim for refund. The CTA reasoned and concluded as follows:
The vortex of the controversy in the instant case actually involves the question of whether or not Section
4.105-1 of Revenue Regulations No. 7-95, issued by the Secretary of Finance upon recommendation of
the Commissioner of Internal Revenue, is valid and consistent with and not violative of Section 105 of the
Tax Code, in relation to Section 100 (a)(1)(A).
xxxx
We agree with the position taken by the respondents that Revenue Regulations No. 7-95 is not contrary
to the basic law which it seeks to implement. As clearly worded, Section 105 of the Tax Code provides
that a person who becomes liable to value-added tax or any person who elects to be a VAT-registered
person shall be allowed 8% transitional input tax subject to the filing of an inventory as prescribed by
regulations.
Section 105, which requires the filing of an inventory for the grant of the transitional input tax, is couched
in a manner where there is a need for an implementing rule or regulation to carry its intendment. True to
its wordings, the BIR issued Revenue Regulations No. 7-95 (specifically Section 4.105-1) which
succinctly mentioned that the basis of the presumptive input tax shall be the improvements in case of real
estate dealers.97
xxxx
WHEREFORE, in view of the foregoing, the instant Motion for Reconsideration filed by respondents is
hereby GRANTED. Accordingly, petitioners claim for refund of the alleged overpaid Value-Added Tax in
the amount of P77,151,020.46 covering the first quarter of 1998 is hereby DENIED for lack of merit. 98

3. CA-G.R. SP No. 76540 Decision (April 30, 2007)

The Court of Appeals affirmed the CTAs Resolution denying petitioners claim for refund, and we quote
portions of the discussion from the Court of Appeals decision below:
To Our mind, the key to resolving the jugular issue of this controversy involves a deeper analysis on how
the much-contested transitional input tax credit has been encrypted in the countrys value-added tax
(VAT) system.

xxxx
x x x [T]he Commissioner of Internal Revenue promulgated Revenue Regulations No. 7-95 which laid
down, among others, the basis of the transitional input tax credit for real estate dealers: 99
xxxx
The Regulation unmistakably allows credit for transitional input tax of any person who becomes liable to
VAT or who elects to be a VAT-registered person. More particularly, real estate dealers who were
beforehand not subject to VAT are allowed a tax credit to cushion the staggering effect of the newly
imposed 10% output VAT liability under RA No. 7716.
Bearing in mind the purpose of the transitional input tax credit under the VAT system, We find it
incongruous to grant petitioners claim for tax refund. We take note of the fact that petitioner acquired the
Global City lots from the National Government. The transaction was not subject to any sales or business
tax. Since the seller did not pass on any tax liability to petitioner, the latter may not claim tax
credit. Clearly then, petitioner cannot simply demand that it is entitled to the transitional input tax credit.
xxxx
Another point. Section 105 of the National Internal Revenue Code, as amended by EO No. 273, explicitly
provides that the transitional input tax credit shall be based on the beginning inventory of goods,
materials and supplies or the actual value-added tax paid on such goods, materials and supplies,
whichever is higher. Note that the law did not simply say the transitional input tax credit shall be 8% of
the beginning inventory of goods, materials and supplies.
Instead, lawmakers went on to say that the creditable input tax shall be whichever is higher between the
value of the inventory and the actual VAT paid. Necessarily then, a comparison of these two figures
would have to be made. This strengthens Our view that previous payment of the VAT is indispensable to
determine the actual value of the input tax creditable against the output tax. So too, this is in consonance
with the present tax credit method adopted in this jurisdiction whereby an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.
We proceed to traverse another argument raised in this controversy. Petitioner insists that the term
goods which was one of the bases in computing the transitional input tax credit must be construed so as
to include real properties held primarily for sale to customers. Petitioner posits that respondent
Commissioner practically rewrote the law when it issued Revenue Regulations No. 7-95 which limited the
basis of the 8% transitional input tax credit to the value of improvements alone.
Petitioner is clearly mistaken.
The term goods has been defined to mean any movable or tangible objects which are appreciable or
tangible. More specifically, the word goods is always used to designate wares, commodities, and
personal chattels; and does not include chattels real. Real property on the other hand, refers to land,
and generally whatever is erected or growing upon or affixed to land. It is therefore quite absurd to
equate goods as being synonymous to properties. The vast difference between the terms goods and
real properties is so obvious that petitioners assertion must be struck down for being utterly baseless
and specious.
Along this line, We uphold the validity of Revenue Regulations No. 7-95. The authority of the Secretary of
Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate all needful rules and
regulations for the effective enforcement of internal revenue laws cannot be controverted. Neither can it
be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily
should deserve weight and respect by the courts. Much more fundamental than either of the above,
however, is that all such issuances must not override, but must remain consistent and in harmony with,

the law they seek to apply and implement. Administrative rules and regulations are intended to carry out,
neither to supplant nor to modify, the law. Revenue Regulations No. 7-95 is clearly not inconsistent with
the prevailing statute insofar as the provision on transitional input tax credit is concerned. 100
CA-G.R. SP No. 76540 Resolution (October 8, 2007)
In this Resolution, the Court of Appeals denied petitioners Motion for Reconsideration of its Decision
dated April 30, 2007.
G.R. No. 181092
CTA Case No. 5694 Decision (September 29, 2000)
The CTA ruled that petitioner is not automatically entitled to the 8% transitional input tax allowed under
Section 105 of the Tax Code based solely on its inventory of real properties, and cited the rule on
uniformity in taxation duly enshrined in the Constitution.101 According to the CTA:
As defined under the above Section 104 of the Tax Code, an input tax means the VAT paid by a VATregistered person in the course of his trade or business on importation of goods or services from a VATregistered person; and that such tax shall include the transitional input tax determined in accordance with
Section 105 of the Tax Code, supra.102
Applying the rule on statutory construction that particular words, clauses and phrases should not be
studied as detached and isolated expressions, but the whole and every part of the statute must be
considered in fixing the meaning of any of its parts in order to produce a harmonious whole, the phrase
transitional input tax found in Section 105 should be understood to encompass goods, materials and
supplies which are subject to VAT, in line with the context of input tax as defined in Section 104, most
especially that the latter includes, and immediately precedes, the former under its statutory
meaning. Petitioners contention that the 8% transitional input tax is statutorily presumed to the extent
that its real properties which have not been subjected to VAT are entitled thereto, would directly
contradict input tax as defined in Section 104 and would invariably cause disharmony. 103
The CTA held that the 8% transitional input tax should not be viewed as an outright grant or presumption
without need of prior taxes having been paid. Expounding on this, the CTA said:
The simple instance in the aforesaid paragraphs of requiring the tax on the materials, supplies or goods
comprising the inventory to be currently unutilized as deferred sales tax credit before the 8% presumptive
input tax can be enjoyed readily leads to the inevitable conclusion that such 8% tax cannot be just
granted to any VAT liable person if he has no priorly paid creditable sales taxes. Legislative intent thus
clearly points to priorly paid taxes on goods, materials and supplies before a VAT-registered person can
avail of the 8% presumptive input tax.104
Anent the applicability to petitioners case of the requirement under Article VI, Section 28, par. 1 of the
Constitution that the rule of taxation shall be uniform and equitable, the CTA held thus:
Granting arguendo that Petitioner is statutorily presumed to be entitled to the 8% transitional input tax as
provided in Section 105, even without having previously paid any tax on its inventory of goods, Petitioner
would be placed at a more advantageous position than a similar VAT-registered person who also
becomes liable to VAT but who has actually paid VAT on his purchases of goods, materials and
supplies. This is evident from the alternative modes of acquiring the proper amount of transitional input
tax under Section 105, supra. One is by getting the equivalent amount of 8% tax based on the beginning
inventory of goods, materials and supplies and the other is by the actual VAT paid on such goods,
materials and supplies, whichever is higher.
As it is supposed to work, the transitional input tax should answer for the 10% output VAT liability that a
VAT-registered person will incur once he starts business operations. While a VAT-registered person who
is allowed a transitional input tax based on his actual payment of 10% VAT on his purchases can utilize

the same to pay for his output VAT liability, a similar VAT-registered person like herein Petitioner, when
allowed the alternative 8% transitional input tax, can offset his output VAT liability equally through such
8% tax even without having paid any previous tax. This obvious inequity that may arise could not have
been the intention and purpose of the lawmakers in granting the transitional input tax credit. x x x105
Evidently, Petitioner is not similarly situated both as to privileges and liabilities to that of a VAT-registered
person who has paid actual 10% input VAT on his purchases of goods, materials and supplies. The latter
person will not earn anything from his transitional input tax which, to emphasize, has been paid by him
because the same will just offset his 10% output VAT liability. On the other hand, herein Petitioner will
earngratis the amount equivalent to 10% output VAT it has passed on to buyers for the simple reason that
it has never previously paid any input tax on its goods. Its gain will be facilitated by herein claim for
refund if ever granted. This is the reason why we do not see any incongruity in Section 4.105-1 of
Revenue Regulations No. 7-95 as it relates to Section 105 of the 1996 Tax Code, contrary to the
contention of Petitioner. Section 4.105-1 (supra), which bases the transitional input tax credit on the
value of the improvements, is consistent with the purpose of the law x x x. 106
CA-G.R. SP No. 61158 Decision (December 28, 2007)
The Court of Appeals affirmed the CTAs denial of petitioners claim for refund and upheld the validity of
the questioned Revenue Regulation issued by respondent Commissioner of Internal Revenue, reasoning
as follows:
Sec. 105 of the NIRC, as amended, provides that the allowance for the 8% input tax on the beginning
inventory of a VAT-covered entity is subject to the filing of an inventory as prescribed by regulations.
This means that the legislature left to the BIR the determination of what will constitute the beginning
inventory of goods, materials and supplies which will, in turn, serve as the basis for computing the 8%
input tax.
While the power to tax cannot be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including the power to determine the
existence of facts on which its operation depends x x x. Hence, there is no gainsaying that the CIR and
the Secretary of Finance, in limiting the application of the input tax of real estate dealers to improvements
constructed on or after January 1, 1988, merely exercised their delegated authority under Sec. 105, id., to
promulgate rules and regulations defining what should be included in the beginning inventory of a VATregistered entity.
xxxx
In the instant case, We find that, contrary to petitioners attacks against its validity, the limitation on the
beginning inventory of real estate dealers contained in Sec. 4.105-1 of RR No. 7-95 is reasonable and
consistent with the nature of the input VAT. x x x.
Based on the foregoing antecedents, it is clear why the second paragraph of Sec. 4.105-1 of RR No. 7-95
limits the transitional input taxes of real estate dealers to the value of improvements constructed on or
after January 1, 1988. Since the sale of the land was not subject to VAT or other sales taxes prior to the
effectivity of Rep. Act No. 7716, real estate dealers at that time had no input taxes to speak of. With this
in mind, the CIR correctly limited the application of the 8% transitional input tax to improvements on real
estate dealers constructed on or after January 1, 1988 when the VAT was initially implemented. This is,
as it should be, for to grant petitioner a refund or credit for input taxes it never paid would be tantamount
to unjust enrichment.
As petitioner itself observes, the input tax credit provided for by Sec. 105 of the NIRC is a mechanism
used to grant some relief from burdensome taxes. It follows, therefore, that not having been burdened by
VAT or any other sales tax on its inventory of land prior to the effectivity of Rep. Act No. 7716, petitioner
is not entitled to the relief afforded by Sec. 105, id.107

The Court of Appeals ruled that petitioner is not similarly situated as those business entities which
previously paid taxes on their inputs, and stressed that a tax refund or credit x x x is in the nature of a tax
exemption which must be construed strictissimi juris against the taxpayer x x x.108
THIS COURTS RULING
As previously stated, the issues here have already been passed upon and resolved by this Court En
Banc twice, in decisions that have reached finality, and we are bound by the doctrine of stare decisisto
apply those decisions to these consolidated cases, for they involve the same facts, issues, and even
parties.
Thus, we find for the petitioner.
DISCUSSION
The errors assigned by petitioner to the Court of Appeals and the arguments offered by respondents to
support the denial of petitioners claim for tax refund have already been dealt with thoroughly by the
Court En Banc in Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue,G.R.
Nos. 158885 and 170680 (Decision - April 2, 2009; Resolution - October 2, 2009); and Fort Bonifacio
Development Corporation v. Commissioner of Internal Revenue, G.R. No. 173425(Decision - September
4, 2012; Resolution - January 22, 2013).
The Court En Banc decided on the following issues in G.R. Nos. 158885 and 170680:
1. In determining the 10% value-added tax in Section 100 of the [Old NIRC] on the sale of real
properties by real estate dealers, is the 8% transitional input tax credit in Section 105 applied only
to the improvements on the real property or is it applied on the value of the entire real property?
2. Are Section 4.105.1 and paragraph (a)(III) of the Transitory Provisions of Revenue Regulations
No. 7-95 valid in limiting the 8% transitional input tax to the improvements on the real property?

Subsequently, in G.R. No. 173425, the Court resolved issues that are identical to the ones raised here by
petitioner,109 thus:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated Revenue Regulations
No. 7-95 insofar as the latter limited the transitional/presumptive input tax credit which may be
claimed under Section 105 of the National Internal Revenue Code to the improvements on real
properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the National
Internal Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal Revenue, and
declaration of validity of said Regulations by the Court of Tax Appeals and Court of Appeals,
[were] in violation of the fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret and construe the provisions of Section 105 of
the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax [sales tax or value-added
tax]110 by petitioner on its land before it may claim the input tax credit granted by Section 105 of
the National Internal Revenue Code.
3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the purpose of the
transitional/presumptive input tax provided for in Section 105 of the National Internal Revenue
Code.
3.05.g. Whether the economic and social objectives in the acquisition of the subject property by
petitioner from the Government should be taken into consideration.111

The Courts pronouncements in the decided cases regarding these issues are discussed below. The
doctrine of stare decisis et non quieta movere, which means to abide by, or adhere to, decided
cases,112 compels us to apply the rulings by the Court to these consolidated cases before us. Under the
doctrine of stare decisis, when this Court has once laid down a principle of law as applicable to a certain
state of facts, it will adhere to that principle, and apply it to all future cases, where facts are substantially
the same; regardless of whether the parties and property are the same.113 This is to provide stability in
judicial decisions, as held by the Court in a previous case:
Stand by the decisions and disturb not what is settled. Stare decisis simply means that for the sake of
certainty, a conclusion reached in one case should be applied to those that follow if the facts are
substantially the same, even though the parties may be different. It proceeds from the first principle of
justice that, absent any powerful countervailing considerations, like cases ought to be decided alike. 114
More importantly, we cannot depart from the legal precedents as laid down by the Court En Banc. It is
provided in the Constitution that no doctrine or principle of law laid down by the court in a decision
rendered en banc or in division may be modified or reversed except by the court sitting en
banc.115
What is left for this Court to do is to reiterate the rulings in the aforesaid legal precedents and apply them
to these consolidated cases.
As regards the main issue, the Court conclusively held that petitioner is entitled to the 8% transitional
input tax on its beginning inventory of land, which is granted in Section 105 (now Section 111[A]) of the
NIRC, and granted the refund of the amounts petitioner had paid as output VAT for the different tax
periods in question.116
Whether the transitional/presumptive
input tax credit under Section 105 of the
NIRC may be claimed only on the
improvements on real properties.
The Court held in the earlier consolidated decision, G.R. Nos. 158885 and 170680, as follows:
On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real
properties, together with the improvements thereon, in the beginning inventory of goods,
materials and supplies, based on which inventory the transitional input tax credit is computed. It
can be conceded that when it was drafted Section 105 could not have possibly contemplated concerns
specific to real properties, as real estate transactions were not originally subject to VAT. At the same time,
when transactions on real properties were finally made subject to VAT beginning with Rep. Act No. 7716,
no corresponding amendment was adopted as regards Section 105 to provide for a differentiated
treatment in the application of the transitional input tax credit with respect to real properties or real estate
dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate
transactions subject to VAT for the first time. Prior to the amendment, Section 100 had imposed the VAT
on every sale, barter or exchange of goods, without however specifying the kind of properties that fall
within or under the generic class goods subject to the tax.
Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax (EVAT)
law, expanded the coverage of the VAT by amending Section 100 of the Old NIRC in several
respects, some of which we will enumerate. First, it made every sale, barter or exchange of
goods or properties subject to VAT. Second, it generally defined goods or properties as all
tangible and intangible objects which are capable of pecuniary estimation. Third, it included a
non-exclusive enumeration of various objects that fall under the class goods or properties
subject to VAT, including [r]eal properties held primarily for sale to customers or held for lease in

the ordinary course of trade or business.

From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the application of
the transitional input tax on them? We see none.
Rep. Act No. 7716 clarifies that it is the real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business that are subject to the VAT, and not
when the real estate transactions are engaged in by persons who do not sell or lease properties in
the ordinary course of trade or business. It is clear that those regularly engaged in the real estate
business are accorded the same treatment as the merchants of other goods or properties
available in the market. In the same way that a milliner considers hats as his goods and a rancher
considers cattle as his goods, a real estate dealer holds real property, whether or not it contains
improvements, as his goods.117(Citations omitted, emphasis added.)
xxxx
Under Section 105, the beginning inventory of goods forms part of the valuation of the transitional input
tax credit. Goods, as commonly understood in the business sense, refers to the product which the VATregistered person offers for sale to the public. With respect to real estate dealers, it is the real properties
themselves which constitute their goods. Such real properties are the operating assets of the real estate
dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of goods or properties such real
properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business. Said definition was taken from the very statutory language of Section 100 of the Old NIRC. By
limiting the definition of goods to improvements in Section 4.105-1, the BIR not only
contravened the definition of goods as provided in the Old NIRC, but also the definition which
the same revenue regulation itself has provided.118 (Emphasis added.)
The Court then emphasized in its Resolution in G.R. No. 158885 and G.R. No. 170680 that Section 105
of the old NIRC, on the transitional input tax credit, remained intact despite the enactment of Republic Act
No. 7716. Section 105 was amended by Republic Act No. 8424, and the provisions on the transitional
input tax credit are now embodied in Section 111(A) of the new NIRC, which reads:
Section 111. Transitional/Presumptive Input Tax Credits.
(A) Transitional Input Tax Credits. A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of [F]inance, upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods, materials and supplies equivalent for 8% of the
value of such inventory or the actual value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax.119
In G.R. Nos. 158885 and 170680, the Court asked, If the plain text of Republic Act No. 7716 fails to
supply any apparent justification for limiting the beginning inventory of real estate dealers only to the
improvements on their properties, how then were the Commissioner of Internal Revenue and the courts a
quo able to justify such a view?120 The Court then answered this question in this manner:
IV.
The fact alone that the denial of FBDC's claims is in accord with Section 4.105-1 of RR 7-95 does not, of
course, put this inquiry to rest. If Section 4.105-1 is itself incongruent to Rep. Act No. 7716, the
incongruence cannot by itself justify the denial of the claims. We need to inquire into the rationale behind
Section 4.105-1, as well as the question whether the interpretation of the law embodied therein is
validated by the law itself.

