Republic of the Philippines

Supreme Court January 20, 1994, it filed its VAT return for the fourth quarter of 1993, showing a total input
Manila tax of P863,556,963.74 and an excess VAT credit of P842,336,291.60 and, on January 25,

1996, it applied for a tax refund or a tax credit certificate for the latter amount with
SECOND DIVISION
respondent Commissioner of Internal Revenue (CIR). On the same date, petitioner filed the

same claim for refund with the Court of Tax Appeals (CTA), claiming that the two-year
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, G.R. No. 159471
Petitioner, prescriptive period provided for under Section 230 of the Tax Code for claiming a refund was
Present:
about to expire. The CIR failed to file his answer with the CTA; thus, the former declared the
CARPIO, J., Chairperson, latter in default.
- versus - PERALTA,
ABAD,
PEREZ,* and On August 24, 1998, the CTA rendered its Decision[3] denying petitioner's claim for refund
MENDOZA, JJ.
COMMISSIONER OF INTERNAL REVENUE, due to petitioner's failure to comply with the documentary requirements prescribed under
Respondent. Promulgated:
Section 16 of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88,
January 26, 2011 dated April 7, 1988. The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing, the instant Petition for Review is

hereby DISMISSED for lack of merit.

SO ORDERED.[4]

x-----------------------------------------------------------------------------------------x
Petitioner filed a Motion for Reconsideration[5] praying for the reopening of the case in order

for it to present the required documents, together with its proof of non-availment for prior
DECISION
and succeeding quarters of the input VAT subject of petitioner's claim for refund. The CTA
PERALTA, J.: granted the motion in its Resolution[6] dated October 29, 1998. Thereafter, in a

Resolution[7] dated June 21, 2000, the CTA denied petitioner's claim. It ruled that the action
For this Court's resolution is the Petition for Review on Certiorari under Rule 45 of the has already prescribed and that petitioner has failed to substantiate its claim that it has not
Revised Rules of Civil Procedure assailing the Decision[1] dated April 19, 2001 and applied its alleged excess input taxes to any of its subsequent quarter's output tax liability.
Resolution[2] dated August 6, 2003 of the Court of Appeals (CA).

The facts, as shown in the records, are the following:
Under Section 100 of the Tax Code of the Philippines, petitioner is a zero-rated Value Added
Tax (VAT) person for being an exporter of copper concentrates. According to petitioner, on
The CTA's Decision and Resolution were questioned in the CA. However, the CA
affirmed in toto the said Decision and Resolution, disposing the case as follows:
WHEREFORE, the petition is DISMISSED for lack of merit. The
questioned Decision of the CTA dated August 24, 1998 and the Resolution
dated June 21, 2000 are AFFIRMED in toto.
 SO ORDERED.[8]
petitioner with the amount of P26,030,460.00, representing the input VAT it had paid for the

Subsequently, petitioner's Motion for Reconsideration[9] of the CA's Decision was denied in a first quarter of 1992. Both, the CTA and the CA denied the claims of petitioner, ratiocinating

Resolution[10] dated August 6, 2003. that its claim has been filed beyond the prescriptive period provided by law and that

evidence presented was insufficient.

Thus, the present petition.

Petitioner lists the following as grounds for his petition: In the present case, petitioner is basically asking this Court to review the factual findings of

