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Conflicting VAT refund doctrines

The Supreme Court (SC) clarified in the Mirant case that the two-year prescriptive period for filing a claim for tax refund under Section 229 of the Tax Code applies only to erroneous payments whereas Section 112(A) governs a claim for tax refund of unutilized input value-added tax (VAT) payments arising from zero-rated sales [Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly Southern Energy Quezon, Inc.), G.R. No. 172129, September 12, 2008]. Contrary to this, the Atlas Doctrine states that the two years within which to file a claim should be reckoned from the date of filing of the corresponding quarterly VAT return (Atlas Consolidated Mining & Development Corporation vs. CIR, G.R. Nos. 141104 & 148763, June 8, 2007). Based on the Mirant case, the Court of Tax Appeals (CTA) has been consistently denying applications for refund of input VAT on the basis of prescription, i.e., claim for tax refund of unutilized input VAT should be filed not later than two years from the close of the taxable quarter when the sales were made. It is important to note that the Mirant Case is just a decision of the SC in Division while the Atlas case is a decision by the SC En Banc. Justice Ernesto D. Acosta, Presiding Justice of the CTA En Banc, in a number of cases has challenged this position on the following grounds: 1. The "close of the taxable quarter" deadline applies only to the period to file the application for refund. Taxpayers go to the CTA to appeal not to "file", hence, said deadline should not apply to the filing of the appeal at the CTA. Justice Acosta is correct that a taxpayer therefore should file the application for refund with the Bureau of Internal Revenue (BIR) not later than two years from the close of the taxable quarter when the sales were made. However, the phrase when the sales were made must be construed carefully and correctly. However, it is worth noting that Section 112 reckons the two-year prescription from the close of the taxable quarter when the sales were made and not when the purchases were made. It appears that the SC in the Mirant case reckoned the two-year prescriptive

period to claim for refund of unutilized input tax, from the time the company made its purchases of goods and services. This is not in consonance with the letter of the law which states that refund of unutilized input tax prescribes two years from the end of the close of the taxable quarter when the sales were made. Naturally, purchases by a company are made before it sells goods and services since it is assumed that the goods and services that it sells are made out of such purchases. If the reckoning period of the two-year prescription is at the time of sale, it follows that as far as refund of unutilized input tax is concerned, the period of limitation is beyond the close of the taxable quarter when input VAT is recorded, i.e. purchases are made. 2. A correct interpretation of Sec 112 is: The BIR shall have 120 days from submission of documents to decide on the application. A taxpayer has 30 days to appeal before CTA upon denial,. A taxpayer has 30 days to appeal before CTA upon inaction,.

In cases where a taxpayer files an application with the BIR close to the expiration of the two-year period, Justice Acosta maintains that the 120-day waiting period and 30-day appeal period will be rendered useless. He further asserts that the Court becomes a processor of administrative claim instead of a decision-maker. However, this opinion runs contrary to the prevailing SC doctrine that claims for refund with the BIR and the subsequent appeal to the CTA must be filed within the two-year period. In other words, as long as the administrative claim for refund and the appeal to the CTA are filed within the two-year period, it is considered as having been seasonably filed. Doctrines are being overturned and justices have differing opinions as regards prescription on claims for VAT refund. It would be for the benefit of both the taxpayers and the government if the SC finally resolves these issues.