xxxx
It is correct, as pointed out by the CTA, that upon the shift from sales taxes to VAT in 1987 newly-VAT
registered people would have been prejudiced by the inability to credit against the output VAT their
payments by way of sales tax on their existing stocks in trade. Yet that inequity was precisely addressed
by a transitory provision in E.O. No. 273 found in Section 25 thereof. The provision authorized VATregistered persons to invoke a presumptive input tax equivalent to 8% of the value of the
inventory as of December 31, 1987 of materials and supplies which are not for sale, the tax on
which was not taken up or claimed as deferred sales tax credit, and a similar presumptive input
tax equivalent to 8% of the value of the inventory as of December 31, 1987 of goods for sale, the
tax on which was not taken up or claimed as deferred sales tax credit.121 (Emphasis ours.)
Whether there must have been previous
payment of sales tax or value-added tax
by petitioner on its land before petitioner
may claim the input tax credit granted by
Section 105 (now Section 111[A]) of the
NIRC.
The Court discussed this matter lengthily in its Decision in G.R. Nos. 158885 and 170680, and we quote:
Section 25 of E.O. No. 273 perfectly remedies the problem assumed by the CTA as the basis for the
introduction of transitional input tax credit in 1987. If the core purpose of the tax credit is only, as hinted
by the CTA, to allow for some mode of accreditation of previously-paid sales taxes, then Section 25 alone
would have sufficed. Yet E.O. No. 273 amended the Old NIRC itself by providing for the transitional
input tax credit under Section 105, thereby assuring that the tax credit would endure long after the
last goods made subject to sales tax have been consumed.
If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the
purported causal link between those two would have been nonetheless extinguished long ago. Yet
Congress has reenacted the transitional input tax credit several times; that fact simply belies the
absence of any relationship between such tax credit and the long-abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not confined to the
transition from sales tax to VAT.
x x x Section 105 states that the transitional input tax credits become available either to (1) a
person who becomes liable to VAT; or (2) any person who elects to be VAT-registered. The clear
language of the law entitles new trades or businesses to avail of the tax credit once they become
VAT-registered. The transitional input tax credit, whether under the Old NIRC or the New NIRC,
may be claimed by a newly-VAT registered person such as when a business as it commences
operations.
x x x [I]t is not always true that the acquisition of such goods, materials and supplies entail the
payment of taxes on the part of the new business. In fact, this could occur as a matter of course
by virtue of the operation of various provisions of the NIRC, and not only on account of a specially
legislated exemption.
xxxx
The interpretation proffered by the CTA would exclude goods and properties which are acquired
through sale not in the ordinary course of trade or business, donation or through succession,
from the beginning inventory on which the transitional input tax credit is based. This prospect all
but highlights the ultimate absurdity of the respondents' position. Again, nothing in the Old NIRC
(or even the New NIRC) speaks of such a possibility or qualifies the previous payment of VAT or
any other taxes on the goods, materials and supplies as a pre-requisite for inclusion in the

beginning inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies.During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very
beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived
from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the
taxpayer's income by affording the opportunity to offset the losses incurred through the remittance of the
output VAT at a stage when the person is yet unable to credit input VAT payments.
There is another point that weighs against the CTA's interpretation. Under Section 105 of the Old NIRC,
the rate of the transitional input tax credit is 8% of the value of such inventory or the actual value-added
tax paid on such goods, materials and supplies, whichever is higher. If indeed the transitional input tax
credit is premised on the previous payment of VAT, then it does not make sense to afford the
taxpayer the benefit of such credit based on 8% of the value of such inventory should the same
prove higher than the actual VAT paid. This intent that the CTA alluded to could have been
implemented with ease had the legislature shared such intent by providing the actual VAT paid as the
sole basis for the rate of the transitional input tax credit.
The CTA harped on the circumstance that FBDC was excused from paying any tax on the purchase of its
properties from the national government, even claiming that to allow the transitional input tax credit is
tantamount to giving an undeserved bonus to real estate dealers similarly situated as [FBDC] which the
Government cannot afford to provide. Yet the tax laws in question, and all tax laws in general, are
designed to enforce uniform tax treatment to persons or classes of persons who share minimum
legislated standards. The common standard for the application of the transitional input tax credit,
as enacted by E.O. No. 273 and all subsequent tax laws which reinforced or reintegrated the tax
credit, is simply that the taxpayer in question has become liable to VAT or has elected to be a
VAT-registered person. E.O. No. 273 and the subsequent tax laws are all decidedly neutral and
accommodating in ascertaining who should be entitled to the tax credit, and it behooves the CIR
and the CTA to adopt a similarly judicious perspective.122(Citations omitted, emphases ours.)
The Court En Banc in its Resolution in G.R. No. 173425 likewise discussed the question of prior payment
of taxes as a prerequisite before a taxpayer could avail of the transitional input tax credit. The Court
found that petitioner is entitled to the 8% transitional input tax credit, and clearly said that the fact that
petitioner acquired the Global City property under a tax-free transaction makes no difference as prior
payment of taxes is not a prerequisite.123 We quote pertinent portions of the resolution below:
This argument has long been settled. To reiterate, prior payment of taxes is not necessary before
a taxpayer could avail of the 8% transitional input tax credit.This position is solidly supported by law
and jurisprudence, viz.:
First . Section 105 of the old National Internal Revenue Code (NIRC) clearly provides that for a taxpayer
to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to file a beginning
inventory with the Bureau of Internal Revenue (BIR). It was never mentioned in Section 105 that prior
payment of taxes is a requirement. x x x.
xxxx
Second. Since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require it
now would be tantamount to judicial legislation which, to state the obvious, is not allowed.
Third. A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment of
taxes is not required before a taxpayer could avail of transitional input tax credit. As we have declared in
our September 4, 2012 Decision, [t]ax credit is not synonymous to tax refund. Tax refund is defined as
the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other

hand, is an amount subtracted directly from one's total tax liability. It is any amount given to a taxpayer as
a subsidy, a refund, or an incentive to encourage investment.
Fourth. The issue of whether prior payment of taxes is necessary to avail of transitional input tax credit is
no longer novel. It has long been settled by jurisprudence. x x x.
Fifth . Moreover, in Commissioner of Internal Revenue v. Central Luzon Drug Corp., this Court had
already declared that prior payment of taxes is not required in order to avail of a tax credit. x x
x124 (Citations omitted, emphases ours.)
The Court has thus categorically ruled that prior payment of taxes is not required for a taxpayer to
avail of the 8% transitional input tax credit provided in Section 105 of the old NIRC and that
petitioner is entitled to it, despite the fact that petitioner acquired the Global City property under a
tax-free transaction.125 The Court En Banc held:
Contrary to the view of the CTA and the CA, there is nothing in the abovequoted provision to indicate that
prior payment of taxes is necessary for the availment of the 8% transitional input tax credit. Obviously, all
that is required is for the taxpayer to file a beginning inventory with the BIR.
To require prior payment of taxes x x x is not only tantamount to judicial legislation but would also render
nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be 8% of
the value of [the beginning] inventory or the actual [VAT] paid on such goods, materials and supplies,
whichever is higher because the actual VAT (now 12%) paid on the goods, materials, and supplies would
always be higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice
Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid. Clearly,
limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes
were paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning
inventory excludes goods, materials, and supplies where no taxes were paid. 126
Whether Revenue Regulations No. 7-95 is
a valid implementation of Section 105 of
the NIRC.
In the April 2, 2009 Decision in G.R. Nos. 158885 and 170680, the Court struck down Section 4.105-1
of Revenue Regulations No. 7-95 for being in conflict with the law.127 The decision reads in part as
follows:
[There] is no logic that coheres with either E.O. No. 273 or Rep. Act No. 7716 which supports the
restriction imposed on real estate brokers and their ability to claim the transitional input tax credit based
on the value of their real properties. In addition, the very idea of excluding the real properties itself from
the beginning inventory simply runs counter to what the transitional input tax credit seeks to accomplish
for persons engaged in the sale of goods, whether or not such goods take the form of real properties or
more mundane commodities.
Under Section 105, the beginning inventory of goods forms part of the valuation of the transitional input
tax credit. Goods, as commonly understood in the business sense, refers to the product which the VATregistered person offers for sale to the public. With respect to real estate dealers, it is the real properties
themselves which constitute their goods. Such real properties are the operating assets of the real estate
dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of goods or properties such real
properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business. Said definition was taken from the very statutory language of Section 100 of the Old NIRC. By
limiting the definition of goods to improvements in Section 4.105-1, the BIR not only contravened the
definition of goods as provided in the Old NIRC, but also the definition which the same revenue
regulation itself has provided.

The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the basis for the inventory of
goods, materials and supplies upon which the transitional input VAT would be based shall be left to
regulation by the appropriate administrative authority. This is based on the phrase filing of an inventory
as prescribed by regulations found in Section 105. Nonetheless, Section 105 does include the particular
properties to be included in the inventory, namely goods, materials and supplies. It is questionable
whether the CIR has the power to actually redefine the concept of goods, as she did when she excluded
real properties from the class of goods which real estate companies in the business of selling real
properties may include in their inventory. The authority to prescribe regulations can pertain to more
technical matters, such as how to appraise the value of the inventory or what papers need to be filed to
properly itemize the contents of such inventory. But such authority cannot go as far as to amend Section
105 itself, which the Commissioner had unfortunately accomplished in this case.
It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of
the enabling statute if such rule or regulation is to be valid. In case of conflict between a statute and an
administrative order, the former must prevail. Indeed, the CIR has no power to limit the meaning and
coverage of the term goods in Section 105 of the Old NIRC absent statutory authority or basis to
make and justify such limitation. A contrary conclusion would mean the CIR could very well moot
the law or arrogate legislative authority unto himself by retaining sole discretion to provide the
definition and scope of the term goods.128 (Emphasis added.)
Furthermore, in G.R. No. 173425, the Court held:
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105
of the old NIRC
As regards Section 4.105-1 of RR 7-95 which limited the 8% transitional input tax credit to the value of the
improvements on the land, the same contravenes the provision of Section 105 of the old NIRC, in relation
to Section 100 of the same Code, as amended by RA 7716, which defines goods or properties, to wit:
xxxx
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we ruled that
Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the
improvement of the real properties, is a nullity. Pertinent portions of the Resolution read:
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot contravene the law
on which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the term goods
is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of Finance. The
rules and regulations that administrative agencies promulgate, which are the product of a delegated
legislative power to create new and additional legal provisions that have the effect of law, should be within
the scope of the statutory authority granted by the legislature to the objects and purposes of the law, and
should not be in contradiction to, but in conformity with, the standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the
enabling law. An implementing rule or regulation cannot modify, expand, or subtract from the law it is
intended to implement. Any rule that is not consistent with the statute itself is null and void.
While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to
implement statutes, they are without authority to limit the scope of the statute to less than what it provides,
or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the law.
Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an act of
Congress. Hence, in case of a discrepancy between the basic law and an interpretative or administrative
ruling, the basic law prevails.

To recapitulate, RR 7-95, insofar as it restricts the definition of goods as basis of transitional input tax
credit under Section 105 is a nullity.
As we see it then, the 8% transitional input tax credit should not be limited to the value of the
improvements on the real properties but should include the value of the real properties as
well.129 (Citations omitted, emphasis ours.)
Whether the issuance of Revenue
Regulations No. 7-95 by the BIR, and
declaration of validity of said Regulations
by the CTA and the Court of Appeals,
was in violation of the fundamental
principle of separation of powers.
In the Resolution dated October 2, 2009 in G.R. Nos. 158885 and 170680 the Court denied the
respondents Motion for Reconsideration with finality and held:
[The April 2, 2009 Decision] held that the CIR had no power to limit the meaning and coverage of the
term goods in Section 105 of the Old NIRC sans statutory authority or basis and justification to make
such limitation. This it did when it restricted the application of Section 105 in the case of real estate
dealers only to improvements on the real property belonging to their beginning inventory.
xxxx
The statutory definition of the term goods or properties leaves no room for doubt. It
states:chanroblesvirtuallawlibrary
Sec. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. x x x
(1) The term goods or properties shall mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:chanroblesvirtuallawlibrary
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business; x x x.
The amendatory provision of Section 105 of the NIRC, as introduced by RA 7716, states:
Sec. 105. Transitional Input [T]ax Credits. A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed
by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies
equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable against the output tax.
The term goods or properties by the unambiguous terms of Section 100 includes real
properties held primarily for sale to c[u]st[o]mers or held for lease in the ordinary course of
business. Having been defined in Section 100 of the NIRC, the term goods as used in Section
105 of the same code could not have a different meaning. This has been explained in the Decision
dated April 2, 2009, thus:
xxxx
Section 4.105-1 of RR 7-95 restricted the definition of goods, viz.:
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements , such as buildings, roads, drainage systems, and other similar structures, constructed on
or after the effectivity of EO 273 (January 1, 1988).
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot contravene
the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of
the term goods is concerned. This is a legislative act beyond the authority of the CIR and the
Secretary of Finance. The rules and regulations that administrative agencies promulgate, which
are the product of a delegated legislative power to create new and additional legal provisions that

have the effect of law, should be within the scope of the statutory authority granted by the
legislature to the objects and purposes of the law, and should not be in contradiction to, but in
conformity with, the standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the
enabling law. An implementing rule or regulation cannot modify, expand, or subtract from the law it is
intended to implement. Any rule that is not consistent with the statute itself is null and void.
While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to
implement statutes, they are without authority to limit the scope of the statute to less than what it provides,
or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the law.
Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an act of
Congress. Hence, in case of a discrepancy between the basic law and an interpretative or administrative
ruling, the basic law prevails.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional
input tax credit under Section 105 is a nullity.
On January 1, 1997, RR 6-97 was issued by the Commissioner of Internal Revenue. RR 6-97 was
basically a reiteration of the same Section 4.105-1 of RR 7-95, except that the RR 6-97 deleted the
following paragraph:chanroblesvirtuallawlibrary
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on
or after the effectivity of E.O. 273 (January 1, 1988).
It is clear, therefore, that under RR 6-97, the allowable transitional input tax credit is not limited to
improvements on real properties. The particular provision of RR 7-95 has effectively been repealed by RR
6-97 which is now in consonance with Section 100 of the NIRC, insofar as the definition of real properties
as goods is concerned. The failure to add a specific repealing clause would not necessarily indicate that
there was no intent to repeal RR 7-95. The fact that the aforequoted paragraph was deleted created an
irreconcilable inconsistency and repugnancy between the provisions of RR 6-97 and RR 7-95.
xxxx
As pointed out in Our Decision of April 2, 2009, to give Section 105 a restrictive construction that
transitional input tax credit applies only when taxes were previously paid on the properties in the
beginning inventory and there is a law imposing the tax which is presumed to have been paid, is to
impose conditions or requisites to the application of the transitional tax input credit which are not found in
the law. The courts must not read into the law what is not there. To do so will violate the principle of
separation of powers which prohibits this Court from engaging in judicial legislation. 130 (Emphases
added.)
As the Court En Banc held in G.R. No. 173425, the issues in this case are not novel. These same issues
have been squarely ruled upon by this Court in the earlier decided cases that have attained finality. 131
It is now this Courts duty to apply the previous rulings to the present case. Once a case has been
decided one way, any other case involving exactly the same point at issue, as in the present case,
should be decided in the same manner. 132
Thus, we find that petitioner is entitled to a refund of the amounts of: 1) P486,355,846.78 in G.R. No.
175707, 2) P77,151,020.46 in G.R. No. 180035, and 3) P269,340,469.45 in G.R. No. 181092, which
petitioner paid as value-added tax, or to a tax credit for said amounts.
WHEREFORE, in view of the foregoing, the consolidated petitions are hereby GRANTED. The following
are REVERSED and SET ASIDE:
1)

Under G.R. No. 175707, the Decision dated April 22, 2003 of the Court of Appeals inCA-G.R.

2)
3)

SP No. 61516 and its subsequent Resolution dated November 30, 2006;
Under G.R. No. 180035, the Decision dated April 30, 2007 of the Court of Appeals inCA-G.R.
SP No. 76540 and its subsequent Resolution dated October 8, 2007; and
Under G.R. No. 181092, the Decision dated December 28, 2007 of the Court of Appeals
in CA-G.R. SP No. 61158.

Respondent Commissioner of Internal Revenue is ordered to REFUND, OR, IN THE ALTERNATIVE, TO

ISSUE A TAX CREDIT CERTIFICATE to petitioner Fort Bonifacio Development Corporation, the
following amounts:
1)
2)
3)

P486,355,846.78 paid as output value-added tax for the second quarter of 1997 (G.R. No.
175707);
P77,151,020.46 paid as output value-added tax for the first quarter of 1998 (G.R. No.
180035); and
P269,340,469.45 paid as output value-added tax for the fourth quarter of 1996 (G.R. No.
181092).

SO ORDERED.
Sereno, C.J., (Chairperson), Velasco, Jr.,* Perez, and Perlas-Bernabe, JJ., concur.

VAT REFUND
THIRD DIVISION
[G.R. NOS. 141104 & 148763 : June 8, 2007]
ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas
Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the
input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable
quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was
affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was initially
issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the
appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its
principal place of business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August
1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It alleged that it
likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its
purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April 1994
its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a "zero-rated
VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue
(respondent Commissioner) to refund/credit petitioner corporation with the amount of P26,030,460.00,
representing the input VAT it had paid for the first quarter of 1992. The respondent Commissioner
opposed and sought the dismissal of the Petition for Review of petitioner corporation for failure to state a
cause of action. After due trial, the CTA promulgated its Decision4on 24 November 1997 with the
following disposition '
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the ground of
prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax Code, as
amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5 dated 15 April
1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its
Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error in
the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner
corporation was also denied by the Court of Appeals in its Resolution,7 dated 14 December 1999.

Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule 45
of the Revised Rules of Court, assigning the following errors committed by the Court of Appeals '
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE
REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS
(BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT
SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND
RECEIPTS IS NOT A FATAL DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND
THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS
FROM THE FILING OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE
CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except
that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of 1990,
on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate applications
to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and on its zerorated sales, the details of which are presented as follows '
Date of Application

Period Covered

Amount Applied For

21 August 1990

2nd Quarter, 1990

21 November 1990

3rd Quarter, 1990

75,304,774.77

19 February 1991

4th Quarter, 1990

43,829,766.10

P 54,014,722.04

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA
the following petitions for review '
Date Filed

Period Covered

CTA Case No.

20 July 1992

2nd Quarter, 1990

4831

9 October 1992

3rd Quarter, 1990

4859

14 January 1993

4th Quarter, 1990

4944

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions and
prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in its
Decision,9dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive
periods for filing the same had expired. In a Resolution,10 dated 15 January 1998, the CTA denied the
motion for reconsideration of petitioner corporation since the latter presented no new matter not already
discussed in the court's prior Decision. In the same Resolution, the CTA also denied the alternative
prayer of petitioner corporation for a new trial since it did not fall under any of the grounds cited under
Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of merits required
by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP
No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding that although
petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its
claims for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution, 12 dated 27
June 2001, the appellate court denied the motion for reconsideration of petitioner corporation, finding no
cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues '
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS
BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic]
THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE
FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO
GRANT PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. NOS. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of this
Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims of
petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue Regulations No.
2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating of its sales, the
burden of proving that the buyer companies were not just BOI-registered but also exporting 70% of their
total annual production; (3) sufficiency of evidence presented by petitioner corporation to establish that it
is indeed entitled to input VAT refund/credit; and (4) legal ground for granting the motion of petitioner
corporation for re-opening of its cases or holding of new trial before the CTA so it could be given the
opportunity to present the required evidence.
Prescription

The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales made
in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as amended, which
provided that '
SEC. 106. Refunds or tax credits of input tax. - x x x.
(b) Zero-rated or effectively zero-rated sales. - Any person, except those covered by paragraph (a) above,
whose sales are zero-rated may, within two years after the close of the quarter when such sales were
made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such
sales to the extent that such input tax has not been applied against output tax.
xxx
(e) Period within which refund of input taxes may be made by the Commissioner. - The Commissioner
shall refund input taxes within 60 days from the date the application for refund was filed with him or his
duly authorized representative. No refund of input taxes shall be allowed unless the VAT-registered
person files an application for refund within the period prescribed in paragraphs (a), (b) and (c) as the
case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application for
refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter when
such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not from the
close of the quarter when the zero-rated sales were made, but from the date of filing of the quarterly VAT
return and payment of the tax due 20 days thereafter, in accordance with Section 110(b) of the Tax Code
of 1977, as amended, quoted as follows '
SEC. 110. Return and payment of value-added tax. - x x x.
(b) Time for filing of return and payment of tax. - The return shall be filed and the tax paid within 20 days
following the end of each quarter specifically prescribed for a VAT-registered person under regulations to
be promulgated by the Secretary of Finance: Provided, however,That any person whose registration is
cancelled in accordance with paragraph (e) of Section 107 shall file a return within 20 days from the
cancellation of such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section 230 13 of the Tax Code of
1977, as amended, was to be counted from the filing of the final adjustment return. This Court already set
out inACCRA Investments Corporation v. Court of Appeals,14 the rationale for such a rule, thus '
Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the
respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting
to ask for a refund must show in its final adjustment return the income it received from all sources and the
amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The
petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our
Resolution dated April 10, 1989 in the case ofCommissioner of Internal Revenue v. Asia Australia
Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence,
the petitioner corporation had until April 15, 1984 within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent
Commissioner who failed to take any action thereon and considering further that the non-resolution of its

claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the Court of
Tax Appeals through a Petition for Review on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim for refund was
barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the
fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its
business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if
any, fell due upon its filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further expounded on
the same matter '
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted
under the circumstances to lay down a categorical pronouncement on the question as to when the twoyear prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown
decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals
in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to
the other provisions of the Tax Code in order to give effect the legislative intent and to avoid an
application of the law which may lead to inconvenience and absurdity. In the case ofPeople v. Rivera (59
Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give
effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO
TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where
there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted.
Furthermore, courts must give effect to the general legislative intent that can be discovered from or is
unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and
not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. v. Court of
Appeals, et al.73 SCRA 162 [1976) Every section, provision or clause of the statute must be expounded
by reference to each other in order to arrive at the effect contemplated by the legislature. The intention of
the legislator must be ascertained from the whole text of the law and every part of the act is to be taken
into view. (Chartered Bank v. Imperial, 48 Phil. 931 [1921]; Lopez v. El Hoger Filipino, 47 Phil. 249, cited
in Aboitiz Shipping Corporation v. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section
230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly
Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping
of books of accounts. All these provisions of the Tax Code should be harmonized with each other.
xxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere
installments of the annual tax due. These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be
treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or
fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year prescriptive period provided in
Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the
Adjustment Return or Annual Income Tax Return and final payment of income tax.