the CTA and the CA. Petitioner insists that it had presented the necessary documents or
I copies thereof with the CTA that would prove that it is entitled to a tax refund.Again, citing
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM
FOR REFUND HAS PRESCRIBED, DESPITE FAILURE OF RESPONDENT AND the earlier case of Atlas Consolidated Mining and Development Corporation v. CIR, [13] this
THE COURT OF TAX APPEALS TO RAISE THE ISSUE OF PRESCRIPTION IN
Court has expounded the nature and bases of claiming tax refund, thus:
RESPONDENT'S ANSWER OR IN THE CTA'S ORIGINAL DECISION DATED 16
SEPTEMBER 1998.
Applications for refund/credit of input VAT with the BIR must comply
with the appropriate revenue regulations. As this Court has already ruled,
II
Revenue Regulations No. 2-88 is not relevant to the applications for
THE COURT OF APPEALS ERRED IN UPHOLDING THE COURT OF TAX
refund/credit of input VAT filed by petitioner corporation; nonetheless,
APPEALS' FINDING IN ITS DECISION DATED 24 AUGUST 1998 THAT
the said applications must have been in accordance with Revenue
PETITIONER, IN NOT SUBMITTING ITS EXPORT DOCUMENTS, FAILED TO
Regulations No. 3-88, amending Section 16 of Revenue Regulations No. 5-
PRESENT ADEQUATE PROOF THAT ITS INPUT TAXES ARE DIRECTLY
87, which provided as follows
ATTRIBUTABLE TO ITS EXPORT SALES.
SECTION 16. Refunds or tax credits of input tax.
III
THE COURT OF APPEALS ERRED IN UPHOLDING THE COURT OF TAX
xxxx
APPEALS FINDING THAT PETITIONER FAILED TO PRESENT ADEQUATE
PROOF THAT IT HAD NOT APPLIED THE CLAIMED INPUT TAX TO ITS
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of
OUTPUT TAXES FROM PRIOR AND SUCCEEDING QUARTERS.[11]
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
Petitioner herein had, in the past, similar petitions with this Court regarding the denial of its Commissioner, Attention: VAT Division.

claims for tax refund of the input VAT on its purchases of capital goods and on its zero-rated
sales. In Atlas Consolidated Mining and Development Corporation v. CIR,[12] petitioner filed
with the Bureau of Internal Revenue (BIR) its VAT Return for the first quarter of 1992 and
also alleged that it 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
xxxx
of P26,030,460.00. Its application for refund/credit remained having been unresolved by the
BIR, petitioner filed with the CTA, on April 20, 1994, a Petition for Review. Claiming to be a
zero-rated VAT person, petitioner prayed that the CTA order the CIR to refund/credit
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:
3. Effectively zero-rated sale of goods and
services.
 i) photocopy 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 value-
added tax paid and description of the capital
equipment locally purchased.
ii) with respect to capital equipment imported, the
photocopy 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 applicants 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 covering the said accounts or payments to be
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 taxpayers 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 vs. 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
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.[14]
As to the evidence that must be presented, the provisions of the pertinent laws provide:
Section 106, Tax Code
Refunds or tax credits of input tax. - (a) Any VAT-registered person,
whose sales are 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 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 case of zero-rated sales under Section 100 (a) (2) (A)
(I), (ii) and (b) and Section 102 (b) (1) and (2), the acceptable foreign
currency exchange proceeds thereof have been duly accounted for in
accordance with the 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.
Section 16 of Revenue Regulations No. 5-87, as amended by Revenue
Regulations No. 3-88, dated April 7, 1988
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:
1. Export Sales
i) Photocopy of export document showing the
amount of export, the date and destination of the
goods exported. With respect to foreign currency
denominated sale, the photocopy of the invoice or
receipt evidencing the sale of the goods, as well as
the name of the person to whom the goods were
delivered.
ii) Statement from the Central Bank or any of its
accredited agent banks that the proceeds of the sale
in acceptable foreign currency has been inwardly
remitted and accounted for in accordance with
applicable banking regulations.
xxxx
In all cases, the amount of refund or tax credit that may be granted shall
be limited to the amount of 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.
The CTA, applying the abovementioned rules, in its Decision dated August 24, 1998, came
out with the following factual findings:
The formal offer of evidence of the petitioner failed to include
photocopy of its export documents, as required. There is no way
therefore, in determining the kind of goods and actual amount of export
sales it allegedly made during the quarter involved. This finding is very
crucial when we try to relate it with the requirement of the
aforementioned regulations that the input tax being claimed for refund
or tax credit must be shown to be entirely attributable to the zero-rated
transaction, in this case, export sales of goods. Without the export
documents, the purchase invoice/receipts submitted by the petitioner
as proof of its input taxes cannot be verified as being directly
attributable to the goods so exported.
Lastly, We cannot grant petitioner's claim for credit or refund of input
taxes due to its failure to show convincingly that the same has not been
applied to any of its output tax liability as provided under Section 106 (a)
of the Tax Code. There is no evidence to show that the amount herein
claimed for refund when applied for on January 25, 1996 has not been
priorly or thereafter applied to its output tax liability.[15]
The above factual findings of the CTA were even bolstered when it granted petitioner's
motion for reconsideration allowing petitioner to submit the necessary documents and
other pieces of evidence, so as to comply with the requirements provided for by
law. However, despite such allowance, petitioner still failed to comply. Thus, in its
Resolution[16] dated June 21, 2000, the CTA finally disposed the case by ruling that:
The Court finds and so holds that Petitioner failed again to
present proof that it has not applied the alleged excess input taxes to
any of its subsequent quarter's output tax liability. In this Court's
decision dated August 24, 1998, We already mentioned that petitioner
failed to convince us that its input taxes have not been applied to any of
 its output tax liability as provided under Section 106 (a). Now on its
second opportunity to substantiate its claim, Petitioner again failed to
prove this particular allegation. Petitioner merely presented in evidence
the following documents to show that it has not applied the amount
of P4,534,933.74, subject of the claim, to its 1994 first quarter output
tax liability, to wit:
Exhibits
1.) Output/Input VAT (Per Return) Listings T
for the first quarter of 1994
2.) Schedule of Output Taxes for the month U, U-1 to U-2
of January 1994 U-3 to U-5
3.) Schedule of Materials and Supplies for V, V-1 to V-9
for the first quarter of 1994
4.) Schedule of Output Taxes for the month W, W-1 to W-4
of February 1994
Nowhere in all the documents submitted to this Court by the Petitioner
can We find its 1994 first quarter VAT return which, to Our mind and as
repeatedly ruled in a litany of cases, is necessary for purposes of
determining with particular certainty whether or not the claimed input
taxes were applied to any of its output tax liability in the first quarter or
in the succeeding quarters of 1994. And there is no reason at this point
for Us to digress from this ruling.[17]
The above factual findings were affirmed and accorded respect by the CA. Nevertheless,
petitioner insists that it has submitted documents and other pieces of evidence, except
those required by law, that would establish the existence of the input VAT for the fourth
quarter of 1993 and that the excess input VAT claimed for refund or tax credit has not been
applied to its output tax liability for prior and succeeding quarters.
The above argument, however, is flawed. It must be remembered that when claiming tax
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 taxpayers VAT returns.
Thus, an application for tax refund/credit must be accompanied by copies of the taxpayers
VAT return/s for the taxable quarter/s concerned.[18] The CTA and the CA, based on their
appreciation of the evidence presented, committed no error when they declared that
petitioner failed to prove that it is entitled to a tax refund and this Court, not being a trier
of facts, must defer to their findings. Again, as aptly ruled by this Court in Atlas:[19]
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. 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.
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."
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, 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 non-compliance
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.[20]
Taxation is a destructive power which interferes with the personal and property rights of the
people and takes from them a portion of their property for the support of the
government. And, since taxes are what we pay for civilized society, or are the lifeblood of the