In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that
when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section
292) of the National Internal Revenue Code should be counted from the date of the final payment. This
ruling is reiterated in Commissioner of Internal Revenue v. Carlos Palanca (18 SCRA 496 [1966]),
wherein this Court stated that where the tax account was paid on installment, the computation of the twoyear prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the
last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15,1982, TMX
Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for
claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at bar
involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but is
eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid on a
purely quarterly basis without need for a final adjustment at the end of the taxable year. However, it is
also equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR its
quarterly VAT return, there is no way of knowing with certainty just how much input VAT 16 the taxpayer
may apply against its output VAT;17 how much output VAT it is due to pay for the quarter or how much
excess input VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as
refund/credit. It should be recalled that not only may a VAT-registered taxpayer directly apply against his
output VAT due the input VAT it had paid on its importation or local purchases of goods and services
during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to
the succeeding quarters for application against its future output VAT liabilities, or (2) file an application for
refund or issuance of a tax credit certificate covering the amount of such input VAT.18 Hence, even in the
absence of a final adjustment return, the determination of any output VAT payable necessarily requires
that the VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into
consideration the input VAT which are creditable for the present quarter or had been carried over from the
previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does
have refundable or creditable input VAT, and the same has not been applied against its output VAT
liabilities - information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the taxable
quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or
erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by the
very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously
collected national internal revenue tax, consists of monetary amounts which are currently in the hands of
the government but must rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit
of illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer must be
given equal opportunity for filing and pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period for
filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return and
payment of the tax due which, according to the law then existing, should be made within 20 days from the
end of each quarter. Having established thus, the relevant dates in the instant cases are summarized and
reproduced below '

Period Covered

Date of
Filing(Return w/
BIR)

Date of
Filing (Application w/
BIR)

Date of Filing (Case

w/ CTA)

2nd Quarter, 1990

20 July 1990

21 August 1990

20 July 1992

3rd Quarter, 1990

18 October 1990

21 November 1990

9 October 1992

4th Quarter, 1990

20 January 1991

19 February 1991

14 January 1993

1st Quarter, 1992

20 April 1992

--

20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within the
prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on its
zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner corporation filed in
time its judicial claim with the CTA, there is no showing that it had previously filed an administrative claim
with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly provided that no refund of
input VAT shall be allowed unless the VAT-registered taxpayer filed an application for refund with
respondent Commissioner within the two-year prescriptive period. The application of petitioner
corporation for refund/credit of its input VAT for the first quarter of 1992 was not only unsigned by its
supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not
dated, stamped, and initialed by the BIR official who purportedly received the same. The CTA, in its
Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations '
This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT Paid (BIR
Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on account of the fact that it
does not bear the BIR stamp showing the date when such application was filed together with the
signature or initial of the receiving officer of respondent's Bureau. Worse still, it does not show the date of
application and the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be
petitioner's authorized filer.
A review of the records reveal that the original of the aforecited application was lost during the time
petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made to prove that
petitioner exerted efforts to recover the original copy, but to no avail. Despite this, however, We observe
that petitioner completely failed to establish the missing dates and signatures abovementioned. On this
score, said application has no probative value in demonstrating the fact of its filing within two years after
the [filing of the VAT return for the quarter] when petitioner's sales of goods were made as prescribed
under Section 106(b) of the Tax Code. We believe thus that petitioner failed to file an application for
refund in due form and within the legal period set by law at the administrative level. Hence, the case at
bar has failed to satisfy the requirement on the prior filing of an application for refund with the respondent
before the commencement of a judicial claim for refund, as prescribed under Section 230 of the Tax Code.
This fact constitutes another one of the many reasons for not granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely
filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also whether
petitioner corporation actually filed such administrative claim in the first place. For failing to prove that it
had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of 1992,
within the period prescribed by law, then the case instituted by petitioner corporation with the CTA for the
refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VAT-registered persons to 0% VAT '
(1) Export sales; andcralawlibrary
(2) Sales to persons or entities whose exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects such sales to zero-rate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported, or foreign currency denominated sales.
"Foreign currency denominated sales", means sales to nonresidents of goods assembled or
manufactured in the Philippines, for delivery to residents in the Philippines and paid for in convertible
foreign currency remitted through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT
purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or
services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be available as tax credit or refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales to
Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS), both
of which are registered not only with the BOI, but also with the then Export Processing Zone Authority
(EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read '
SEC. 2. Zero-rating. - (a) Sales of raw materials to BOI-registered exporters. - Sales of raw materials to
export-oriented BOI-registered enterprises whose export sales, under rules and regulations of the Board
of Investments, exceed seventy percent (70%) of total annual production, shall be subject to zero-rate
under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zero-rating for each and
every separate buyer, in accordance with Section 8(d) of Revenue Regulations No. 5-87. The application
should be accompanied with a favorable recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or
repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter
(buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax
credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. - Sales of raw materials to a nonresident foreign buyer for
delivery to a resident local export-oriented BOI-registered enterprise to be used in manufacturing,
processing or repacking of the said buyer's goods and paid for in foreign currency, inwardly remitted in
accordance with Central Bank rules and regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that
Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled to
the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller,

must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that
more than 70% of the total annual production of these corporations are actually exported. Revenue
Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented corporations
registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds that
its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOIregistered enterpriseswhose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales
made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that
PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the EPZA
and located within an export-processing zone. Petitioner corporation does not claim that its sales to
PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-oriented BOIregistered corporations, but rather, on the basis that the sales were made to EPZA-registered enterprises
operating within export processing zones. Although sales to export-oriented BOI-registered enterprises
and sales to EPZA-registered enterprises located within export processing zones were both deemed
export sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0%
VAT distinction must be made between these two types of sales because each may have different
substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the
goods so exported, or foreign currency denominated sales." Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987 - which, in the years concerned (i.e., 1990 and 1992),
governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition
of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of
lading, inward letters of credit, landing certificates, and other commercial documents, of export products
exported directly by a registered export producer or the net selling price of export product sold by a
registered export producer or to an export trader that subsequently exports the same: Provided, That
sales of export products to another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates of similar commercial
documents: Provided, further, That without actual exportation the following shall be
considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing
warehouses of export-oriented manufacturers; (2)sales to export processing zones; (3) sales to registered
export traders operating bonded trading warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of Internal
Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other
agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked
products whether paid for in foreign currency or not: Provided, further, That export sales of registered
export trader may include commission income; and Provided, finally, That exportation of goods on
consignment shall not be deemed export sales until the export products consigned are in fact sold by the
consignee.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad
and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government and paid for in convertible foreign currency inwardly remitted through
the Philippine banking systems shall also be considered export sales. (Underscoring ours.)

The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the sales
of export products to another producer or to an export trader, provided that the export products are
actually exported. For purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing zones
are subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of goods
or merchandise brought into the export processing zones. Of particular relevance herein is paragraph 2,
which provides that "Merchandise purchased by a registered zone enterprise from the customs territory
and subsequently brought into the zone, shall be considered as export sales and the exporter thereof
shall be entitled to the benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According
to the Destination Principle,22 goods and services are taxed only in the country where these are
consumed. In connection with the said principle, the Cross Border Doctrine 23 mandates that no VAT shall
be imposed to form part of the cost of the goods destined for consumption outside the territorial border of
the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country
must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed
with 10% VAT.24 Export processing zones25 are to be managed as a separate customs territory from the
rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those inside the export processing
zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales, which, under
the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to exportoriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises operating within
export processing zones is actually supported by subsequent development in tax laws and regulations. In
Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the BIR defined with
more precision what are zero-rated export sales '
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable
year shall be considered an export-oriented enterprise upon accreditation as such under the provisions of
the Export Development Act (R.A. 7844) and its implementing rules and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); andcralawlibrary

(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise
known as the Bases Conversion and Development Act of 1992.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which are
subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied to
zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied to the
applications for refund/credit of input VAT filed by petitioner corporation since it based its applications on
the zero-rating of export sales to enterprises registered with the EPZA and located within export
processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual bases
of its claim for tax credit or refund, but once it has submitted all the required documents, it is the function
of the BIR to assess these documents with purposeful dispatch. 28 It therefore falls upon herein petitioner
corporation to first establish that its sales qualify for VAT zero-rating under the existing laws (legal basis),
and then to present sufficient evidence that said sales were actually made and resulted in refundable or
creditable input VAT in the amount being claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation cover only
input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough
perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it is
also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the Central
Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient legal
bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax
Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises
operating within export processing zones and registered with the EPZA, since such export sales were
deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom petitioner
corporation sold its products, were operating inside an export processing zone and duly registered with
EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in
the case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal
Revenue.30 Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to apply for
refund/credit of the input VAT paid on capital goods imported or locally purchased to the extent that such
input VAT has not been applied against its output VAT. Meanwhile, the effective zero-rating of sales of
gold to the CBP from 1989 to 199131 was already affirmed by this Court in Commissioner of Internal
Revenue v. Benguet Corporation,32 wherein it ruled that '
At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon
by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted Sec.
100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the
Central Bank shall be considered export and therefore shall be subject to the export and premium duties.
In coming out with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960
which states that all sales of gold to the Central Bank are considered constructive exports. x x x.

This Court now comes to the question of whether petitioner corporation has sufficiently established the
factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which provided as follows '
SECTION 16. Refunds or tax credits of input tax.'
xxx
(c) Claims for tax credits/refunds. - Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form
No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal
place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted
together with the application. The original copy of the said invoice/receipt, however, shall be presented for
cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:
xxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the first time.
"ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services
were delivered, date of delivery, amount of consideration, and description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of valueadded tax paid and description of the capital equipment locally purchased.
"ii) with respect to capital equipment imported, the photo copy of import entry document for internal
revenue tax purposes and the confirmation receipt issued by the Bureau of Customs for the payment of
the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government agencies, a statement
therefrom showing the amount and description of sale of goods and services, name of persons or entities
(except in case of exports) to whom the goods or services were sold, and date of transaction shall also be
submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the
value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the
period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services,
and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the
aforementioned transactions, the following formula shall be used to determine the creditable or
refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR,
and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition
for Review before the CTA. If the taxpayer's claim is supported by voluminous documents, such as
receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by
CTA Circular No. 1-95, as amended, reproduced in full below '
In the interest of speedy administration of justice, the Court hereby promulgates the following rules
governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices
and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of
Court and the doctrine enunciated in Compania Maritima v. Allied Free Workers Union (77 SCRA 24), as
well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and
approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts
covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent
Certified Public Accountant attesting to the correctness of the contents of the summary after making an
examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant
or partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the
Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification
pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking,
identification and comparison with the originals thereof need not be done before the Court or Clerk of
Court anymore after the introduction of the summary and CPA certification. It is enough that the receipts,
invoices, vouchers or other documents covering the said accounts or payments to be introduced in
evidence must be pre-marked by the party concerned and submitted to the Court in order to be made
accessible to the adverse party who desires to check and verify the correctness of the summary and CPA
certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for
verification and comparison in case doubt on the authenticity thereof is raised during the hearing or
resolution of the formal offer of evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the said
Circular was issued, then petitioner corporation must have complied therewith during the course of the
trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-rated
sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this Court
emphasized the importance of complying with the substantiation requirements for claiming refund/credit
of input VAT on zero-rated sales, to wit '
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT
registered entity and that it filed its claims within the prescriptive period. It mustsubstantiate the input
VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the requirements in
claiming tax credits/refunds.
xxx
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before it are
litigated de novo, party litigants should prove every minute aspect of their cases. No evidentiary value can
be given the purchase invoices or receipts submitted to the BIR as the rules on documentary evidence
require that these documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does
not ipso fact mean that [the seller] is entitled to the amount of refund sought as it is required by law to
present evidence showing the input taxes it paid during the year in question. What is being claimed in the
instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of goods and
services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the input taxes
during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not adduce in
evidence the sales invoice, receipts or other documents showing the input value added tax on the
purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the
Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial
(trial de novo) where the parties must present their evidence accordingly if they desire the Court to
take such evidence into consideration. (Emphasis and italics supplied)
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.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount
or quantity of goods sold and their selling price, and taken collectively are the best means to prove the
input VAT payments.36

Although the foregoing decision focused only on the proof required for the applicant for refund/credit to
establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations No.
3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such as
(1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or receipt
showing the name of the person or entity to whom the goods or services were delivered, date of delivery,
amount of consideration, and description of goods or services delivered; and (3) the evidence of actual
receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus '
Respondent contends, however, that the certification of the independent CPA attesting to the correctness
of the contents of the summary of suppliers' invoices or receipts which were examined, evaluated and
audited by said CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97
should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which
either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if
certified by an independent CPA, suffice as evidence of input VAT payments.
xxx
The circular, in the interest of speedy administration of justice, was promulgated to avoid the timeconsuming procedure of presenting, identifying and marking of documents before the Court. It does not
relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices
and submitting the same to the court after the independent CPA shall have examined and compared
them with the originals. Without presenting these pre-marked documents as evidence - from which the
summary and schedules were based, the court cannot verify the authenticity and veracity of the
independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to
confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 5-87, all purchases
covered by invoices other than a VAT invoice shall not be entitled to a refund of input VAT.
xxx
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends
in themselves but are primarily intended as tools in the administration of justice, the presentation of the
purchase receipts and/or invoices is not mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify the truth of the
respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for input VAT refund
for the first semester of 1991. Except for the summary and schedules of input VAT payments prepared by
respondent itself, no other evidence was adduced in support of its claim.
As for respondent's claim for input VAT refund for the second semester of 1991, it employed the services
of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments made by the Makati
Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination
included inspection of the pertinent suppliers' invoices and official receipts and such other auditing
procedures as we considered necessary in the circumstances. x x x

As the certification merely stated that it used "auditing procedures considered necessary" and not auditing
procedures which are in accordance with generally accepted auditing principles and standards, and that
the examination was made on "input tax payments by the Manila Mining Corporation," without specifying
that the said input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot
rely thereon and regard it as sufficient proof of the respondent's input VAT payments for the second
semester.37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-rated
sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to comply
with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive period for
the filing of the application for refund/credit thereof. This bars the grant of the application for refund/credit,
whether administratively or judicially, by express mandate of Section 106(e) of the same Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT on
its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation still
failed to present together with its application the required supporting documents, whether before the BIR
or the CTA. As the Court of Appeals ruled '
In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the
taxpayer. As clearly discussed in the CTA's decision, petitioner failed to substantiate its claim for tax
refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations No. 2-88
in determining compliance with the documentary requirements for a successful refund or issuance of tax
credit. Unmentioned is the applicable and specific amendment later introduced by Revenue Regulations
No. 3-88 dated April 7, 1988 (issued barely after two months from the promulgation of Revenue
Regulations No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations No. 587 on refunds or tax credits of input tax. x x x.
xxx
"A thorough examination of the evidence submitted by the petitioner before this court reveals outright the
failure to satisfy documentary requirements laid down under the above-cited regulations. Specifically,
petitioner was not able to present the following documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment locally purchased;
andcralawlibrary
"f) photocopy of import entry document and confirmation receipt on imported capital equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain the actual amount or
quantity of goods sold and their selling price. Without them, this Court cannot verify the correctness of
petitioner's claim inasmuch as the regulations require that the input taxes being sought for refund should
be limited to the portion that is directly and entirely attributable to the particular zero-rated transaction. In
this instance, the best evidence of such transaction are the said sales invoices or receipts.

"Also, even if sales invoices are produced, there is the further need to submit evidence that such goods
were actually received by the buyer, in this case, by CBP, Philp[h]os and PASAR.
xxx
"Lastly, this Court cannot determine whether there were actual local and imported purchase of capital
goods as well as domestic purchase of non-capital goods without the required purchase invoice or receipt,
as the case may be, and confirmation receipts.
"There is, thus, the imperative need to submit before this Court the original or attested photocopies of
petitioner's invoices or receipts, confirmation receipts and import entry documents in order that a full
ascertainment of the claimed amount may be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the missing
documents abovementioned. Cases filed before this Court are litigated de novo. This means that party
litigants should endeavor to prove at the first instance every minute aspect of their cases strictly in
accordance with the Rules of Court, most especially on documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority,
and should be construed in strictissimi juris against the person or entity claiming the exemption. The
taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law
and should not be permitted to stand on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466;
Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30
SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and
Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-destructive", as
it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose of the Company. We make
no presentation regarding the sufficiency of these procedures for such purpose. We did not compare the
total of the input tax claimed each quarter against the pertinent VAT returns and books of accounts. The
above procedures do not constitute an audit made in accordance with generally accepted auditing
standards. Accordingly, we do not express an opinion on the company's claim for input VAT refund or
credit. Had we performed additional procedures, or had we made an audit in accordance with generally
accepted auditing standards, other matters might have come to our attention that we would have
accordingly reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent auditor. Indeed,
SGV expressed that it "did not compare the total of the input tax claimed each quarter against the VAT
returns and books of accounts."38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its
zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found that
petitioner corporation failed to sufficiently establish its claims. Already disregarding the declarations made
by the Court of Appeals on its erroneous application of Revenue Regulations No. 2-88, quoted hereunder
is the rest of the findings of the appellate court after evaluating the evidence submitted in accordance with
the requirements under Revenue Regulations No. 3-88 '
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec. 245 of
the National Internal Revenue Code, which recognized his power to "promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code." Thus, it is incumbent upon a
taxpayer intending to file a claim for refund of input VATs or the issuance of a tax credit certificate with the

BIR x x x to prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the
same evidence should be presented in support of an action to recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing sales of gold,
copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and the dates and
amounts of the same, nor any evidence of actual receipt by the said buyers of the mineral products. It
merely presented receipts of purchases from suppliers on which input VATs were allegedly paid. Thus,
the Court of Tax Appeals correctly denied the claims for refund of input VATs or the issuance of tax credit
certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this Court
directed the parties to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including
the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the Court
of Tax Appeals on this point.39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is
the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals, by
way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are conclusive. 40 This Court is not a trier of
facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence
presented.41
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here
is a question of law in a given case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales
in the amount it had declared in its returns; whether all the input VAT subject of its applications for
refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input
VAT against its output VAT liabilities, are all questions of fact which could only be answered after
reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and which
this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under Rule
45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact under
particular circumstances,43 none of these exist in the instant cases. The Court of Appeals, in both cases,
found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its noncompliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95,
as amended. It concentrated its arguments on its assertion that the substantiation requirements under
Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the
evidentiary requirements mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening of
its cases or holding of new trial before the CTA for the reception of additional evidence, may be granted.
Petitioner corporation prays that the Court exercise its discretion on the matter in its favor, consistent with
the policy that rules of procedure be liberally construed in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in
accordance with Section 1, Rule 37 of the revised Rules of Court, which provides '

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. - Within the period for
taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and
grant a new trial for one or more of the following causes materially affecting the substantial rights of said
party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded
against and by reason of which such aggrieved party has probably been impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and
produced at the trial, and which if presented would probably alter the result.
Within the same period, the aggrieved party may also move fore reconsideration upon the grounds that
the damages awarded are excessive, that the evidence is insufficient to justify the decision or final order,
or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases
and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to adduce the
necessary evidence should be construed as excusable negligence or mistake which should constitute
basis for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was
rendered unnecessary by the presentation of unrebutted evidence indicating that respondent
[Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated." 44 The
CTA denied such motion on the ground that it was not accompanied by an affidavit of merit as required by
Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed the denial of the motion,
but apart from this technical defect, it also found that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an affidavit
of merit, this Court rules in favor of the petitioner corporation. The facts which should otherwise be set
forth in a separate affidavit of merit may, with equal effect, be alleged and incorporated in the motion
itself; and this will be deemed a substantial compliance with the formal requirements of the law, provided,
of course, that the movant, or other individual with personal knowledge of the facts, take oath as to the
truth thereof, in effect converting the entire motion for new trial into an affidavit.45 The motion of petitioner
corporation was prepared and verified by its counsel, and since the ground for the motion was premised
on said counsel's excusable negligence or mistake, then the obvious conclusion is that he had personal
knowledge of the facts relating to such negligence or mistake. Hence, it can be said that the motion of
petitioner corporation for the re-opening of its cases and/or holding of new trial was in substantial
compliance with the formal requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the reopening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution, 46 dated 20 July 1998, by the CTA in
another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of input
VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296,
earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing
export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial court, 47 may
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower court,
this Court will not interfere with its exercise, unless there is proof of grave abuse thereof. 48
That the CTA granted the motion for re-opening of one case for the presentation of additional evidence
and, yet, deny a similar motion in another case filed by the same party, does not necessarily demonstrate
grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases involve identical

parties, the causes of action and the evidence to support the same can very well be different. As can be
gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner corporation was
claiming refund/credit of the input VAT on its zero-rated sales, consisting of actual export sales, to
Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account the presentation by petitioner
corporation of inward remittances of its export sales for the quarter involved, its Supply Contract with
Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales to the said foreign corporation,
and its application for refund. In contrast, the present Petitions involve the claims of petitioner corporation
for refund/credit of the input VAT on its purchases of capital goods and on its effectively zero-rated
sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the second, third, and fourth
quarters of 1990 and first quarter of 1992. There being a difference as to the bases of the claims of
petitioner corporation for refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar,
then, there are resulting variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner
corporation, emphasizes that the decision of the CTA to allow petitioner corporation to present evidence
"is applicable pro hac vice or in this occasion only as it is the finding of [the CTA] that petitioner
[corporation] has established a few of the aforementioned material points regarding the possible
existence of the export documents together with the prior and succeeding returns for the quarters
involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its
ruling in CTA Case No. 5296, when these cases do not involve the exact same circumstances that
compelled it to grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the required documents was due
to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute excusable
negligence or mistake which would warrant the re-opening of the cases and/or holding of new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What the
aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask for
the reversal of the court's ruling.49
As elucidated by this Court in another case,50 the general rule is that the client is bound by the action of
his counsel in the conduct of his case and he cannot therefore complain that the result of the litigation
might have been otherwise had his counsel proceeded differently. It has been held time and again that
blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the
ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If such were
to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as
a new counsel could be employed to allege and show that the prior counsel had not been sufficiently
diligent, experienced or learned.
Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could not
have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988, had
been in effect more than two years prior to the filing by petitioner corporation of its earliest application for
refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only on
25 January 1995, after petitioner corporation had filed its Petitions before the CTA, but still during the
pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner corporation
does not allege ignorance of the foregoing administrative regulation and tax court circular, only that he no
longer deemed it necessary to present the documents required therein because of the presentation of
alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment call made
by the counsel as to which evidence to present in support of his client's cause, later proved to be unwise,
but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under Section
1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred to in the
said rule, must be a mistake of fact, not of law, which relates to the case. 52 In the present case, the
supposed mistake made by the counsel of petitioner corporation is one of law, for it was grounded on his
interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended,
did not apply to his client's cases and that there was no need to comply with the documentary
requirements set forth therein. And although the counsel of petitioner corporation advocated an erroneous
legal position, the effects thereof, which did not amount to a deprivation of his client's right to be heard,
must bind petitioner corporation. The question is not whether petitioner corporation succeeded in
establishing its interests, but whether it had the opportunity to present its side. 53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the ground
of mistake must show that ordinary prudence could not have guarded against it. A new trial is not a refuge
for the obstinate.54 Ordinary prudence in these cases would have dictated the presentation of all available
evidence that would have supported the claims for refund/credit of input VAT of petitioner corporation.
Without sound legal basis, counsel for petitioner corporation concluded that Revenue Regulations No. 388, and later on, CTA Circular No. 1-95, as amended, did not apply to its client's claims. The obstinacy of
petitioner corporation and its counsel is demonstrated in their failure, nay, refusal, to comply with the
appropriate administrative regulations and tax court circular in pursuing the claims for refund/credit, now
subject of G.R. NOS. 141104 and 148763, even though these were separately instituted in a span of
more than two years. It is also evident in the failure of petitioner corporation to address the issue and to
present additional evidence despite being given the opportunity to do so by the Court of Appeals. As
pointed out by the appellate court, in its Decision, dated 15 September 2000, in CA-G.R. SP No. 46718 '
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda
discussing, among others, the submission of proof for "its [petitioner's] sales of gold, copper concentrates,
and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this issue,
thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point. 55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period for
the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly
VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones
were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the
claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively
zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of 1992, for not
being established and substantiated by appropriate and sufficient evidence. Petitioner corporation is also
not entitled to the re-opening of its cases and/or holding of new trial since the non-presentation of the
required documentary evidence before the BIR and the CTA by its counsel does not constitute excusable
negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos. 47607
and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

SECOND DIVISION
[G.R. NO. 172129, September 12, 2008]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. MIRANT PAGBILAO CORPORATION
(FORMERLY SOUTHERN ENERGY QUEZON, INC.), Respondent.
DECISION
VELASCO JR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 assailing and seeking to set aside the
Decision1 dated December 22, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 78280 which
modified the March 18, 2003 Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 6133
entitled Mirant Pagbilao Corporation (Formerly Southern Energy Quezon, Inc.) v. Commissioner of
Internal Revenue and ordered the Bureau of Internal Revenue (BIR) to refund or issue a tax credit
certificate (TCC) in favor of respondent Mirant Pagbilao Corporation (MPC) in the amount representing its
unutilized input value added tax (VAT) for the second quarter of 1998. Also assailed is the CA's
Resolution3 of March 31, 2006 denying petitioner's motion for reconsideration.
The Facts
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation,
is a domestic firm engaged in the generation of power which it sells to the National Power Corporation
(NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon
plant, which appears to have been undertaken from 1993 to 1996, MPC secured the services of
Mitsubishi Corporation (Mitsubishi) of Japan.
Under Section 134 of Republic Act No. (RA) 6395, the NPC's revised charter, NPC is exempt from all
taxes. In Maceda v. Macaraig,5 the Court construed the exemption as covering both direct and indirect
taxes.
In the light of the NPC's tax exempt status, MPC, on the belief that its sale of power generation services
to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code,6 zero-rated for VAT purposes, filed on December
1, 1997 with Revenue District Office (RDO) No. 60 in Lucena City an Application for Effective Zero Rating.
The application covered the construction and operation of its Pagbilao power station under a Build,
Operate, and Transfer scheme.
Not getting any response from the BIR district office, MPC refiled its application in the form of a "request
for ruling" with the VAT Review Committee at the BIR national office on January 28, 1999. On May 13,
1999, the Commissioner of Internal Revenue issued VAT Ruling No. 052-99, stating that "the supply of
electricity by Hopewell Phil. to the NPC, shall be subject to the zero percent (0%) VAT, pursuant to
Section 108 (B) (3) of the National Internal Revenue Code of 1997."
It must be noted at this juncture that consistent with its belief to be zero-rated, MPC opted not to pay the
VAT component of the progress billings from Mitsubishi for the period covering April 1993 to September
1996--for the E & M Equipment Erection Portion of MPC's contract with Mitsubishi. This prompted
Mitsubishi to advance the VAT component as this serves as its output VAT which is essential for the
determination of its VAT payment. Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi the
VAT component for the progress billings from April 1993 to September 1996, and for which Mitsubishi
issued Official Receipt (OR) No. 0189 in the aggregate amount of PhP 135,993,570.
On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT
return for the second quarter of 1998 where it reflected an input VAT of PhP 148,003,047.62, which
included PhP 135,993,570 supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue

Regulations No. 7-95, MPC filed on December 20, 1999 an administrative claim for refund of unutilized
input VAT in the amount of PhP 148,003,047.62.
Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of
the two-year prescriptive period under Sec. 229 of the National Internal Revenue Code (NIRC), MPC
went to the CTA via a petition for review, docketed as CTA Case No. 6133.
Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd. v. CIR,7 asserted that
MPC's claim for refund cannot be granted for this main reason: MPC's sale of electricity to NPC is not
zero-rated for its failure to secure an approved application for zero-rating.
Before the CTA, among the issues stipulated by the parties for resolution were, in gist, the following:
1. Whether or not [MPC] has unapplied or unutilized creditable input VAT for the 2nd quarter of 1998
attributable to zero-rated sales to NPC which are proper subject for refund pursuant to relevant
provisions of the NIRC;
2. Whether the creditable input VAT of MPC for said period, if any, is substantiated by documents;
and
3. Whether the unutilized creditable input VAT for said quarter, if any, was applied against any of the
VAT output tax of MPC in the subsequent quarter.
To provide support to the CTA in verifying and analyzing documents and figures and entries contained
therein, the Sycip Gorres & Velayo (SGV), an independent auditing firm, was commissioned.
The Ruling of the CTA
On the basis of its affirmative resolution of the first issue, the CTA, by its Decision dated March 18, 2003,
granted MPC's claim for input VAT refund or credit, but only for the amount of PhP 10,766,939.48.
The fallo of the CTA's decision reads:
In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is
hereby ORDERED to REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the
petitioner its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the
second quarter of 1998 in the reduced amount of P10,766,939.48, computed as follows:
Claimed Input VAT
Less: Disallowances
a.) As summarized by SGV & Co. in its initial report (Exh. P)
I.
Input Taxes on Purchases of Services:
1. Supported by documents other than VAT Ors
2. Supported by photocopied VAT OR
II. Input Taxes on Purchases of Goods:
1. Supported by documents other than VAT invoices
2. Supported by Invoices with TIN only
3. Supported by photocopied VAT invoices
III. Input Taxes on Importation of Goods:
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs
(BOC) Ors]
2. Supported by broker's computations
b.) Input taxes without supporting documents as
summarized in Annex A of SGV & Co.'s
supplementary report (CTA records, page 134)
c.) Claimed input taxes on purchases of services from

P148,003,047.62

P 10,629.46
879.09
165,795.70
1,781.82
3,153.62

716,250.00
91,601.00

990,090.69

252,447.45

Mitsubishi Corp. for being substantiated by dubious OR

Refundable Input

135,996,570.008
P10,766,939.48

SO ORDERED.9
Explaining the disallowance of over PhP 137 million claimed input VAT, the CTA stated that most of
MPC's purchases upon which it anchored its claims for refund or tax credit have not been amply
substantiated by pertinent documents, such as but not limited to VAT ORs, invoices, and other supporting
documents. Wrote the CTA:
We agree with the above SGV findings that out of the remaining taxes of P136,246,017.45, the amount of
P252,477.45 was not supported by any document and should therefore be outrightly disallowed.
As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less P252,477.45 ) on purchases of
services from Mitsubishi Corporation, Japan, the same is found to be of doubtful veracity. While it is true
that said amount is substantiated by a VAT official receipt with Serial No. 0189 dated April 14, 1998 x x x,
it must be observed, however, that said VAT allegedly paid pertains to the services which were rendered
for the period 1993 to 1996. x x x
The Ruling of the CA
Aggrieved, MPC appealed the CTA's Decision to the CA via a petition for review under Rule 43, docketed
as CA-G.R. SP No. 78280. On December 22, 2005, the CA rendered its assailed decision modifying that
of the CTA decision by granting most of MPC's claims for tax refund or credit. And in a Resolution of
March 31, 2006, the CA denied the BIR Commissioner's motion for reconsideration. The decretal portion
of the CA decision reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Decision of the
Court of Tax Appeals dated March 18, 2003 is hereby MODIFIED. Accordingly, respondent
Commissioner of Internal Revenue is ordered to refund or issue a tax credit certificate in favor of
petitioner Mirant Pagbilao Corporation its unutilized input VAT payments directly attributable to its
effectively zero-rated sales for the second quarter of 1998 in the total amount of P146,760,509.48.
SO ORDERED.10
The CA agreed with the CTA on MPC's entitlement to (1) a zero-rating for VAT purposes for its sales and
services to tax-exempt NPC; and (2) a refund or tax credit for its unutilized input VAT for the second
quarter of 1998. Their disagreement, however, centered on the issue of proper documentation,
particularly the evidentiary value of OR No. 0189.
The CA upheld the disallowance of PhP 1,242,538.14 representing zero-rated input VAT claims
supported only by photocopies of VAT OR/Invoice, documents other than VAT Invoice/OR, and mere
broker's computations. But the CA allowed MPC's refund claim of PhP 135,993,570 representing input
VAT payments for purchases of goods and/or services from Mitsubishi supported by OR No. 0189. The
appellate court ratiocinated that the CTA erred in disallowing said claim since the OR from Mitsubishi was
the best evidence for the payment of input VAT by MPC to Mitsubishi as required under Sec. 110(A)(1)(b)
of the NIRC. The CA ruled that the legal requirement of a VAT Invoice/OR to substantiate creditable input
VAT was complied with through OR No. 0189 which must be viewed as conclusive proof of the payment
of input VAT. To the CA, OR No. 0189 represented an undisputable acknowledgment and receipt by
Mitsubishi of the input VAT payment of MPC.
The CA brushed aside the CTA's ruling and disquisition casting doubt on the veracity and genuineness of
the Mitsubishi-issued OR No. 0189. It reasoned that the issuance date of the said receipt, April 14, 1998,
must be taken conclusively to represent the input VAT payments made by MPC to Mitsubishi as MPC had
no real control on the issuance of the OR. The CA held that the use of a different exchange rate reflected
in the OR is of no consequence as what the OR undeniably attests and acknowledges was Mitsubishi's
receipt of MPC's input VAT payment.
The Issue

Hence, the instant petition on the sole issue of "whether or not respondent [MPC] is entitled to the refund
of its input VAT payments made from 1993 to 1996 amounting to [PhP] 146,760,509.48" 11
The Court's Ruling
As a preliminary matter, it should be stressed that the BIR Commissioner, while making reference to the
figure PhP 146,760,509.48, joins the CA and the CTA on their disposition on the propriety of the refund of
or the issuance of a TCC for the amount of PhP 10,766,939.48. In fine, the BIR Commissioner trains his
sight and focuses his arguments on the core issue of whether or not MPC is entitled to a refund for PhP
135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48 = PhP 135,993,570) it allegedly paid as
creditable input VAT for services and goods purchased from Mitsubishi during the 1993 to 1996 stretch.
The divergent factual findings and rulings of the CTA and CA impel us to evaluate the evidence adduced
below, particularly the April 14, 1998 OR 0189 in the amount of PhP 135,996,570 [for US$ 5,190,000 at
US$1: PhP 26.203 rate of exchange]. Verily, a claim for tax refund may be based on a statute granting
tax exemption, or, as Commissioner of Internal Revenue v. Fortune Tobacco Corporation12 would have it,
the result of legislative grace. In such case, the claim is to be construedstrictissimi juris against the
taxpayer,13 meaning that the claim cannot be made to rest on vague inference. Where the rule of strict
interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an
exemption, the claimant must show that he clearly falls under the exempting statute. On the other hand, a
tax refund may be, as usually it is, predicated on tax refund provisions allowing a refund of erroneous or
excess payment of tax. The return of what was erroneously paid is founded on the principle of solutio
indebiti, a basic postulate that no one should unjustly enrich himself at the expense of another. The
caveat against unjust enrichment covers the government.14 And as decisional law teaches, a claim for tax
refund proper, as here, necessitates only the preponderance-of-evidence threshold like in any ordinary
civil case.15
We apply the foregoing elementary principles in our evaluation on whether OR 0189, in the backdrop of
the factual antecedents surrounding its issuance, sufficiently proves the alleged unutilized input VAT
claimed by MPC.
The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
As a matter of sound practice, the Court refrains from reviewing the factual determinations of the CA or
reevaluate the evidence upon which its decision is founded. One exception to this rule is when the CA
and the trial court diametrically differ in their findings,16 as here. In such a case, it is incumbent upon the
Court to review and determine if the CA might have overlooked, misunderstood, or misinterpreted certain
facts or circumstances of weight, which, if properly considered, would justify a different conclusion. 17 In
the instant case, the CTA, unlike the CA, doubted the veracity of OR No. 0189 and did not appreciate the
same to support MPC's claim for tax refund or credit.
Petitioner BIR Commissioner, echoing the CTA's stand, argues against the sufficiency of OR No. 0189 to
prove unutilized input VAT payment by MPC. He states in this regard that the BIR can require additional
evidence to prove and ascertain payment of creditable input VAT, or that the claim for refund or tax credit
was filed within the prescriptive period, or had not previously been refunded to the taxpayer.
To bolster his position on the dubious character of OR No. 0189, or its insufficiency to prove input VAT
payment by MPC, petitioner proffers the following arguments:
(1) The input tax covered by OR No. 0189 pertains to purchases by MPC from Mitsubishi covering the
period from 1993 to 1996; however, MPC's claim for tax refund or credit was filed on December 20, 1999,
clearly way beyond the two-year prescriptive period set in Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi (Manila) when the invoices which

the VAT were originally billed came from the Mitsubishi's head office in Japan;
(3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203: USD 1 or the exchange rate
prevailing in 1993 to 1996, when, on April 14, 1998, the date OR No. 0189 was issued, the exchange rate
was already PhP 38.01 to a US dollar;
(4) OR No. 0189 does not show or include payment of accrued interest which Mitsubishi was charging
and demanded from MPC for having advanced a considerable amount of VAT. The demand, per records,
is embodied in the May 12, 1995 letter of Mitsubishi to MPC;
(5) MPC failed to present to the CTA its VAT returns for the second and third quarters of 1995, when the
bulk of the VAT payment covered by OR No. 0189--specifically PhP 109,329,135.17 of the total amount
of PhP 135,993,570--was billed by Mitsubishi, when such return is necessary to ascertain that the total
amount covered by the receipt or a large portion thereof was not previously refunded or credited; and
(6) No other documents proving said input VAT payment were presented except OR No. 0189 which,
considering the fact that OR No. 0188 was likewise issued by Mitsubishi and presented before the CTA
but admittedly for payments made by MPC on progress billings covering service purchases from 1993 to
1996, does not clearly show if such input VAT payment was also paid for the period 1993 to 1996 and
would be beyond the two-year prescriptive period.
The petition is partly meritorious.
Belated payment by MPC of its obligation for creditable input VAT
As no less found by the CTA, citing the SGV's report, the payments covered by OR No. 0189 were for
goods and service purchases made by MPC through the progress billings from Mitsubishi for the period
covering April 1993 to September 1996--for the E & M Equipment Erection Portion of MPC's contract with
Mitsubishi.18 It is likewise undisputed that said payments did not include payments for the creditable input
VAT of MPC. This fact is shown by the May 12, 1995 letter19 from Mitsubishi where, as earlier indicated, it
apprised MPC of the advances Mitsubishi made for the VAT payments, i.e., MPC's creditable input VAT,
and for which it was holding MPC accountable for interest therefor.
In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions adverted to,
immediately pay the corresponding input VAT. OR No. 0189 issued on April 14, 1998 clearly reflects the
belated payment of input VAT corresponding to the payment of the progress billings from Mitsubishi for
the period covering April 7, 1993 to September 6, 1996. SGV found that OR No. 0189 in the amount of
PhP 135,993,570 (USD 5,190,000) was duly supported by bank statement evidencing payment to
Mitsubishi (Japan).20 Undoubtedly, OR No. 0189 proves payment by MPC of its creditable input VAT
relative to its purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves payment of VAT
The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189 constituted sufficient proof of
payment of creditable input VAT for the progress billings from Mitsubishi for the period covering April 7,
1993 to September 6, 1996. Sec. 110(A)(1)(B) of the NIRC pertinently provides:
Section 110. Tax Credits. A. Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113
hereof on the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
xxxx

(b) Purchase of services on which a value-added tax has been actually paid. (Emphasis ours.)
Without necessarily saying that the BIR is precluded from requiring additional evidence to prove that input
tax had indeed paid or, in fine, that the taxpayer is indeed entitled to a tax refund or credit for input VAT,
we agree with the CA's above disposition. As the Court distinctly notes, the law considers a duly-executed
VAT invoice or OR referred to in the above provision as sufficient evidence to support a claim for input tax
credit. And any doubt as to what OR No. 0189 was for or tended to prove should reasonably be put to
rest by the SGV report on which the CTA notably placed much reliance. The SGV report stated that "[OR]
No. 0189 dated April 14, 1998 is for the payment of the VAT on the progress billings" from Mitsubishi
Japan "for the period April 7, 1993 to September 6, 1996 for the E & M Equipment Erection Portion of the
Company's contract with Mitsubishi Corporation (Japan)"21
VAT presumably paid on April 14, 1998
While available records do not clearly indicate when MPC actually paid the creditable input VAT
amounting to PhP 135,993,570 (USD 5,190,000) for the aforesaid 1993 to 1996 service purchases, the
presumption is that payment was made on the date appearing on OR No. 0189, i.e., April 14, 1998. In
fact, said creditable input VAT was reflected in MPC's VAT return for the second quarter of 1998.
The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides collaborating proof of the
belated payment of the creditable input VAT angle. To reiterate, Mitsubishi, via said letter, apprised MPC
of the VAT component of the service purchases MPC made and reminded MPC that Mitsubishi had
advanced VAT payments to which Mitsubishi was entitled and from which it was demanding interest
payment. Given the scenario depicted in said letter, it is understandable why Mitsubishi, in its effort to
recover the amount it advanced, used the PhP 26.203: USD 1 exchange formula in OR No. 0189 for USD
5,190,000.
No showing of interest payment not fatal to claim for refund
Contrary to petitioner's posture, the matter of nonpayment by MPC of the interests demanded by
Mitsubishi is not an argument against the fact of payment by MPC of its creditable input VAT or of the
authenticity or genuineness of OR No. 0189; for at the end of the day, the matter of interest payment was
between Mitsubishi and MPC and may very well be covered by another receipt. But the more important
consideration is the fact that MPC, as confirmed by the SGV, paid its obligation to Mitsubishi, and the
latter issued to MPC OR No. 0189, for the VAT component of its 1993 to 1996 service purchases.
The next question is, whether or not MPC is entitled to a refund or a TCC for the alleged unutilized input
VAT of PhP 135,993,570 covered by OR No. 0189 which sufficiently proves payment of the input VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No.
0189 was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC pertinently
reads:
(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 paidattributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: x x x. (Emphasis ours.)
The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not
otherwise used for any internal revenue tax due the taxpayer must be claimed within two yearsreckoned
from the close of the taxable quarter when the relevant sales were made pertaining to the input
VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously
applied the aforequoted Sec. 112(A), "[P]rescriptive period commences from the close of the taxable
quarter when the sales were made and not from the time the input VAT was paid nor from the time the
official receipt was issued"22 Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized

creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent
sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given
that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is
the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT
refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on
September 30, 1998. Consequently, MPC's claim for refund or tax credit filed on December 10, 1999 had
already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for
the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of
a claim therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.-- The
Commissioner may xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in
his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their
value upon proof of destruction.No credit or refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years
after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment
shall be considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected.-- No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without
authority, of any sum alleged to have been excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid. (Emphasis ours.)
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of
the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to
instances of erroneous payment or illegal collection of internal revenue taxes.
MPC's creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted
or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The
fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated
or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund
for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not
enter the equation.

In Commissioner of Internal Revenue v. Seagate Technology (Philippines), the Court explained the
nature of the VAT and the entitlement to tax refund or credit of a zero-rated taxpayer:
Viewed broadly, the VAT is a uniform tax x x x levied on every importation of goods, whether or not in the
course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or
on each rendition of services in the course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such goods, properties or services by
the seller, transferor or lessor. It is an indirect tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. As such, it should be understood not in the
context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its
nature as a tax on consumption. In either case, though, the same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well as the subsequent amendments of that
law, has been drawn from the tax credit method. Such method adopted the mechanics and selfenforcement features of the VAT as first implemented and practiced in Europe x x x. Under the present
method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales
or outputs the VAT paid on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed
on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the
excess has to be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal revenue taxes.
xxxx
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate
is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax
credit certificate for the VAT previously charged by suppliers.23 (Emphasis added.)
Considering the foregoing discussion, it is clear that Sec. 112(A) of the NIRC, providing a two-year
prescriptive period reckoned from the close of the taxable quarter when the relevant sales or transactions
were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions
which refer to erroneous payment of taxes.
As a final consideration, the Court wishes to remind the BIR and other tax agencies of their duty to treat
claims for refunds and tax credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR
proper acted, instead of sitting, on MPC's underlying application for effective zero rating, the matter of
addressing MPC's right, or lack of it, to tax credit or refund could have plausibly been addressed at their
level and perchance freed the taxpayer and the government from the rigors of a tedious litigation.
The all too familiar complaint is that the government acts with dispatch when it comes to tax collection,
but pays little, if any, attention to tax claims for refund or exemption. It is high time our tax collectors prove
the cynics wrong.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated December 22, 2005 and the
Resolution dated March 31, 2006 of the CA in CA-G.R. SP No. 78280 are AFFIRMED with
theMODIFICATION that the claim of respondent MPC for tax refund or credit to the extent of PhP
135,993,570, representing its input VAT payments for service purchases from Mitsubishi Corporation of
Japan for the construction of a portion of its Pagbilao, Quezon power station, is DENIED on the ground
that the claim had prescribed. Accordingly, petitioner Commissioner of Internal Revenue is ordered to
refund or, in the alternative, issue a tax credit certificate in favor of MPC, its unutilized input VAT
payments directly attributable to its effectively zero-rated sales for the second quarter in the total amount
of PhP 10,766,939.48.
No pronouncement as to costs.