nation, the law frowns against exemptions from taxation and statutes granting tax

exemptions are thus construed strictissimi jurisagainst the taxpayer and liberally in favor of

the taxing authority. A claim of refund or exemption from tax payments must be clearly

shown and be based on language in the law too plain to be mistaken. Elsewise stated,

taxation is the rule, exemption therefrom is the exception.[21]

Anent the issue of prescription, wherein petitioner questions the ruling of the CA that the

former's claim for refund has prescribed, disregarding the failure of respondent

Commissioner of Internal Revenue and the CTA to raise the said issue in their answer and

original decision, respectively, this Court finds the same moot and academic. Although it

may appear that the CTA only brought up the issue of prescription in its later resolution and

not in its original decision, its ruling on the merits of the application for refund, could only

imply that the issue of prescription was not the main consideration for the denial of

petitioner's claim for tax refund.Otherwise, the CTA would have just denied the application

on the ground of prescription.

WHEREFORE, the Petition is hereby DENIED for lack of merit. The Decision and
Resolution of the Court of Appeals, dated April 19, 2001 and August 6, 2003, respectively,

are hereby AFFIRMED.

 EN BANC
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
RENATO V. DIAZ and G.R. No. 193007
AURORA MA. F. TIMBOL, (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners, Present:
CORONA, C.J.,
CARPIO, Petitioners claim that, since the VAT would result in increased toll fees, they have
VELASCO, JR., an interest as regular users of tollways in stopping the BIR action. Additionally, Diaz claims
LEONARDO-DE CASTRO,
BRION, that he sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT
- versus - PERALTA, Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the
BERSAMIN,*
House of Representatives. Timbol, on the other hand, claims that she served as Assistant
DEL CASTILLO,
ABAD, Secretary of the Department of Trade and Industry and consultant of the Toll Regulatory
VILLARAMA, JR.,
Board (TRB) in the past administration.
PEREZ,
MENDOZA, and
SERENO,** JJ. Petitioners allege that the BIR attempted during the administration of President
THE SECRETARY OF FINANCE
and THE COMMISSIONER OF Promulgated: Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however,
INTERNAL REVENUE, in view of the consistent opposition of Diaz and other sectors to such move. But, upon
Respondents. July 19, 2011
President Benigno C. Aquino IIIs assumption of office in 2010, the BIR revived the idea and
x ---------------------------------------------------------------------------------------- x would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially
enjoined.

DECISION 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
ABAD, J.:
fee is a users 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
May toll fees collected by tollway operators be subjected to value- added tax? toll fees, its imposition would violate the non-impairment clause of the constitution.

On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining
The Facts and the Case 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 input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be

prohibition.[3] implemented.

The Issues Presented

On August 23, 2010 the Office of the Solicitor General filed the governments comment.[4] The

government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, The case presents two procedural issues:

including tollway operations, except where the law provides otherwise; that the Court should
1. Whether or not the Court may treat the petition for declaratory relief as one for
seek the meaning and intent of the law from the words used in the statute; and that the
prohibition; and
imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
rulings and circulars.[5]

The government also argues that petitioners have no right to invoke the non- The case also presents two substantive issues:

impairment of contracts clause since they clearly have no personal interest in existing toll
1. Whether or not the government is unlawfully expanding VAT coverage by
operating agreements (TOAs) between the government and tollway operators. At any rate, including tollway operators and tollway operations in the terms franchise grantees and sale
the non-impairment clause cannot limit the States sovereign taxing power which is generally of services under Section 108 of the Code; and

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
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 VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll
The Courts Rulings
fees would have very minimal effect on motorists using the tollways.

A. On the Procedural Issues:

In their reply[6] to the governments comment, petitioners point out that tollway

operators cannot be regarded as franchise grantees under the NIRC since they do not hold
On August 24, 2010 the Court issued a resolution, treating the petition as one for
legislative franchises. Further, the BIR intends to collect the VAT by rounding off the toll rate
prohibition rather than one for declaratory relief, the characterization that petitioners Diaz
and putting any excess collection in an escrow account. But this would be illegal since only
and Timbol gave their action. The government has sought reconsideration of the Courts
the Congress can modify VAT rates and authorize its disbursement. Finally, BIR Revenue
resolution,[7] however, arguing that petitioners allegations clearly made out a case for
Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record an
declaratory relief, an action over which the Court has no original jurisdiction. The
accumulated input VAT of zero balance in their books as of August 16, 2010, contravenes
government adds, moreover, that the petition does not meet the requirements of Rule 65 for
Section 111 of the NIRC which grants entities that first become liable to VAT a transitional
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 governments 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 VATs 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 It does not help petitioners cause that Section 108 subjects to VAT all kinds of

especially excludes it. 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

Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the to VAT need not fall under the traditional concept of services, the personal or professional

Toll Operation Decree establishes the legal basis for the services that tollway operators kinds that require the use of human knowledge and skills.

render. Essentially, tollway operators construct, maintain, and operate expressways, also

called tollways, at the operators expense. Tollways serve as alternatives to regular public And not only do tollway operators come under the broad term all kinds of services, they also

highways that meander through populated areas and branch out to local roads. Traffic in the come under the specific class described in Section 108 as all other franchise grantees who are

regular public highways is for this reason slow-moving. In consideration for constructing subject to VAT, except those under Section 119 of this Code.