SO ORDERED.

VAT REFUND
FIRST DIVISION
COMMISSIONER OF INTERNAL

G.R. No. 184823

REVENUE,
Petitioner,
Present:
CORONA, C. J., Chairperson,
- versus -

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

AICHI FORGING COMPANY OF

ASIA, INC.,

Promulgated:
Respondent.

October 6, 2010

x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or
incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally
collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his compliance with the
procedural due process as non-observance of the prescriptive periods within which to file the administrative and the
judicial claims would result in the denial of his claim.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30,
2008 Decision[1] and the October 6, 2008 Resolution[2] of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws
of the Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its byproducts.[3] It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity[4] and its
products, close impression die steel forgings and tool and dies, are registered with the Board of Investments (BOI)
as a pioneer status.[5]

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002
to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue
(CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center.[6]

Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review[7] with the CTA for the refund/credit of the same input
VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it
generated and recorded zero-rated sales in the amount of P131,791,399.00,[8]which was paid pursuant to Section
106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997 (NIRC);[9] that for the said period, it
incurred and paid input VAT amounting to P3,912,088.14 from purchases and importation attributable to its zerorated sales;[10] and that in its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center, it only claimed the amount of P3,891,123.82.[11]

In response, petitioner filed his Answer[12] raising the following special and affirmative defenses, to wit:
4.

5.

Petitioners alleged claim for refund is subject to administrative investigation by the

Bureau;
Petitioner must prove that it paid VAT input taxes for the period in question;

6.

Petitioner must prove that its sales are export sales contemplated under Sections
106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;

7.

Petitioner must prove that the claim was filed within the two (2) year period prescribed in
Section 229 of the Tax Code;

8.

In an action for refund, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund; and

9.

Claims for refund are construed strictly against the claimant for the same partake of the
nature of exemption from taxation.[13]

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially
granting respondents claim for refund/credit. Pertinent portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section
112 (A) of the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: x x x
Pursuant to the above provision, petitioner must comply with the following requisites: (1)
the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is
VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter
when such sales were made; and (4) the creditable input tax due or paid must be attributable to
such sales, except the transitional input tax, to the extent that such input tax has not been applied
against the output tax.
The Court finds that the first three requirements have been complied [with] by petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the Sales
Invoices (Exhibits II to II-262, JJ to JJ-431, KK to KK-394 and LL) shows that it is engaged in sales
which are zero-rated.
The second requisite has likewise been complied with. The Certificate of Registration
with OCN 1RC0000148499 (Exhibit C) with the BIR proves that petitioner is a registered VAT
taxpayer.

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

P 3,891,123.82
41,020.37
P 3,850,103.45
610,984.20
P 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY

GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO
HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS
(P3,239,119.25), representing the unutilized input VAT incurred for the months of July to
September 2002.
SO ORDERED.[14]

Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial Reconsideration,[15] insisting
that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit
provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year,
the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on
September 29, 2004.[16] He cited as basis Article 13 of the Civil Code,[17] which provides that when the law speaks of
a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and
the judicial claims contravenes Sections 112 and 229 of the NIRC.[18] According to the petitioner, a prior filing of an
administrative claim is a condition precedent[19] before a judicial claim can be filed. He explained that the rationale of
such requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the
CTA is an appellate body which exercises the power of judicial review over administrative actions of the BIR. [20]

The Second Division of the CTA, however, denied petitioners Motion for Partial Reconsideration for lack of
merit. Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review.[21]

Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision allowing the partial tax
refund/credit in favor of respondent. However, as to the reckoning point for counting the two-year period, the
CTA En Banc ruled:
Petitioner argues that the administrative and judicial claims were filed beyond the period
allowed by law and hence, the honorable Court has no jurisdiction over the same. In addition,
petitioner further contends that respondent's filing of the administrative and judicial [claims]
effectively eliminates the authority of the honorable Court to exercise jurisdiction over the judicial
claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(A) In General. Every person liable to pay the value-added tax imposed
under this Title shall file a quarterly return of the amount of his gross sales or
receipts within twenty-five (25) days following the close of each taxable quarter
prescribed for each taxpayer: Provided, however, That VAT-registered persons
shall pay the value-added tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the close
of each taxable quarter within which to file a quarterly return of the amount of his gross sales or
receipts. In the case at bar, the taxable quarter involved was for the period of July 1,
2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, respondent has until
October 25, 2002 within which to file its quarterly return for its gross sales or receipts [with] which it
complied when it filed its VAT Quarterly Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of the
1997 NIRC should start from the payment of tax subject claim for refund. As stated above,
respondent filed its VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus,
respondent's administrative and judicial claims for refund filed on September 30, 2004 were filed
on time because AICHI has untilOctober 20, 2004 within which to file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires
the previous filing of an administrative claim for refund prior to the judicial claim. This should not be
the case as the law does not prohibit the simultaneous filing of the administrative and judicial
claims for refund. What is controlling is that both claims for refund must be filed within the two-year
prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and
conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of
the CTA Second Division. What the instant petition seeks is for the Court En Banc to view and
appreciate the evidence in their own perspective of things, which unfortunately had already been
considered and passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008
Resolution of the CTA Second Division in CTA Case No. 7065 entitled, AICHI Forging Company
of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent are hereby AFFIRMED
in toto.
SO ORDERED.[22]

Petitioner sought reconsideration but the CTA En Banc denied[23] his Motion for Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether respondents judicial and
administrative claims for tax refund/credit were filed within the two-yearprescriptive period provided in Sections
112(A) and 229 of

the NIRC.[24]

Petitioners Arguments

Petitioner maintains that respondents administrative and judicial claims for tax refund/credit were filed in violation of
Sections 112(A) and 229 of the NIRC.[25] He posits that pursuant to Article 13 of the Civil Code,[26] since the year
2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year
period, which expired onSeptember 29, 2004.[27]

Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the start
of the two-year period as the said provision pertains to the compliance requirements in the payment of VAT.[28] He
asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically provides for
the period within which a claim for tax refund/ credit should be made.[29]

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA
were filed on the same day.[30] He opines that the simultaneous filing of the administrative and the judicial claims
contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim.[31] He insists that
such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact that the
CTA is an appellate body exercising judicial review over administrative actions of the CIR.[32]

Respondents Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July 1,
2002 to September 30, 2002 as a matter of right because it has substantially complied with all the requirements
provided by law.[33] Respondent likewise defends the CTA En Banc in applying Section 114(A) of the NIRC in
computing the prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112(A) of the
NIRC must be read together with Section 114(A) of the same Code.[34]

As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an
administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before
it filed a judicial claim with the CTA.[35] To prove this, respondent points out that its Claimant Information Sheet No.
49702[36] and BIR Form No. 1914 for the third quarter of 2002,[37] which were filed with the DOF, were attached as
Annexes M and N, respectively, to the Petition for Review filed with the CTA.[38] Respondent further contends that
the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D)
is not fatal because what is important is that both claims are filed within the two-year prescriptive period.[39] In support
thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.[40] where it was ruled that [i]f,
however, the [CIR] takes time in deciding the claim, and the period of two years is about to end, the suit or
proceeding must be started in the [CTA] before the end of the two-year period without awaiting the decision of the
[CIR].[41] Lastly, respondent argues that even if the period had already lapsed, it may be suspended for reasons of
equity considering that it is not a jurisdictional requirement.[42]

Our Ruling

The petition has merit.

Unutilized input VAT must be claimed within two years
after the close of the taxable quarter when the sales were
made

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second
Division of the CTA applied Section 112(A) of the NIRC, which states:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are zerorated or effectively zero-rated may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output tax: Provided, however, That in the case of
zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for in

accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly
basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall
file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation
of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without written
claim therefor, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of
unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter when
the sales were made.[43]

The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been
resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,[44] where we ruled that Section
112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a
refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as both
provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.[45] We
explained that:

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

tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date
of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both
provisions apply only to instances of erroneous payment or illegal collection of internal
revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax
which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or
services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax
exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not, standing
alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the
erroneous, illegal, or wrongful payment angle does not enter the equation.
xxxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC,
providing a two-year prescriptive period reckoned from the close of the taxable quarter
when the relevant sales or transactions were made pertaining to the creditable input VAT,
applies to the instant case, and not to the other actions which refer to erroneous payment
of taxes.[46] (Emphasis supplied.)

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in
computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section
112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be
reckoned from the close of the taxable quarter when the sales were made.
The administrative claim was timely filed

Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.

Relying on Article 13 of the Civil Code,[47] which provides that a year is equivalent to 365 days, and taking
into account the fact that the year 2004 was a leap year, petitioner submits that the two-year period to file a claim for
tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.[48]

We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,[49] we said that as between the
Civil Code, which provides that a year is equivalent to 365 days, and theAdministrative Code of 1987, which states
that a year is composed of 12 calendar months, it is the latter that must prevail following the legal maxim, Lex
posteriori derogat priori.[50] Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the computation of legal periods.
Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year.
Under the Administrative Code of 1987, however, a year is composed of 12 calendar months.
Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code of 1987. For this
reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being
the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case,
the two-year prescriptive period (reckoned from the time respondent filed its final adjusted return
on April 14, 1998) consisted of 24 calendar months, computed as follows:
Year 1 1st calendar month
2nd calendar month
3rd calendar month
4th calendar month
5th calendar month
6th calendar month
7th calendar month
8th calendar month
9th calendar month
10th calendar month
11th calendar month
12th calendar month
Year 2 13th calendar month
14th calendar month
15th calendar month
16th calendar month
17th calendar month
18th calendar month
19th calendar month
20th calendar month
21st calendar month
22nd calendar month
23rd calendar month
24th calendar month

April 15, 1998 to May 14, 1998

May 15, 1998 to June 14, 1998
June 15, 1998 to July 14, 1998
July 15, 1998 to August 14, 1998
August 15, 1998 to September 14, 1998
September 15, 1998 to October 14, 1998
October 15, 1998 to November 14, 1998
November 15, 1998 to December 14, 1998
December 15, 1998 to January 14, 1999
January 15, 1999 to February 14, 1999
February 15, 1999 to March 14, 1999
March 15, 1999 to April 14, 1999
April 15, 1999 to May 14, 1999
May 15, 1999 to June 14, 1999
June 15, 1999 to July 14, 1999
July 15, 1999 to August 14, 1999
August 15, 1999 to September 14, 1999
September 15, 1999 to October 14, 1999
October 15, 1999 to November 14, 1999
November 15, 1999 to December 14, 1999
December 15, 1999 to January 14, 2000
January 15, 2000 to February 14, 2000
February 15, 2000 to March 14, 2000
March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last
day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it
was filed within the reglementary period.[51]

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1,
2002 to September 30, 2002 expired on September 30, 2004. Hence, respondents administrative claim was timely
filed.
The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we

are constrained to deny respondents claim for tax refund/credit for having been filed in violation of Section 112(D) of
the NIRC, which provides that:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals. (Emphasis supplied.)

Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit], within which to grant or deny the claim. In
case of full or partial denial by the CIR, the taxpayers recourse is to file an appeal before the CTA within 30 days
from receipt of the decision of the CIR.However, if after the 120-day period the CIR fails to act on the application for
tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

In this case, the administrative and the judicial claims were simultaneously filed on September 30,
2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this
reason, we find the filing of the judicial claim with the CTA premature.

Respondents assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial
claim as long as both the administrative and the judicial claims are filed within the two-year prescriptive period[52] has
no legal basis.

There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of the said
provision states that any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within
two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales. The phrase within two (2) years x
x x apply for the issuance of a tax credit certificate or refund refers to applications for refund/credit filed with the CIR
and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision,
which states that the CIR has 120 days from the submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC,
which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the
CIR. The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued
by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In
both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.[53] relied upon by respondent,
we find the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the
NIRC. And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant
case.

In fine, the premature filing of respondents claim for refund/credit of input VAT before the CTA warrants a
dismissal inasmuch as no jurisdiction was acquired by the CTA.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6,
2008 Resolution of the Court of Tax Appeals are hereby REVERSED andSET ASIDE. The Court of Tax Appeals
Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.

SO ORDERED.

VAT REFUND
EN BANC
G.R. No. 187485 : February 12, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SAN ROQUE POWER
CORPORATION,Respondents.
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE,Respondents.
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE,Respondent.
DECISION
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well
as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA
EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11 July
2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in CTA Case
No. 6647. The CTA Second Division ordered the Commissioner of Internal Revenue (Commissioner) to
refund or issue a tax credit for P483,797,599.65 to San Roque Power Corporation (San Roque) for
unutilized input value-added tax (VAT) on purchases of capital goods and services for the taxable year
2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as
well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision,
the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution10of the CTA
Second Division and granted the 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
CourtEn Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation
The Facts
The CTA EBs narration of the pertinent facts is as follows:cralawlibrary
[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 powergenerating 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?r?l1
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 zerorated 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:cralawlibrary
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?r?l1
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:cralawlibrary
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?r?l1 ???r?bl? ??r??l l?? l?br?r
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second
Division issued a Resolution dated 11 July 2008 which denied the CIRs motion for lack of merit.
The Court of Tax Appeals Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques
claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007
Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum
Circular No. 49-03,22 as its bases for ruling that San Roques judicial claim was not prematurely filed. The
pertinent portions of the Decision state:cralawlibrary
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this
wise:cralawlibrary
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 v. 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 v. 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 v. 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) ???r?bl? ??r??l l?? l?br?r
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:cralawlibrary
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. ???r?bl? ??r??l l?? l?br?r
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to
wit:cralawlibrary
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:cralawlibrary
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:cralawlibrary
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:cralawlibrary
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:cralawlibrary
Exhibit(s)
L to L-4

Quarter

Mode of filing

Filing Date

Original

Electronic

April 15, 2005

M to M-3

Amended

Electronic

July 20, 2005

N to N-4

Amended

Electronic

October 18, 2006

Original

Electronic

July 20, 2005

Amended

Electronic

October 18, 2006

Q to Q-3
R to R-4

1st

Nature of
the Return

2nd

U to U-4

3rd

V to V-4
Y to Y-4

4th

Z to Z-4

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:cralawlibrary
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

TOTAL

P1,446,854,034.68

P2,314,730.43

P6,050,933.95

P8,365,664.38

On November 14, 2006, [Taganito] filed with [the CIR], through 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:cralawlibrary
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. v. Llanes, 49
Phil. 466 cited in Collector of Internal Revenue v. 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 v. Ledesma, 31 SCRA 95) and as such,
they are looked upon with disfavor (Western Minolco Corp. v. 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:cralawlibrary
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?r?l1
The Court of Tax Appeals Ruling: Division
The CTA Second Division partially granted Taganitos claim. In its Decision25 dated 8 January 2010, the
CTA Second Division found that Taganito complied with the requirements of Section 112(A) of RA 8424,
as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated or effectively
zero-rated sales.26?r?l1
The pertinent portions of the CTA Second Divisions Decision read:cralawlibrary
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 zerorated sales from January 1, 2005 to December 31, 2005.
SO ORDERED.27?r?l1 ???r?bl? ??r??l l?? l?br?r
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed
a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs motion. The CTA Second
Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax)
should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice
versa. The CTA Second Division applied the mandatory statute of limitations in seeking judicial recourse
prescribed under Section 229 to claims for refund or tax credit under Section 112.
The Court of Tax Appeals Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8
January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganitos entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and reversed and set
aside the challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of
the 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 andCommisioner 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:cralawlibrary
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?r?l1 ???r?bl? ??r??l l?? l?br?r
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:cralawlibrary
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?r?l1 ???r?bl? ??r??l l?? l?br?r
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
Resolution36dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this
Courts rulings inAichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EBs narration of the pertinent facts is as follows:cralawlibrary
[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. ???r?bl? ??r??l l?? l?br?r
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:cralawlibrary
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?r?l1
The Court of Tax Appeals Ruling: Division
The CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to prescription.
The CTA Second Division ruled that the two-year prescriptive period specified in Section 112(A) of RA
8424, as amended, applies not only to the filing of the administrative claim with the BIR, but also to the
filing of the judicial claim with the CTA. Since Philexs claim covered the 3rd quarter of 2005, its
administrative claim filed on 20 March 2006 was timely filed, while its judicial claim filed on 17 October
2007 was filed late and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied Philexs Motion for Reconsideration.
The Court of Tax Appeals Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision
and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
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:cralawlibrary
In this case, while there is no dispute that [Philexs] administrative claim for refund was filed within the twoyear prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20,
2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the amount
of ?23,956,732.44 with the One Stop Shop Center of the Department of Finance, per Application No.

52490. From March 20, 2006, which is also presumably the date [Philex] submitted supporting documents,
together with the aforesaid application for refund, the CIR has 120 days, or until July 18, 2006, within
which to decide the claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until
August 17, 2006, [Philex] should have elevated its claim for refund to the CTA. However, [Philex] filed its
Petition for Review only on October 17, 2007, which is 426 days way beyond the 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?r?l1 ???r?bl? ??r??l l?? l?br?r
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:cralawlibrary
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?r?l1 ???r?bl? ??r??l l?? l?br?r
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:cralawlibrary
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 Aichidoctrine 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?r?l1 ???r?bl? ??r??l l?? l?br?r
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:cralawlibrary

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?r?l1
The Courts Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the present
cases:cralawlibrary
Section 105:cralawlibrary
Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic
Act No. 7716.?r?l??
xxx
Section 110(B):cralawlibrary
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?r?l1
Sec. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zerorated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: Provided, however, That in the case of zero-rated sales under
Section 106(A)(2) (a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zerorated 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) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a
cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayers petition.
Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal
principles.46?r?l1 ???r?bl? ??r??l l?? l?br?r
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?r?l1
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 nonadherence to exhaustion of administrative remedies bar a taxpayers claim for tax refund or credit,
whether or not the Commissioner questions the numerical correctness of the claim of the taxpayer. This

Court should not establish the precedent that non-compliance with mandatory and jurisdictional
conditions can be excused if the claim is otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance with mandatory and jurisdictional
requirements, for then every tax refund case will have to be decided on the numerical correctness of the
amounts claimed, regardless of non-compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San
Roque filed its petition for review with the CTA more than four years before Atlas was
promulgated. The Atlas doctrine did not exist at the time San Roque failed to comply with the 120- day
period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse for its failure to wait for the 120day period to lapse. In any event, the Atlas doctrine merely stated that the two-year prescriptive period
should be counted from the date of payment of the output VAT, not from the close of the taxable quarter
when the sales involving the input VAT were made. The Atlas doctrine does not interpret, expressly
or impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court
in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the taxpayer to
appeal to the CTA from the decision or inaction of the Commissioner.53 Thus, the Atlasdoctrine cannot
be invoked by anyone to disregard compliance with the 30-day mandatory and jurisdictional
period. Also, the difference between the Atlas doctrine on one hand, and the Mirant54doctrine 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."???r?bl? ??r??l l?? l?br?r
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:cralawlibrary

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
dayafter the close of the taxable quarter. Had the twoyear prescriptive period been counted from the
"close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would have
already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period from the "close
of the taxable quarter when the sales were made" as expressly stated in the law, which means the last
day of the taxable quarter. The 20-day difference55 between the Atlas doctrine and the
later Mirantdoctrine 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:cralawlibrary
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
theAtlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is almost
four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly situated as
San Roque - both cannot claim being misled, misguided, or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which expressly
ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial
claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine. Thus,
as will be explained later, Taganito is deemed to have filed its judicial claim with the CTA on time.
c. G.R. No. 197156 Philex Mining Corporation v. CIR
Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2)
filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its
Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September 2005,
which is the reckoning date in computing the two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even
if the two-year prescriptive period is computed from the date of payment of the output VAT under Section
229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case.