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 Tollway operators are franchise grantees and they do not belong to exceptions (the

earn reasonable returns from their investments. 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

When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters payment of VAT. The word franchise broadly covers government grants of a special right to

use of the tollway facilities over which the operator enjoys private proprietary rights [12] that do an act or series of acts of public concern.[14]

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 Petitioners of course contend that tollway operators cannot be considered
facilities for a fee: 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
1. Lessors of property, whether personal or real;
legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films; making a distinction between franchises granted by Congress and franchises granted by some
4. Proprietors, operators or keepers of hotels, motels,
other government agency. The latter, properly constituted, may grant franchises. Indeed,
resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money); franchises conferred or granted by local authorities, as agents of the state, constitute as
6. Transportation contractors on their transport of goods or much a legislative franchise as though the grant had been made by Congress itself.[15] The
cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of term franchise has been broadly construed as referring, not only to authorizations that
goods or cargoes; and Congress directly issues in the form of a special law, but also to those granted by
7. Common carriers by air and sea relative to their transport of
administrative agencies to which the power to grant franchises has been delegated by
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines. 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 users 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.
TheMIAA Airport Lands and Buildings constitute a port constructed by
the State. Under Article 420 of the Civil Code,
the MIAAAirport 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 users 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 users tax
is more equitable a principle of taxation mandated in the 1987
Constitution.[23] (Underscoring supplied)
 in the construction, maintenance and operation of the tollways, as well as to assure them a

Petitioners assume that what the Court said above, equating terminal fees to a reasonable margin of income. Although toll fees are charged for the use of public facilities,

users tax must also pertain to tollway fees. But the main issue in the MIAA case was whether therefore, they are not government exactions that can be properly treated as a tax. Taxes

or not Paraaque City could sell airport lands and buildings under MIAA administration at may be imposed only by the government under its sovereign authority, toll fees may be

public auction to satisfy unpaid real estate taxes. Since local governments have no power to demanded by either the government or private individuals or entities, as an attribute of

tax the national government, the Court held that the City could not proceed with the auction ownership.[28]

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 Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature

the commerce of man under Article 420(1)[25] of the Civil Code and could not be sold at public of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for

auction. 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

As can be seen, the discussion in the MIAA case on toll roads and toll fees was transferred is not the sellers liability but merely the burden of the VAT.[29]

made, not to establish a rule that tollway fees are users tax, but to make the point that

airport lands and buildings are properties of public dominion and that the collection of Thus, the seller remains directly and legally liable for payment of the VAT, but the

terminal fees for their use does not make them private properties. Tollway fees are not buyer bears its burden since the amount of VAT paid by the former is added to the selling

taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general price. Once shifted, the VAT ceases to be a tax[30] and simply becomes part of the cost that

coffers of the government. the buyer must pay in order to purchase the good, property or service.
It would of course be another matter if Congress enacts a law imposing a users tax,

collectible from motorists, for the construction and maintenance of certain roadways. The Consequently, VAT on tollway operations is not really a tax on the tollway user, but

tax in such a case goes directly to the government for the replenishment of resources it on the tollway operator. Under Section 105 of the Code, [31] VAT is imposed on any person

spends for the roadways. This is not the case here. What the government seeks to tax here who, in the course of trade or business, sells or renders services for a fee. In other words, the

are fees collected from tollways that are constructed, maintained, and operated by private seller of services, who in this case is the tollway operator, is the person liable for VAT. The

tollway operators at their own expense under the build, operate, and transfer scheme that latter merely shifts the burden of VAT to the tollway user as part of the toll fees.

the government has adopted for expressways.[26] Except for a fraction given to the For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees

government, the toll fees essentially end up as earnings of the tollway operators. were deemed as a users tax. VAT is assessed against the tollway operators gross receipts and

not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden

any sense. A tax is imposed under the taxing power of the government principally for the simply becomes part of the toll fees that one has to pay in order to use the tollways. [32]

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
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause Here, it remains to be seen how the taxing authority will actually implement the

on behalf of private investors in the tollway projects. She will neither be prejudiced by nor be VAT on tollway operations. Any declaration by the Court that the manner of its

affected by the alleged diminution in return of investments that may result from the VAT implementation is illegal or unconstitutional would be premature. Although the transcript of

imposition. She has no interest at all in the profits to be earned under the TOAs. The interest the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go

in and right to recover investments solely belongs to the private tollway investors. 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

Besides, her allegation that the private investors rate of recovery will be adversely enforced must first be addressed to the BIR on whom the task of implementing tax laws

affected by imposing VAT on tollway operations is purely speculative. Equally presumptuous primarily and exclusively rests. The Court cannot preempt the BIRs discretion on the matter,

is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor Action absent any clear violation of law or the Constitution.