The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philexs claim.
Since the Commissioner did not act on Philexs claim on or before 17 July 2006, Philex had until 17
August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August
2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for
Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of
filing. In short, Philex was late by one year and 61 days in filing its judicial claim. As the CTA EB
correctly found:cralawlibrary
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition
for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for
Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA
Division; x x x58 (Emphasis supplied)
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 afterthe
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)
years after the close of the taxable quarter when the sales were made,apply for the issuance of a tax
credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law states
that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which
means at anytime within two years. Thus, the application for refund or credit may be filed by the
taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly
comply with the law. The twoyear prescriptive period is a grace period in favor of the taxpayer and he can
avail of the full period before his right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit
"within one hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsection (A)." The reference in Section 112(C) of the
submission of documents "in support of the application filed in accordance with Subsection A" means that
the application in Section 112(A) is the administrative claim that the Commissioner must decide within the
120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the twoyear 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."???r?bl? ??r??l l?? l?br?r
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. ???r?bl? ??r??l l?? l?br?r
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is
not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer
for filing his administrative claim with the Commissioner. This Court cannot interpret a law to defeat,
wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The
taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive
period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time.
The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides
the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his
judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of
Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at the time the
input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and
legally paid by, a VAT-registered seller61 of goods, properties or services used as input by another VATregistered 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?r?l1
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess"
input VAT is two years from the close of the taxable quarter when the sale was made by the person
legally liable to pay the output VAT. This prescriptive period has no relation to the date of payment of the
"excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does
not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different
reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is
not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not
claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more
than what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain
of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value
added by the taxpayer, but on the entire selling price of his goods, properties or services. However, the
taxpayer is allowed a refund or credit on the VAT previously paid by those who sold him the inputs for his
goods, properties, or services. The net effect is that the taxpayer pays the VAT only on the value that he
adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
companies generating power through renewable sources of energy. 64 Thus, a non zero-rated VATregistered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit
of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input VAT exceeds
his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under the VAT
System. He can only carry-over and apply his "excess" input VAT against his future output VAT. If
such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a refund or
credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not allow
such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229.
The "excess" input VAT is a correctly and properly collected tax. However, such "excess" input VAT can
be applied against the output VAT because the VAT is a tax imposed only on the value added by the
taxpayer. If the input VAT is in fact "excessively" collected under Section 229, then it is the person legally
liable to pay the input VAT, not the person to whom the tax was passed on as part of the purchase price
and claiming credit for the input VAT under the VAT System, who can file the judicial claim under Section
229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under
Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under
Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section 229, mere
payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no requirement
under Section 229 for an output VAT or subsequent sale of goods, properties, or services using materials
subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is
"erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short, there
must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held
inMirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of
internal revenue taxes." Erroneous or wrongful payment includes excessive payment because they all

refer to payment of taxes not legally due. Under the VAT System, there is no claim or issue that the
"excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input
VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to apply such
"excessively" collected input VAT to offset his output VAT may have no legal basis to make such
offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such
"excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will upend the
present VAT System as we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007
until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to
the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned
theAtlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year
prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day periods
are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When
Section 112(C) states that "the Commissioner shall grant a refund or issue the tax credit within one
hundred twenty (120) days from the date of submission of complete documents," the law clearly gives the
Commissioner 120 days within which to decide the taxpayers claim. Resort to the courts prior to the
expiration of the 120-day period is a patent violation of the doctrine of exhaustion of administrative
remedies, a ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is awash
with cases affirming and reiterating the doctrine of exhaustion of administrative remedies.65 Such doctrine
is basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the
decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day
periods optional just because the law uses the word "may." The word "may" simply means that the
taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the
decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch of the
imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the
taxpayer to file a judicial claim one day after filing the administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioners decision
if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before
the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the
old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial
claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120day 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?r?l1
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:cralawlibrary

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:cralawlibrary
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:cralawlibrary
(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) ???r?bl? ??r??l l?? l?br?r
Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the
time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a
reversal only by the Commissioner because this Section expressly states, "Any revocation, modification
or reversal" without specifying who made the revocation, modification or reversal. Hence, a reversal by
this Court is covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a
difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof that the
reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being
made to return the tax refund or credit they received or could have received under Atlas prior to its
abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner,
like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. As held by
this Court in CIR v. Philippine Health Care Providers, Inc.:70?r?l1
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the
1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position
contrary to one previously taken where injustice would result to the taxpayer. Hence, where an
assessment for deficiency withholding income taxes was made, three years after a new BIR Circular
reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to
the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity,
and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases
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.,
andCommissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no
retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in
this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was
entitled to tax refunds or credits based on the BIRs own issuances but later was suddenly saddled with
deficiency taxes due to its subsequent ruling changing the category of the taxpayers transactions for the
purpose of paying its VAT, this Court ruled that applying such ruling retroactively would be prejudicial to
the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all
taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not
by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that
is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance.
This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03.
Thus, while this government agency mentions in its query to the Commissioner the administrative claim of
Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner what to do in
cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the
lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court
in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120day period was mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its
issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely;
and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly construed against the
taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim
prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003.
To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely
because BIR Ruling No. 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-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim
prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03.
Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial
claim from the vice of prematurity.
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing.
BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the

120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of
BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after
the lapse of the 30-day period following the expiration of the 120-day period. In fact, Philex filed its
judicial claim 426 days after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the
filing dates of the administrative and judicial claims are inconsequential, as long as they are within the
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:cralawlibrary
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:cralawlibrary
It is contended, however, that the question before us was answered and resolved against the contention
of the appellant in the case of Bautista v. 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 v. Hamilton and Abreu, 30 Phil. 563), nor should it be considered as a precedent. (U.S. v.
Noriega and Tobias, 31 Phil. 310; Chicote v. Acasio, 31 Phil. 401; U.S. v. More, 3 Cranch [U.S.] 159,
172; U.S. v. Sanges, 144 U.S. 310, 319; Cross v. Burke, 146 U.S. 82.) For the reasons given in the case
of McGirr v. Hamilton and Abreu, supra, the decision in the case of Bautista v. 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 Toyodoes 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?r?l1
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?r?l1
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to
wit:cralawlibrary
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:cralawlibrary

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 taxeswithin 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. ???r?bl? ??r??l l?? l?br?r
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x
xxx
(c) Period within which refund or tax credit of input taxes shall be made. In proper cases, the
Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date
of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the
receipt of said denial, otherwise the decision will become final. However, if no action on the claim for
tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day
period from the date of submission of the application but before the lapse of the two (2) year
period from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to
the Court of Tax Appeals.
xxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the
Commissioner shall grant the refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the
Commissioner has a 60-day period to act on the administrative claim. This 60-day period is mandatory
and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no
longer mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails
to act on the administrative claim, the taxpayer may file the judicial claim even "before the lapse of the
two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory and
jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it,
for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period.
This cannot be disputed.
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during
the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no action on
the claim for tax refund/credit has been taken by the Commissioner after the sixty (60) day period," the
taxpayer "may" already file the judicial claim even long before the lapse of the two-year prescriptive
period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-year prescriptive
period was about to expire if the Commissioner did not act on the claim.80 With the amendment by RA
7716, the taxpayer need not wait until the two-year prescriptive period is about to expire before filing the
judicial claim because mere inaction by the Commissioner during the 60-day period is deemed a denial of
the claim. This is the meaning of the phrase "but before the lapse of the two (2) year period" in
Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only "after the
sixty (60) day period," this period remains mandatory and jurisdictional. Clearly, Section 4.106-2(c) did
not amend Section 106(d) but merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an
administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the
Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original intent
and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting the original
wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance, becomes
inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior inconsistent
administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has
120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty
days after the Commissioner partially or fully denies the claim within the 120- day period, or (2) only
within thirty days from the expiration of the 120- day period if the Commissioner does not act within
the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five
years before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the
120- day period is mandatory and jurisdictional. San 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) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax refund
or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R. No. 197156
for a tax refund or credit of P23,956,732.44.
SO ORDERED.

EN BANC
G.R. No. 207112, December 08, 2015
PILIPINAS TOTAL GAS, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court assailing the
October 11, 2012 Decision2 and the May 8, 2013 Resolution3 of the Court of Tax Appeals (CTA)En Banc,
in CTA EB Case No. 776, which affirmed the January 13, 2011 Decision4 of the CTA Third Division (CTA
Division) in CTA Case No. 7863.
The Facts
Petitioner Pilipinas Total Gas, Inc. (Total Gas) is engaged in the business of selling, transporting and
distributing industrial gas. It is also engaged in the sale of gas equipment and other related businesses.
For this purpose, Total Gas registered itself with the Bureau of Internal Revenue (BIR) as a Value Added
Tax (VAT) taxpayer.
On April 20, 2007 and July 20, 2007, Total Gas filed its Original Quarterly VAT Returns for the First and
Second quarters of 2007, respectively with the BIR.
On May 20, 2008, it filed its Amended Quarterly VAT Returns for the first two quarters of 2007 reflecting
its sales subject to VAT, zero-rated sales, and domestic purchases of non-capital goods and services.
For the First and Second quarters of 2007, Total Gas claimed it incurred unutilized input VAT credits from
its domestic purchases of noncapital goods and services in the total amount of P8,124,400.35. Of this
total accumulated input VAT, Total Gas claimed that it had P7,898,433.98 excess unutilized input VAT.
On May 15, 2008, Total Gas filed an administrative claim for refund of unutilized input VAT for the first
two quarters of taxable year 2007, inclusive of supporting documents.
On August 28, 2008, Total Gas submitted additional supporting documents to the BIR.
On January 23, 2009, Total Gas elevated the matter to the CTA in view of the inaction of the
Commissioner of Internal Revenue (CIR).
During the hearing, Total Gas presented, as witnesses, Rosalia T. Yu and Richard Go, who identified
documentary evidence marked as Exhibits "A" to "ZZ-1," all of which were admitted. Respondent CIR, on
the other hand, did not adduce any evidence and had the case submitted for decision.
Ruling of the CTA Division
In its January 13, 2011 Decision,5 the CTA Division dismissed the petition for being prematurely filed. It
explained that Total Gas failed to complete the necessary documents to substantiate a claim for refund of
unutilized input VAT on purchases of goods and services enumerated under Revenue Memorandum
Order (RMO) No. 53-98. Of note were the lack of Summary List of Local Purchases and the certifications
from the Office of the Board of Investment (BOD), the Bureau of Customs (BOC), and the Philippine
Economic Zone Authority (PEZA) that the taxpayer had not filed any similar claim for refund covering the
same period.6
Believing that Total Gas failed to complete the necessary documents to substantiate its claim for refund,

the CTA Division was of the view that the 120-day period allowed to the CIR to decide its claim under
Section 112 (C) of the National Internal Revenue Code of 1997 (NIRC), had not even started to run. With
this, the CTA Division opined that the petition for review was prematurely filed because Total Gas failed to
exhauist the appropriate administrative remedies. The CTA Division stressed that tax refunds partake of
the nature of an exemption, putting into operation the rule of strict interpretation, with the taxpayer being
charged with the burden of proving that he had satisfied all the statutory and administrative
requirements.7
Total Gas sought for reconsideration8 from the CTA Division, but its motion was denied for lack of merit in
a Resolution, dated April 19, 2011.9 In the same resolution, it reiterated that "that the complete supporting
documents should be submitted to the BIR before the 120-day period for the Commissioner to decide the
claim for refund shall commence to run. It is only upon the lapse of the 120-day period that the taxpayer
can appeal the inaction [to the CTA.]"10 It noted that RMO No. 53-98, which provides a checklist of
documents for the BIR to consider in granting claims for refund, also serves as a guideline for the courts
to determine if the taxpayer had submitted complete supporting documents.11 It also stated that Total Gas
could not invoke Revenue Memorandum Circular (RMC) No. 29-09 because it was issued after the
administrative claim was filed and could not be applied retroactively. 12 Thus, the CTA Division disposed:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED DUE COURSE,
and, accordingly DISMISSED for having been prematurely filed.
SO ORDERED.13ChanRoblesVirtualawlibrary
Ruling of the CTA En Banc
In its assailed decision, the CTA En Banc likewise denied the petition for review of Total Gas for lack of
merit. It condensed its arguments into two core issues, to wit: (1) whether Total Gas seasonably filed its
judicial claim for refund; and (2) whether it was unable to substantiate its administrative claim for refund
by failing to submit the required documents that would allow respondent to act on it.14
As to the first issue, the CTA En Banc ruled that the CTA Division had no jurisdiction over the case
because Total Gas failed to seasonably file its petition. Counting from the date it filed its administrative
claim on May 15, 2008, the CTA En Banc explained that the CIR had 120 days to act on the claim (until
September 12, 2008), and Total Gas had 30 days from then, or until October 12, 2008, to question the
inaction before the CTA. Considering that Total Gas only filed its petition on January 23, 2009, the
CTA En Banc concluded that the petition for review was belatedly filed. For the tax court, the 120-day
period could not commence on the day Total Gas filed its last supporting document on August 28, 2008,
because to allow such would give the taxpayer unlimited discretion to indefinitely extend the 120-day
period by simply filing the required documents piecemeal.15
As to the second issue, the CTA En Banc affirmed the CTA Division that Total Gas failed to submit the
complete supporting documents to warrant the grant of its application for refund. Quoting the pertinent
portion of the decision of its division, the CTA En Banc likewise concurred in its finding that the judicial
claim of Total Gas was prematurely filed because the 120-day period for the CIR to decide the claim had
yet to commence to run due to the lack of essential documents. 16
Total Gas filed a motion for reconsideration,17 but it was denied in the assailed resolution of the CTAEn
Banc.18
Hence, the present petition.
ISSUES
(a) whether the judicial claim for refund was belatedly filed on 23 January 2009, or way beyond the
30-day period to appeal as provided in Section 112(c) of the Tax Code, as amended; and
(b) whether the submission of incomplete documents at the adminstrative level (BIR) renders the
judicial claim premature and dismissible for lack of jurisdiction.19ChanRoblesVirtualawlibrary

In its petition, Total Gas argues that its judicial claim was filed within the prescriptive period for claiming
excess unutilized input VAT refund as provided under Section 112 of the NIRC and expounded in the
Court's ruling in CIR v. Aichi Forging Company of Asia20 (Aichi) and in compliance with Section 112 of the
NIRC. In addition to citing Section 112 (C) of the Tax Code, Total Gas points out that in one of its
previous claims for refund of excess unutilized input VAT, the CTA En Banc in CTA En Banc Case No.
674,21 faulted the BIR in not considering that the reckoning period for the 120-period should be counted
from the date of submission of complete documents.22 It then adds that the previous ruling of the CTA En
Banc was in accordance with law because Section 112 (C) of the Tax Code is clear in providing that the
120-day period should be counted from the date of its submission of the complete documents or from
August 28, 2008 and not from the date it filed its administrative claim on May 15, 2008. 23 Total Gas
argues that, since its claim was filed within the period of exception provided in CIR v. San Roque Power
Corporation24 (San Roque), it did not have to strictly comply with 120+30 day period before it could seek
judicial relief.25cralawred
Moreover, Total Gas questions the logic of the CTA En Banc which stated that the petition was filed both
belatedly and prematurely. Total Gas points out that on the one hand, the CTA En Banc ruled that it filed
the judicial claim belatedly as it was way beyond the 120+30 day period. Yet, it also affirmed the findings
of its division that its petition for review was prematurely filed since the 120-day period did not even
commence to run for lack of complete supporting documents.26
For Total Gas, the CTA En Banc violated the doctrine of stare decisis because the tax tribunal had, on
numerous occassions, held that the submission of incomplete supporting documents should not make the
judicial appeal premature and dismissible for lack of jurisdiction. In these decisions, the CTA En Banc had
previously held that non-compliance with RMO No. 53-98 should not be fatal since the requirements listed
therein refer to requirements for refund or tax credit in the administrative level for purposes of establishing
the authenticity of a taxpayer's claim; and that in the judicial level, it is the Rules of Court that govern and,
thus, whether or not the evidence submitted by the party to the court is sufficient lies within the sound
discretion of the court. Total Gas emphasizes that RMO No. 53-98 does not state that non-submission of
supporting documents will nullify the judicial claim. It posits that once a judicial claim is filed, what should
be examined are the evidence formally offered in the judicial proceedings. 27
Even assuming that the supporting documents submitted to the BIR were incomplete, Total Gas argues
that there was no legal basis to hold that the CIR could not decide or act on the claim for refund without
the complete supporting documents. It argues that under RMC No. 29-09, the BIR is tasked with the duty
to notify the taxpayer of the incompleteness of its supporting documents and, if the taxpayer fails to
complete the supporting supporting documents despite such notice, the same shall be denied. The same
regulation provides that for purposes of computing the 120-day period, it should be considered tolled
when the taxpayer is notified. Total Gas, however, insists that it was never notified and, therefore, was
justified in seeking judicial relief.28
Although Total Gas admits that RMC No. 29-09 was not yet issued at the time it filed its administrative
claim, the BIR still erred for not notifying them of their lack of supporting documents. According to Total
Gas, the power to notify a taxpayer of lacking documents and to deny its claim if the latter would not
comply is inherent in the CIR's power to decide refund cases pursuant to Section 4 of the NIRC. It adds
"[s]ound policy also dictates that it should be the taxpayer who should determine whether he has already
submitted all documents pertinent to his claim. To rule otherwise would result into a never-ending
conflict/issue as to the completeness of documents which, in turn, would delay the taxpayer's claim, and
would put to naught the protection afforded by Section 112 (C) of the Tax Code."29
In her Comment,30 the CIR echoed the ruling of the CTA En Banc, that Total Gas filed its petition out of
time. She countered that the 120-day period could not be counted from the time Total Gas submitted its
additional documents on August 28, 2008 because such an interpretation of Section 112(D) would
indefinitely extend the prescriptive period as provided in favor of the taxpayer.
In its Reply,31 Total Gas insisted that Section 112(C) stated that the 120-day period should be reckoned

from the date of submission of complete documents, and not from the date of the filing of the
administrative claim.
Ruling of the Court
The petition has merit.
Judicial claim timely filed
Section 112 (C) of the NIRC provides:chanRoblesvirtualLawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax. xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
xxxx
[Emphasis and Underscoring Supplied]
From the above, it is apparent that the CIR has 120 days from the date of submission of complete
documents to decide a claim for tax credit or refund of creditable input taxes. The taxpayer may, within
30 days from receipt of the denial of the claim or after the expiration of the 120-day period, which is
considered a "denial due to inaction," appeal the decision or unacted claim to the CTA.
To be clear, Section 112(C) categorically provides that the 120-day period is counted "from the date of
submission of complete documents in support of the application." Contrary to this mandate, the
CTA En Banc counted the running of the period from the date the application for refund was filed or May
15, 2008, and, thus, ruled that the judicial claim was belatedly filed.
This should be corrected.
Indeed, the 120-day period granted to the CIR to decide the administrative claim under the Section 112 is
primarily intended to benefit the taxpayer, to ensure that his claim is decided judiciously and expeditiously.
After all, the sooner the taxpayer successfully processes his refund, the sooner can such resources be
further reinvested to the business translating to greater efficiencies and productivities that would
ultimately uplift the general welfare. To allow the CIR to determine the completeness of the documents
submitted and, thus, dictate the running of the 120-day period, would undermine these objectives, as it
would provide the CIR the unbridled power to indefinitely delay the administrative claim, which would
ultimately prevent the filing of a judicial claim with the CTA.
A hypothetical situation illustrates the hazards of granting the CIR the authority to decide when complete
documents have been submitted - A taxpayer files its administrative claim for VAT refund/credit with
supporting documents. After 121 days, the CIR informs the taxpayer that it must submit additional
documents. Considering that the CIR had determined that complete documents have not yet been
submitted, the 120-day period to decide the administrative claim has not yet begun to run. In the
meantime, more than 120 days have already passed since the application with the supporting documents
was filed to the detriment of the taxpayer, who has no opportunity to file a judicial claim until the lapse of
the 120+30 day period in Section 112(C). With no limitation to the period for the CIR to determine when

complete documents have been submitted, the taxpayer may be left in a limbo and at the mercy of the
CIR, with no adequate remedy available to hasten the processing of its administrative claim.
Thus, the question must be asked: In an administrative claim for tax credit or refund of creditable input
VAT, from what point does the law allow the CIR to determine when it should decide an application for
refund? Or stated differently: Under present law, when should the submission of documents be deemed
"completed" for purposes of determining the running of the 120-day period?
Ideally, upon filing his administrative claim, a taxpayer should complete the necessary documents to
support his claim for tax credit or refund or for excess utilized VAT. After all, should the taxpayer decide to
submit additional documents and effectively extend the 120-period, it grants the CIR more time to decide
the claim. Moreover, it would be prejudicial to the interest of a taxpayer to prolong the period of
processing of his application before he may reap the benefits of his claim. Therefore,ideally, the CIR has
a period of 120 days from the date an administrative claim is filed within which to decide if a claim for tax
credit or refund of excess unutilized VAT has merit.
Thus, when the VAT was first introduced through Executive Order No. 273, 32 the pertinent rule was that:
(e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner shall
refund input taxes within 60 days from the date the application for refund was filed with him or his duly
authorized representative. No refund or input taxes shall be allowed unless the VAT-registered person
files an application for refund within the period prescribed in paragraphs (a), (b) and (c), as the case
maybe.
[Emphasis supplied]
Here, the CIR was not only given 60 days within which to decide an administrative claim for refund of
input taxes, but the beginning of the period was reckoned "from the date the application for refund was
filed."
When Republic Act (R.A.) No. 771633 was, however, enacted on May 5, 1994, the law was amendedto
read:
(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 for creditable input taxes within sixty (60)
days from the date of submission of complete documents in support of the application filed in
accordance with sub-paragraphs (a) and (b) hereof. In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days from the 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.
[Emphasis supplied]
Again, while the CIR was given only 60 days within which to act upon an administrative claim for refund or
tax credit, the period came to be reckoned "from the date of submission of complete documents in
support of the application." With this amendment, the date when a taxpayer made its submission of
complete documents became relevant. In order to ensure that such date was at least determinable, RMO
No. 4-94 provides:
REVENUE MEMORANDUM ORDER NO. 40-94
SUBJECT : Prescribing the Modified Procedures on the Processing of Claims for Value-Added Tax
Credit/Refund
III. Procedures
REGIONAL OFFICE
A. Revenue District Office
In General:chanRoblesvirtualLawlibrary
1. Ascertain the completeness of the supporting documents prior to the receipt of the application for VAT

credit/refund from the taxpayer.

2. Receive application for VAT Credit/Refund (BIR Form No. 2552) in three (3) copies in the following
manner:
a. stamp the word "RECEIVED" on the appropriate space provided in all copies of application;
b. indicate the claim number;
c. indicate the date of receipt; and
d. initial by receiving officer.
The application shall be received only if the required attachments prescribed in RAMO 1-91 have been
fully complied with x x x.
Then, when the NIRC34 was enacted on January 1, 1998, the rule was once more amended to read:
(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 compete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
[Emphasis supplied]
This time, the period granted to the CIR to act upon an admmistrative claim for refund was extended to
120 days. The reckoning point however, remained "from the date of submission of complete
documents."
Aware that not all taxpayers were able to file the complete documents to allow the CIR to properly
evaluate an administrative claim for tax credit or refund of creditable input taxes, the CIR issued RMC No.
49-2003, which provided:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the
supporting documents required by the investigating/processing office? When should the
investigating/processing office officially receive claims for tax credit/refund and what is the period required
to process such claims?
A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit
the documentary requirements unless given further extension by the head of the processing unit,
but such extension should not exceed thirty (30) days.
For claims to be filed by claimants with the respective investigating/processing office of the administrative
agency, the same shall be officially received only upon submission of complete documents.
For current and future claims for tax credit/refund, the same shall be processed within one hundred
twenty (120) days from receipt of the complete documents. If, in the course of the investigation and
processing of the claim, additional documents are required for the proper determination of the legitimate
amount of claim, the taxpayer-claimants shall submit such documents within thirty (30) days from
request of the investigating/processing office, which shall be construed as within the one hundred
twenty (120) day period.
[Emphases Supplied]
Consequently, upon filing of his application for tax credit or refund for excess creditable input taxes, the
taxpayer-claimant is given thirty (30) days within which to complete the required documents, unless given
further extension by the head of the processing unit. If, in the course of the investigation and processing

of the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office. Notice, by way of a request from the tax collection authority to produce the
complete documents in these cases, became essential. It is only upon the submission of these
documents that the 120-day period would begin to run.
Then, when R.A. No. 933735 was passed on July 1, 2005, the same provision under the NIRC was
retained. With the amendment to Section 112, particularly the deletion of what was once Section 112(B)
of the NIRC, Section 112 (D) was amended and renamed 112(C). Thus:
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer 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.
With the amendments only with respect to its place under Section 112, the Court finds that RMC No. 492003 should still be observed. Thus, taking the foregoing changes to the law altogether, it becomes
apparent that, for purposes of determining when the supporting documents have been completed it is
the taxpayer who ultimately determines when complete documents have been submitted for the purpose
of commencing and continuing the running of the 120-day period. After all, he may have already
completed the necessary documents the moment he filed his administrative claim, in which case, the 120day period is reckoned from the date of filing.
The taxpayer may have also filed the complete documents on the 30th day from filing of his application,
pursuant to RMC No. 49-2003. He may very well have filed his supporting documents on the first day he
was notified by the BIR of the lack of the necessary documents. In such cases, the 120-day period is
computed from the date the taxpayer is able to submit the complete documents in support of his
application.
Then, except in those instances where the BIR would require additional documents in order to fully
appreciate a claim for tax credit or refund, in terms what additional document must be presented in
support of a claim for tax credit or refund - it is the taxpayer who has that right and the burden of providing
any and all documents that would support his claim for tax credit or refund. After all, in a claim for tax
credit or refund, it is the taxpayer who has the burden to prove his cause of action. As such, he enjoys
relative freedom to submit such evidence to prove his claim.
The foregoing conclusion is but a logical consequence of the due process guarantee under the
Constitution. Corollary to the guarantee that one be afforded the opportunity to be heard, it goes without
saying that the applicant should be allowed reasonable freedom as to when and how to present his claim
within the allowable period.
Thereafter, whether these documents are actually complete as required by law - is for the CIR and
the courts to determine. Besides, as between a taxpayer-applicant, who seeks the refund of his
creditable input tax and the CIR, it cannot be denied that the former has greater interest in ensuring that
the complete set of documentary evidence is provided for proper evaluation of the State.
Lest it be misunderstood, the benefit given to the taxpayer to determine when it should complete its
submission of documents is not unbridled. Under RMC No. 49-2003, if in the course of the investigation
and processing of the claim, additional documents are required for the proper determination of the
legitimacy of the claim, the taxpayer-claimants shall submit such documents within thirty (30) days from
request of the investigating/processing office. Again, notice, by way of a request from the tax
collection authority to produce the complete documents in these cases, is essential.

Moreover, under Section 112(A) of the NIRC,36 as amended by RA 9337, a taxpayer has two (2) years,
after the close of the taxable quarter when the sales were made, to apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales. Thus, before the
adminstrative claim is barred by prescription, the taxpayer must be able to submit his complete
documents in support of the application filed. This is because, it is upon the complete submission of his
documents in support of his application that it can be said that the application was, "officially received" as
provided under RMC No. 49-2003.
To summarize, for the just disposition of the subject controversy, the rule is that from the date an
administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to
submit the documentary requirements sufficient to support his claim, unless given further extension by the
CIR. Then, upon filing by the taxpayer of his complete documents to support his application, or expiration
of the period given, the CIR has 120 days within which to decide the claim for tax credit or refund. Should
the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any other addition
documents to complete his administrative claim, the 120 day period allowed to the CIR begins to run from
the date of filing.
In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within
the two-year period under Section 112(A) of the NIRC. The 30-day period from denial of the claim or from
the expiration of the 120-day period within which to appeal the denial or inaction of the CIR to the CTA
must also be respected.
It bears mentioning at this point that the foregoing summation of the rules should only be made applicable
to those claims for tax credit or refund filed prior to June 11, 2014, such as the claim at bench. As it now
stands, RMC 54-2014 dated June 11, 2014 mandates that:
The application for VAT refund/tax credit must be accompanied by complete supporting
documents as enumerated in Annex "A" hereof. In addition, the taxpayer shall attach a statement under
oath attesting to the completeness of the submitted documents (Annex B). The affidavit shall further state
that the said documents are the only documents which the taxpayer will present to support the claim. If
the taxpayer is a juridical person, there should be a sworn statement that the officer signing the affidavit
(i.e., at the very least, the Chief Financial Officer) has been authorized by the Board of Directors of the
company.
Upon submission of the administrative claim and its supporting documents, the claim shall be processed
and no other documents shall be accepted/required from the taxpayer in the course of its evaluation. A
decision shall be rendered by the Commissioner based only on the documents submitted by the taxpayer.
The application for tax refund/tax credit shall be denied where the taxpayer/claimant failed to submit the
complete supporting documents. For this purpose, the concerned processing/investigating office shall
prepare and issue the corresponding Denial Letter to the taxpayer/claimant.
Thus, under the current rule, the reckoning of the 120-day period has been withdrawn from the taxpayer
by RMC 54-2014, since it requires him at the time he files his claim to complete his supporting documents
and attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is
barred from submitting additional documents after he has filed his administrative claim.
On this score, the Court finds that the foregoing issuance cannot be applied rectroactively to the case
at bar since it imposes new obligations upon taxpayers in order to perfect their administrative claim, that
is, [1] compliance with the mandate to submit the "supporting documents" enumerated under RMC 542014 under its "Annex A"; and [2] the filing of "a statement under oath attesting to the completeness of
the submitted documents," referred to in RMC 54-2014 as "Annex B." This should not prejudice taxpayers
who have every right to pursue their claims in the manner provided by existing regulations at the time it
was filed.
As provided under Section 246 of the Tax Code:
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversalof 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:chanRoblesvirtualLawlibrary
(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 and Italics Supplied]
Applying the foregoing precepts to the case at bench, it is observed that the CIR made no effort to
question the inadequacy of the documents submitted by Total Gas. It neither gave notice to Total Gas
that its documents were inadequate, nor ruled to deny its claim for failure to adequately substantiate its
claim. Thus, for purposes of counting the 120-day period, it should be reckoned from August 28, 2008,
the date when Total Gas made its "submission of complete documents to support its application" for
refund of excess unutilized input VAT. Consequently, counting from this later date, the BIR had 120 days
to decide the claim or until December 26, 2008. With absolutely no action or notice on the part of the BIR
for 120 days, Total Gas had 30 days or until January 25, 2009 to file its judicial claim.
Total Gas, thus, timely filed its judicial claim on January 23, 2009.
Anent RMO No. 53-98, the CTA Division found that the said order provided a checklist of documents for
the BIR to consider in granting claims for refund, and served as a guide for the courts in determining
whether the taxpayer had submitted complete supporting documents.
This should also be corrected.
To quote RMO No. 53-98:
REVENUE MEMORANDUM ORDER NO. 53-98
SUBJECT: Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as
well as of the Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which
Comprise a Complete Tax Docket.
TO: All Internal Revenue Officers, Employees and Others Concerned
I. BACKGROUND
It has been observed that for the same kind of tax audit case, Revenue Officers differ in their request for
requirements from taxpayers as well as in the attachments to the dockets resulting to tremendous
complaints from taxpayers and confusion among tax auditors and reviewers.
For equity and uniformity, this Bureau comes up with a prescribed list of requirements from taxpayers, per
kind of tax, as well as of the internally prepared reporting requirements, all of which comprise a complete
tax docket.
II. OBJECTIVE
This order is issued to:chanRoblesvirtualLawlibrary
a. Identify the documents to be required from a taxpayer during audit, according to particular kind of tax;
and
b. Identify the different audit reporting requirements to be prepared, submitted and attached to a tax audit

docket.
III. LIST OF REQUIREMENTS PER TAX TYPE
Income Tax/ Withholding Tax
- Annex A (3 pages)
Value Added Tax
- Annex B (2 pages)
- Annex B-1 (5 pages)
xxxx
As can be gleaned from the above, RMO No. 53-98 is addressed to internal revenue officers and
employees, for purposes of equity and uniformity, to guide them as to what documents they may require
taxpayers to present upon audit of their tax liabilities. Nothing stated in the issuance would show that it
was intended to be a benchmark in determining whether the documents submitted by a taxpayer
are actually complete to support a claim for tax credit or refund of excess unutilized excess VAT. As
expounded in Commissioner of Internal Revenue v. Team Sual Corporation(formerely Mir ant Sual
Corporation):37
The CIR's reliance on RMO 53-98 is misplaced. There is nothing in Section 112 of the NIRC. RR 3-88 or
RMO K3-Q8 itself that requires submission of the complete documents enumerated in RMO 53-98 for a
grant of a refund or credit of input VAT. The subject of RMO 53-98 states that it is a "Checklist of
Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities x x x." In this case, TSC was
applying for a grant of refund or credit of its input tax. There was no allegation of an audit being
conducted by the CIR. Even assuming that RMO 53-98 applies, it specifically states that some
documents are required to be submitted by the taxpayer "if applicable."
Moreover, if TSC indeed failed to submit the complete documents in support of its application, the CIR
could have informed TSC of its failure, consistent with Revenue Memorandum Circular No. (RMC) 4203. However, the CIR did not inform TSC of the document it failed to submit, even up to the present
petition. The CIR likewise raised the issue of TSC's alleged failure to submit the complete documents only
in its motion for reconsideration of the CTA Special First Division's 4 March 2010 Decision. Accordingly,
we affirm the CTA EB's finding that TSC filed its administrative claim on 21 December 2005, and
submitted the complete documents in support of its application for refund or credit of its input tax at the
same time.
[Emphasis included. Underlining Ours.]
As explained earlier and underlined in Team Sual above, taxpayers cannot simply be faulted for failing to
submit the complete documents enumerated in RMO No. 53-98, absent notice from a revenue officer or
employee that other documents are required. Granting that the BIR found that the documents submitted
by Total Gas were inadequate, it should have notified the latter of the inadequacy by sending it a request
to produce the necessary documents in order to make a just and expeditious resolution of the claim.
Indeed, a taxpayer's failure with the requirements listed under RMO No. 53-98 is not fatal to its claim for
tax credit or refund of excess unutilized excess VAT. This holds especially true when the application for
tax credit or refund of excess unutilized excess VAT has arrived at the judicial level. After all, in the
judicial level or when the case is elevated to the Court, the Rules of Court governs. Simply put, the
question of whether the evidence submitted by a party is sufficient to warrant the granting of its prayer lies
within the sound discretion and judgment of the Court.
At this point, it is worth emphasizing that the reckoning of the 120-day period from August 28, 2008
cannot be doubted. First, a review of the records of the case undubitably show that Total Gas filed its
supporting documents on August 28, 2008, together with a transmittal letter bearing the same date.
These documents were then stamped and signed as received by the appropriate officer of the
BIR.Second, contrary to RMO No. 40-94, which mandates officials of the BIR to indicate the date of
receipt of documents received by their office in every claim for refund or credit of VAT, the receiving

officer failed to indicate the precise date and time when he received these documents. Clearly, the error is
attributable to the BIR officials and should not prejudice Total Gas.
Third, it is observed that whether before the CTA or this Court, the BIR had never questioned the date it
received the supporting documents filed by Total Gas, or the propriety of the filing thereof. In contrast to
the contiuous efforts of Total Gas to complete the necessary documents needed to support its application,
all that was insisted by the CIR was that the reckoning period should be counted from the date Total Gas
filed its application for refund of excess unutilized input VAT. There being no question as to whether these
documents were actually received on August 28, 2008, this Court shall not, by way of conjecture, cast
doubt on the truthfullness on such submission. Finally, in consonance with the presumption that a person
acts in accordance with the ordinary course of business, it is presumed that such documents were
received on the date stated therein.
Verily, should there be any doubt on whether Total Gas filed its supporting documents on August 28,
2008, it is incumbent upon the CIR to allege and prove such assertion. As the saying goes, contra
preferentum.
If only to settle any doubt, this Court is by no means setting a precedent by leaving it to the mercy of the
taxpayer to determine when the 120- day reckoning period should begin to run by providing absolute
discretion as to when he must comply with the mandate submitting complete documents in support of his
claim. In addition to the limitations thoroughly discussed above, the peculiar circumstance applicable
herein, as to relieve Total Gas from the application of the rule, is the obvious failure of the BIR to
comply with the specific directive, under RMO 40-94, to stamp the date it received the supporting
documents which Total Gas had submitted to the BIR for its consideration in the processing of its claim.
The utter failure of the tax administrative agency to comply with this simple mandate to stamp the date it
receive the documents submitted by Total Gas - should not in any manner prejudice the taxpayer by
casting doubt as to when it was able to submit its complete documents for purposes of determing the
120-day period.
While it is still true a taxpayer must prove not only his entitlement to a refund but also his compliance with
the procedural due process38 - it also true that when the law or rule mandates that a party or authority
must comply with a specific obligation to perform an act for the benefit of another, the non-compliance
therof by the former should not operate to prejudice the latter, lest it render the nugatory the objective of
the rule. Such is the situation in case at bar.
Judicial claim not prematurely filed
The CTA En Banc curiously ruled in the assailed decision that the judicial claim of Total Gas was not only
belatedly filed, but prematurely filed as well, for failure of Total Gas to prove that it had submitted the
complete supporting documents to warrant the grant of the tax refund and to reckon the commencement
of the 120-day period. It asserted that Total Gas had failed to submit all the required documents to the
CIR and, thus, the 120-day period for the CIR to decide the claim had not yet begun to run, resulting in
the premature filing of the judicial claim. It wrote that the taxpayer must first submit the complete
supporting documents before the 120-day period could commence, and that the CIR could not decide the
claim for refund without the complete supporting documents.
The Court disagrees.
The alleged failure of Total Gas to submit the complete documents at the administrative level did not
render its petition for review with the CTA dismissible for lack of jurisdiction. First, the 120-day period had
commenced to run and the 120+30 day period was, in fact, complied with. As already discussed, it is the
taxpayer who determines when complete documents have been submitted for the purpose of the running
of the 120-day period. It must again be pointed out that this in no way precludes the CIR from requiring
additional documents necessary to decide the claim, or even denying the claim if the taxpayer fails to
submit the additional documents requested.

Second, the CIR sent no written notice informing Total Gas that the documents were incomplete or
required it to submit additional documents. As stated above, such notice by way of a written request is
required by the CIR to be sent to Total Gas. Neither was there any decision made denying the
administrative claim of Total Gas on the ground that it had failed to submit all the required documents. It
was precisely the inaction of the BIR which prompted Total Gas to file the judicial claim. Thus, by failing to
inform Total Gas of the need to submit any additional document, the BIR cannot now argue that the
judicial claim should be dismissed because it failed to submit complete documents.
Finally, it should be mentioned that the appeal made by Total Gas to the CTA cannot be said to be
premature on the ground that it did not observe the otherwise mandatory and juridictional 120+30 day
period. When Total Gas filed its appeal with the CTA on January 23, 2009, it simply relied on BIR Ruling
No. DA-489-03, which, at that time, was not yet struck down by the Court's ruling in Aichi. As
explained in San Roque, this Court recognized a period in time wherein the 120-day period need not be
strictly observed. Thus:
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.
xxxx
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this
Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional.
At this stage, a review of the nature of a judicial claim before the CTA is in order. In Atlas Consolidated
Mining and Development Corporation v. CIR, it was ruled x x x First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather
an appeal by way of petition for review of a previous, unsuccessful administrative claim. Therefore, as in
every appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial
agency a quo did not have any reason to deny its claims. In this case, it was necessary for petitioner to
show the CTA not only that it was entitled under substantive law to the grant of its claims but also that it
satisfied all the documentary and evidentiary requirements for an administrative claim for refund or tax
credit. Second, cases filed in the CTA are litigated de novo. Thus, a petitioner should prove every minute
aspect of its case by presenting, formally offering and submitting its evidence to the CTA. Since it is
crucial for a petitioner in a judicial claim for refund or tax credit to show that its administrative claim should
have been granted in the first place, part of the evidence to be submitted to the CTA must necessarily
include whatever is required for the successful prosecution of an administrative claim. 39
[Underscoring Supplied]
A distinction must, thus, be made between administrative cases appealed due to inaction and those
dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents. If
an administrative claim was dismissed by the CIR due to the taxpayer's failure to submit complete
documents despite notice/request, then the judicial claim before the CTA would be dismissible, not for
lack of jurisdiction, but for the taxpayer's failure to substantiate the claim at the administrative level. When
a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the
taxpayer has to convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes
imperative for the taxpayer to show the CTA that not only is he entitled under substantive law to his claim
for refund or tax credit, but also that he satisfied all the documentary and evidentiary requirements for an
administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refund or tax credit to show that
its administrative claim should have been granted in the first place. Consequently, a taxpayer cannot cure
its failure to submit a document requested by the BIR at the administrative level by filing the said
document before the CTA.

In the present case, however, Total Gas filed its judicial claim due to the inaction of the BIR. Considering
that the administrative claim was never acted upon; there was no decision for the CTA to review on
appeal per se. Consequently, the CTA may give credence to all evidence presented by Total Gas,
including those that may not have been submitted to the CIR as the case is being essentially decided in
the first instance. The Total Gas must prove every minute aspect of its case by presenting and formally
offering its evidence to the CTA, which must necessarily include whatever is required for the successful
prosecution of an administrative claim.40
The Court cannot, however, make a ruling on the issue of whether Total Gas is entitled to a refund or tax
credit certificate in the amount of P7,898,433.98. Considering that the judicial claim was denied due
course and dismissed by the CTA Division on the ground of premature and/or belated filing, no ruling on
the issue of Total Gas entitlement to the refund was made. The Court is not a trier of facts, especially
when such facts have not been ruled upon by the lower courts. The case shall, thus, be remanded to the
CTA Division for trial de novo.
WHEREFORE, the petition is PARTIALLY GRANTED. The October 11, 2012 Decision and the May 8,
2013 Resolution of the Court of Tax Appeals En Banc, in CTA EB No. 776 are REVERSED and SET
ASIDE.
The case is REMANDED to the CTA Third Division for trial de novo.
SO ORDERED.chanroblesvirtuallawlibrary

SECOND DIVISION
[G.R. No. 180173, April 06 : 2011]
MICROSOFT PHILIPPINES, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition[1] for review on certiorari assailing the Decision[2] dated 24 October 2007 of
the Court of Tax Appeals (CTA) En Banc in CTA EB No. 258, which affirmed the Decision[3]dated 31
August 2006 and Resolution[4] dated 8 January 2007 of the CTA Second Division in CTA Case No. 6681.
The Facts
Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly registered with
the Bureau of Internal Revenue (BIR). Microsoft renders marketing services to Microsoft Operations Pte
Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated non-resident foreign corporations. The
services are paid for in acceptable foreign currency and qualify as zero-rated sales for VAT purposes
under Section 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997,[5]as amended. Section
108(B)(2) states:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines
by VAT-registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported x x x;
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP); x x x
For the year 2001, Microsoft yielded total sales in the amount of P261,901,858.99. Of this amount,
P235,724,614.68 pertain to sales derived from services rendered to MOP and MLI while P26,177,244.31
refer to sales to various local customers. Microsoft paid VAT input taxes in the amount of P11,449,814.99
on its domestic purchases of taxable goods and services.
On 27 December 2002, Microsoft filed an administrative claim for tax credit of VAT input taxes in the
amount of P11,449,814.99 with the BIR. The administrative claim for tax credit was filed within two years
from the close of the taxable quarters when the zero-rated sales were made.
On 23 April 2003, due to the BIR's inaction, Microsoft filed a petition for review with the CTA. [6]Microsoft
claimed to be entitled to a refund of unutilized input VAT attributable to its zero-rated sales and prayed
that judgment be rendered directing the claim for tax credit or refund of VAT input taxes for taxable year
2001.
On 16 June 2003, respondent Commissioner of Internal Revenue (CIR) filed his answer and prayed for
the dismissal of the petition for review.
In a Decision dated 31 August 2006, the CTA Second Division denied the claim for tax credit of VAT input

taxes. The CTA explained that Microsoft failed to comply with the invoicing requirements of Sections 113
and 237 of the NIRC as well as Section 4.108-1 of Revenue Regulations No. 7-95[7] (RR 7-95). The CTA
stated that Microsoft's official receipts do not bear the imprinted word "zero-rated" on its face, thus, the
official receipts cannot be considered as valid evidence to prove zero-rated sales for VAT purposes.
Microsoft filed a motion for reconsideration which was denied by the CTA Second Division in a Resolution
dated 8 January 2007.
Microsoft then filed a petition for review with the CTA En Banc.[8] In a Decision dated 24 October 2007,
the CTA En Banc denied the petition for review and affirmed in toto the Decision dated 31 August 2006
and Resolution dated 8 January 2007 of the CTA Second Division. The CTA En Bancfound no new
matters that have not been considered and passed upon by the CTA Second Division and stated that the
petition had only been a mere rehash of the arguments earlier raised.
Hence, this petition.
The Issue
The main issue is whether Microsoft is entitled to a claim for a tax credit or refund of VAT input taxes on
domestic purchases of goods or services attributable to zero-rated sales for the year 2001 even if the
word "zero-rated" is not imprinted on Microsoft's official receipts.
The Court's Ruling
The petition lacks merit.
Microsoft insists that Sections 113 and 237 of the NIRC and Section 4.108-1 of RR 7-95 do not provide
that failure to indicate the word "zero-rated" in the invoices or receipts would result in the outright
invalidation of these invoices or receipts and the disallowance of a claim for tax credit or refund.
At the outset, a tax credit or refund, like tax exemption, is strictly construed against the taxpayer. [9]The
taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund or
credit, in this case VAT input tax, by submitting evidence that he has complied with the requirements laid
down in the tax code and the BIR's revenue regulations under which such privilege of credit or refund is
accorded.
Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VAT-registered
persons state:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.(A) Invoicing Requirements . - A VAT-registered person shall, for every sale, issue an invoice or
receipt. In addition to the information required under Section 237, the following information shall be
indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number
(TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that
such amount includes the value-added tax. x x x
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal
revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five
pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least
in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature
of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One

hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a
person liable to value-added tax to another person also liable to value-added tax; or where the receipt is
issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall
be issued which shall show the name, business style, if any, and address of the purchaser, customer or
client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the
information herein required, the invoice or receipt shall further show the Taxpayer Identification Number
(TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and
preserve the same in his place of business for a period of three (3) years from the close of the taxable
year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the
issuer, also in his place of business, for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from
compliance with the provisions of this Section.
Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which must appear
on the face of the official receipts or invoices for every sale of goods by VAT-registered persons. At the
time Microsoft filed its claim for credit of VAT input tax, RR 7-95 was already in effect. The provision
states:
Sec. 4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of
goods or properties or services, issue duly registered receipts or sales or commercial invoices which must
show:
1.
2.
3.
4.

the name, TIN and address of seller;

date of transaction;
quantity, unit cost and description of merchandise or nature of service;
the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or
client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
xxx
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their
invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by
invoices other than a "VAT invoice" shall not give rise to any input tax. (Emphasis supplied)
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue
regulations are clear. A VAT-registered taxpayer is required to comply with all the VAT invoicing
requirements to be able to file a claim for input taxes on domestic purchases for goods or services
attributable to zero-rated sales. A "VAT invoice" is an invoice that meets the requirements of Section
4.108-1 of RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly states that "[A]ll purchases covered
by invoices other than a VAT invoice shall not give rise to any input tax." Microsoft's invoice, lacking
the word "zero-rated," is not a "VAT invoice," and thus cannot give rise to any input tax.
The subsequent enactment of Republic Act No. 9337[10] on 1 November 2005 elevating provisions of RR
7-95 into law merely codified into law administrative regulations that already had the force and effect of
law. Such codification does not mean that prior to the codification the administrative regulations were not
enforceable.
We have ruled in several cases[11] that the printing of the word "zero-rated" is required to be placed on
VAT invoices or receipts covering zero-rated sales in order to be entitled to claim for tax credit or refund.

In Panasonic v. Commissioner of Internal Revenue,[12] we held that the appearance of the word "zerorated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT
from their purchases when no VAT is actually paid. Absent such word, the government may be refunding
taxes it did not collect.
Here, both the CTA Second Division and CTA En Banc found that Microsoft's receipts did not indicate the
word "zero-rated" on its official receipts. The findings of fact of the CTA are not to be disturbed unless
clearly shown to be unsupported by substantial evidence.[13] We see no reason to disturb the CTA's
findings. Indisputably, Microsoft failed to comply with the invoicing requirements of the NIRC and its
implementing revenue regulation to claim a tax credit or refund of VAT input tax for taxable year 2001.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 24 October 2007 of the Court of
Tax Appeals En Banc in CTA EB No. 258.
SO ORDERED.

FIRST DIVISION
G.R. No. 172378: January 17, 2011
SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING,
INC.),Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
DEL CASTILLO, J.:
The burden of proving entitlement to a refund lies with the claimant.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the
September 30, 2005 Decision1cralaw and the April 20, 2006 Resolution2cralaw of the Court of Tax
Appeals (CTA)En Banc.
Factual Antecedents
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, is engaged in the business of designing, developing,
manufacturing and exporting advance and large-scale integrated circuit components or
"IC's."3cralawPetitioner is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax
(VAT) taxpayer4cralaw and with the Board of Investments (BOI) as a preferred pioneer
enterprise.5cralawredlaw
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through
the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance
(DOF), an application for credit/refund of unutilized input VAT for the period October 1, 1998 to December
31, 1998 in the amount of P 31,902,507.50, broken down as follows: chanrob1esvirtwallawlibrary
Amount
Tax Paid on Imported/Locally Purchased Capital
Equipment

P 15,170,082.00

Total VAT paid on Purchases per Invoices

Received During the Period for which this
Application is Filed

16,732,425.50

Amount of Tax Credit/Refund Applied For

P 31,902,507.506cralaw

Proceedings before the CTA Division

On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for Review with
the CTA Division, docketed as CTA Case No. 6212. Petitioner alleged that for the 4th quarter of 1998, it
generated and recorded zero-rated export sales in the amount of P 3,027,880,818.42, paid to petitioner in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas;7cralaw and that for the said period, petitioner paid input VAT in the total
amount of P 31,902,507.50,8cralaw which have not been applied to any output VAT.9cralawredlaw
To this, respondent filed an Answer10cralaw raising the following special and affirmative defenses, to
wit:chanrob1esvirtwallawlibrary

8. The petition states no cause of action as it does not allege the dates when the taxes sought to be
refunded/credited were actually paid; chanroblesvirtualawlibrary
9. It is incumbent upon herein petitioner to show that it complied with the provisions of Section 229 of the
Tax Code as amended; chanroblesvirtualawlibrary
10. Claims for refund are construed strictly against the claimant, the same being in the nature of
exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co.
vs. Commissioner of Internal Revenue, 67 SCRA 35); chanroblesvirtualawlibrary
11. One who claims to be exempt from payment of a particular tax must do so under clear and
unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466; Union Garment Co.
vs. Court of Tax Appeals, 4 SCRA 304); chanroblesvirtualawlibrary
12. In an action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure
to sustain the same is fatal to the action for refund. Furthermore, as pointed out in the case of William Li
Yao vs. Collector (L-11875, December 28, 1963), amounts sought to be recovered or credited should be
shown to be taxes which are erroneously or illegally collected; that is to say, their payment was an
independent single act of voluntary payment of a tax believed to be due and collectible and accepted by
the government, which had therefor become part of the State moneys subject to expenditure and perhaps
already spent or appropriated; and
13. Taxes paid and collected are presumed to have been made in accordance with the law and
regulations, hence not refundable.11cralawredlaw
On November 18, 2003, the CTA Division rendered a Decision12cralaw partially granting petitioner's claim
for refund of unutilized input VAT on capital goods. Out of the amount of P 15,170,082.00,
only P9,898,867.00 was allowed to be refunded because training materials, office supplies, posters,
banners, T-shirts, books, and other similar items purchased by petitioner were not considered capital
goods under Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated Value-Added Tax
Regulations).13cralaw With regard to petitioner's claim for credit/refund of input VAT attributable to its
zero-rated export sales, the CTA Division denied the same because petitioner failed to present an
Authority to Print (ATP) from the BIR;14cralaw neither did it print on its export sales invoices the ATP and
the word "zero-rated."15cralaw Thus, the CTA Division disposed of the case in this
wise: chanrob1esvirtwallawlibrary
WHEREFORE, in view of the foregoing the instant petition for review is hereby PARTIALLY GRANTED.
Respondent is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced
amount of P9,898,867.00 representing input VAT on importation of capital goods. However, the claim for
refund of input VAT attributable to petitioner's alleged zero-rated sales in the amount of P16,732,425.50 is
hereby DENIED for lack of merit.
SO ORDERED.16cralawredlaw
Not satisfied with the Decision, petitioner moved for reconsideration. 17cralaw It claimed that it is not
required to secure an ATP since it has a "Permit to Adopt Computerized Accounting Documents such as
Sales Invoice and Official Receipts" from the BIR.18cralaw Petitioner further argued that because all its
finished products are exported to its mother company, Intel Corporation, a non-resident corporation and a
non-VAT registered entity, the printing of the word "zero-rated" on its export sales invoices is not
necessary.19cralawredlaw
On its part, respondent filed a Motion for Partial Reconsideration20cralaw contending that petitioner is not
entitled to a credit/refund of unutilized input VAT on capital goods because it failed to show that the goods

imported/purchased are indeed capital goods as defined in Section 4.106-1 of RR No. 795.21cralawredlaw
The CTA Division denied both motions in a Resolution22cralaw dated August 10, 2004. It noted
that: chanrob1esvirtwallawlibrary
[P]etitioner's request for Permit to Adopt Computerized Accounting Documents such as Sales Invoice and
Official Receipt was approved on August 31, 2001 while the period involved in this case was October 31,
1998 to December 31, 1998 x x x. While it appears that petitioner was previously issued a permit by the
BIR Makati Branch, such permit was only limited to the use of computerized books of account x x x. It was
only on August 31, 2001 that petitioner was permitted to generate computerized sales invoices and
official receipts [provided that the BIR Permit Number is printed] in the header of the document x x x.
xxx
Thus, petitioner's contention that it is not required to show its BIR permit number on the sales invoices
runs counter to the requirements under the said "Permit." This court also wonders why petitioner was
issuing computer generated sales invoices during the period involved (October 1998 to December 1998)
when it did not have an authority or permit. Therefore, we are convinced that such documents lack
probative value and should be treated as inadmissible, incompetent and immaterial to prove petitioner's
export sales transaction.
xxx
ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed
by petitioner as well as the Motion for Partial Reconsideration of respondent are hereby DENIED for lack
of merit. The pronouncement in the assailed decision is REITERATED.
SO ORDERED23cralawredlaw
Ruling of the CTA En Banc
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review,24cralaw docketed
as EB Case No. 23.
On September 30, 2005, the CTA En Banc issued the assailed Decision25cralaw denying the petition for
lack of merit. Pertinent portions of the Decision read: chanrob1esvirtwallawlibrary
This Court notes that petitioner raised the same issues which have already been thoroughly discussed in
the assailed Decision, as well as, in the Resolution denying petitioner's Motion for Partial Reconsideration.
With regard to the first assigned error, this Court reiterates that, the requirement of [printing] the BIR
permit to print on the face of the sales invoices and official receipts is a control mechanism adopted by
the Bureau of Internal Revenue to safeguard the interest of the government.
This requirement is clearly mandated under Section 238 of the 1997 National Internal Revenue Code,
which provides that: chanrob1esvirtwallawlibrary
SEC. 238. Printing of Receipts or Sales or Commercial Invoice. - All persons who are engaged in
business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or
commercial invoices before a printer can print the same.

The above mentioned provision seeks to eliminate the use of unregistered and double or multiple sets of
receipts by striking at the very root of the problem - the printer (H. S. de Leon, The National Internal
Revenue Code Annotated, 7th Ed., p. 901). And what better way to prove that the required permit to print
was secured from the Bureau of Internal Revenue than to show or print the same on the face of the
invoices. There can be no other valid proof of compliance with the above provision than to show the
Authority to Print Permit number [printed] on the sales invoices and official receipts.
With regard to petitioner's failure to print the word "zero-rated" on the face of its export sales invoices, it
must be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically requires that all
value-added tax registered persons shall, for every sale or lease of goods or properties or services, issue
duly registered invoices which must show the word "zero-rated" [printed] on the invoices covering zerorated sales.
It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial
evidence. Well settled in our jurisprudence [is] that tax refunds are in the nature of tax exemptions and as
such, they are regarded as in derogation of sovereign authority (Commissioner of Internal Revenue vs.
Ledesma, 31 SCRA 95). Thus, tax refunds are construed in strictissimi juris against the person or entity
claiming the same (Commissioner of Internal Revenue vs. Procter & Gamble Philippines Manufacturing
Corporation, 204 SCRA 377; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA
332).
In this case, not only should petitioner establish that it is entitled to the claim but it must most importantly
show proof of compliance with the substantiation requirements as mandated by law or regulations.
The rest of the assigned errors pertain to the alleged errors of the First Division: in finding that the
petitioner failed to comply with the substantiation requirements provided by law in proving its claim for
refund; in reducing the amount of petitioner's tax credit for input vat on importation of capital goods; and in
denying petitioner's claim for refund of input vat attributable to petitioner's zero-rated sales.
It is petitioner's contention that it has clearly established its right to the tax credit or refund by way of
substantial evidence in the form of material and documentary evidence and it would be improper to set
aside with haste the claimed input VAT on capital goods expended for training materials, office supplies,
posters, banners, t-shirts, books and the like because Revenue Regulations No. 7-95 defines capital
goods as to include even those goods which are indirectly used in the production or sale of taxable goods
or services.
Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95, refer
"to goods or properties with estimated useful life greater than one year and which are treated as
depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of taxable
goods or services." chanroblesvirtualawlibrary
Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and the
like) purchased by petitioner as reflected in the summary were not duly proven to have been used,
directly or indirectly[,] in the production or sale of taxable goods or services, the same cannot be
considered as capital goods as defined above[. Consequently,] the same may not x x x then [be] claimed
as such.
WHEREFORE, in view of the foregoing, this instant Petition for Review is herebyDENIED DUE
COURSE and hereby DISMISSED for lack of merit. This Court's Decision of November 18, 2003 and
Resolution of August 10, 2004 are hereby AFFIRMED in all respects.
SO ORDERED.26cralawredlaw

Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the
Motion27cralaw in a Resolution28cralaw dated April 20, 2006.
Issues
Hence, the instant Petition raising the following issues for resolution: chanrob1esvirtwallawlibrary
(1) whether the CTA En Banc erred in denying petitioner's claim for credit/ refund of input VAT attributable
to its zero-rated sales in the amount of P 16,732,425.00 due to its failure: chanrob1esvirtwallawlibrary
(a) to show that it secured an ATP from the BIR and to indicate the same in its export sales invoices; and
(b) to print the word "zero-rated" in its export sales invoices.29cralawredlaw
(2) whether the CTA En Banc erred in ruling that only the amount of P 9,898,867.00 can be classified as
input VAT paid on capital goods.30cralawredlaw
Petitioner's Arguments
Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable to its
zero-rated sales has no legal basis because the printing of the ATP and the word "zero-rated" on the
export sales invoices are not required under Sections 113 and 237 of the National Internal Revenue Code
(NIRC).31cralaw And since there is no law requiring the ATP and the word "zero-rated" to be indicated on
the sales invoices,32cralaw the absence of such information in the sales invoices should not invalidate the
petition33cralaw nor result in the outright denial of a claim for tax credit/refund.34cralaw To support its
position, petitioner cites Intel Technology Philippines, Inc. v. Commissioner of Internal
Revenue,35cralawwhere Intel's failure to print the ATP on the sales invoices or receipts did not result in
the outright denial of its claim for tax credit/refund.36cralaw Although the cited case only dealt with the
printing of the ATP, petitioner submits that the reasoning in that case should also apply to the printing of
the word "zero-rated."37cralaw Hence, failure to print of the word "zero-rated" on the sales invoices should
not result in the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently proven
through testimonial and documentary evidence that all the goods purchased were used in the production
and manufacture of its finished products which were sold and exported. 38cralawredlaw
Respondent's Arguments
To refute petitioner's arguments, respondent asserts that the printing of the ATP on the export sales
invoices, which serves as a control mechanism for the BIR, is mandated by Section 238 of the
NIRC;39cralaw while the printing of the word "zero-rated" on the export sales invoices, which seeks to
prevent purchasers of zero-rated sales or services from claiming non-existent input VAT
credit/refund,40cralaw is required under RR No. 7-95, promulgated pursuant to Section 244 of the
NIRC.41cralawWith regard to the unutilized input VAT on capital goods, respondent counters that
petitioner failed to show that the goods it purchased/imported are capital goods as defined in Section
4.106-1 of RR No. 7-95.42cralawredlaw
Our Ruling
The petition is bereft of merit.

Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zero-rated
sales under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on capital goods
pursuant to Section 112 (B) of the same Code.
Credit/refund of input VAT on zero-rated sales
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A)43cralaw of the
NIRC lays down four requisites, to wit: chanrob1esvirtwallawlibrary
1) the taxpayer must be VAT-registered; chanroblesvirtualawlibrary
2) the taxpayer must be engaged in sales which are zero-rated or effectively zerorated; chanroblesvirtualawlibrary
3) the claim must be filed within two years after the close of the taxable quarter when such sales were
made; and
4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax,
to the extent that such input tax has not been applied against the output tax.
To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices, certifications of
inward remittance, export declarations, and airway bills of lading for the fourth quarter of 1998. The CTA
Division, however, found the export sales invoices of no probative value in establishing petitioner's zerorated sales for the purpose of claiming credit/refund of input VAT because petitioner failed to show that it
has an ATP from the BIR and to indicate the ATP and the word "zero-rated" in its export sales
invoices.44cralaw The CTA Division cited as basis Sections 113,45cralaw 23746cralawand 23847cralaw of
the NIRC, in relation to Section 4.108-1 of RR No. 7-95.48cralawredlaw
We partly agree with the CTA.
Printing the ATP on the invoices or receipts is not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue 49cralaw that
the ATP need not be reflected or indicated in the invoices or receipts because there is no law or
regulation requiring it.50cralaw Thus, in the absence of such law or regulation, failure to print the ATP on
the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices
or receipts for purposes of claiming a refund.51cralawredlaw
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of the
NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing
invoices or receipts. Failure to do so makes the person liable under Section 264 52cralaw of the NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is
required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices or
receipts.
We rule in the affirmative.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or
effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must
be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify

whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from
the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose of
refund. In the case of Intel, we emphasized that: chanrob1esvirtwallawlibrary
It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations
implementing them require entities engaged in business to secure a BIR authority to print invoices or
receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR
authority to print be reflected or indicated therein. Indeed, what is important with respect to the BIR
authority to print is that it has been secured or obtained by the taxpayer, and that invoices or
receipts are duly registered. 53cralaw (Emphasis supplied)
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input
VAT
Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for
credit/refund of input VAT on zero-rated sales.
In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business
Machine Corporation of the Philippines) v. Commissioner of Internal Revenue, 54cralaw we upheld the
denial of Panasonic's claim for tax credit/refund due to the absence of the word "zero-rated" in its invoices.
We explained that compliance with Section 4.108-1 of RR 7-95, requiring the printing of the word "zero
rated" on the invoice covering zero-rated sales, is essential as this regulation proceeds from the rulemaking authority of the Secretary of Finance under Section 24455cralaw of the NIRC.
All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or
receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the
ATP in the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its
ATP and to print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of
the CTA in denying outright petitioner's claim for credit/refund of input VAT attributable to its zero-rated
sales.
Credit/refund of input VAT on capital goods
Capital goods are defined under Section 4.106-1(b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B)56cralaw of the NIRC requires
that: chanrob1esvirtwallawlibrary
1. the claimant must be a VAT registered person; chanroblesvirtualawlibrary
2. the input taxes claimed must have been paid on capital goods; chanroblesvirtualawlibrary
3. the input taxes must not have been applied against any output tax liability; and
4. the administrative claim for refund must have been filed within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as
follows: chanrob1esvirtwallawlibrary
"Capital goods or properties" refer to goods or properties with estimated useful life greater that one year
and which are treated as depreciable assets under Section 29 (f), 57cralaw used directly or indirectly in the
production or sale of taxable goods or services.

Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training
materials, office supplies, posters, banners, T-shirts, books, and the other similar items reflected in
petitioner's Summary of Importation of Goods are not capital goods. A reduction in the refundable input
VAT on capital goods from P 15,170,082.00 to P 9,898,867.00 is therefore in order.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30, 2005 and the
Resolution dated April 20, 2006 of the Court of Tax Appeals En Banc are hereby AFFIRMED.
SO ORDERED.