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 For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-

on uncertain, prophetic grounds. 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

Four. Finally, petitioners assert that the substantiation requirements for claiming effect. The issuance allegedly violates Section 111(A)[36] of the Code which grants first time

input VAT make the VAT on tollway operations impractical and incapable of implementation. VAT payers a transitional input VAT of 2% on beginning inventory.

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 In this connection, the BIR explained that BIR RMC 63-2010 is actually the product
which the BIR intends to implement the VAT by rounding off the toll rate and putting any of negotiations with tollway operators who have been assessed VAT as early as 2005, but

excess collection in an escrow account is also illegal, while the alternative of giving change to failed to charge VAT-inclusive toll fees which by now can no longer be collected. The tollway

thousands of motorists in order to meet the exact toll rate would be a logistical nightmare. operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their

Thus, according to them, the VAT on tollway operations is not administratively feasible.[33] past due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to

the tollway operators who have not questioned the circulars validity. They are thus the ones

Administrative feasibility is one of the canons of a sound tax system. It simply who have a right to challenge the circular in a direct and proper action brought for the

means that the tax system should be capable of being effectively administered and enforced purpose.

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 Conclusion
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 In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative

aspect of it is shown to violate any law or the Constitution. or expand the VAT laws coverage when she sought to impose VAT on tollway

operations. Section 108(A) of the Code clearly states that services of all other franchise
 Republic of the Philippines
grantees are subject to VAT, except as may be provided under Section 119 of the SUPREME COURT
Code. Tollway operators are not among the franchise grantees subject to franchise tax under Manila
SECOND DIVISION
the latter provision. Neither are their services among the VAT-exempt transactions under G.R. No. 183505 February 26, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
Section 109 of the Code.
vs.
SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT
CORPORATION, Respondents.
If the legislative intent was to exempt tollway operations from VAT, as petitioners DECISION
DEL CASTILLO, J.:
so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions
When the intent of the law is not apparent as worded, or when the application of the law
must be justified by clear statutory grant and based on language in the law too plain to be would lead to absurdity or injustice, legislative history is all important. In such cases, courts
may take judicial notice of the origin and history of the law, 1 the deliberations during the
mistaken.[37] But as the law is written, no such exemption obtains for tollway operators. The enactment,2 as well as prior laws on the same subject matter 3 to ascertain the true intent or
Court is thus duty-bound to simply apply the law as it is found. spirit of the law.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to
Republic Act (RA) No. 9282,4 seeks to set aside the April 30, 2008 Decision5 and the June 24,
2008 Resolution6 of the Court of Tax Appeals (CTA).
Lastly, the grant of tax exemption is a matter of legislative policy that is within the Factual Antecedents
exclusive prerogative of Congress. The Courts role is to merely uphold this legislative policy, Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under the laws
as reflected first and foremost in the language of the tax statute. Thus, any unwarranted of the Republic of the Philippines. Both are engaged in the business of operating cinema
houses, among others.7
burden that may be perceived to result from enforcing such policy must be properly referred
CTA Case No. 7079
to Congress. The Court has no discretion on the matter but simply applies the law. On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary
Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales in the
amount of P119,276,047.40 for taxable year 2000.8 In response, SM Prime filed a letter-
protest dated December 15, 2003.9
The VAT on franchise grantees has been in the statute books since 1994 when R.A.
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged
7716 or the Expanded Value-Added Tax law was passed. It is only now, however, that the VAT deficiency, which the latter protested in a letter dated January 14, 2004.10
On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay
executive has earnestly pursued the VAT imposition against tollway operators. The executive the VAT deficiency for taxable year 2000 in the amount of P124,035,874.12.11
On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA
exercises exclusive discretion in matters pertaining to the implementation and execution of
Case No. 7079.12
tax laws. Consequently, the executive is more properly suited to deal with the immediate and CTA Case No. 7085
On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on
practical consequences of the VAT imposition. cinema ticket sales for taxable year 1999 in the total amount of P35,823,680.93.13 First Asia
protested the PAN in a letter dated July 9, 2002.14
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which
WHEREFORE, the Court DENIES respondents Secretary of Finance and was protested by First Asia in a letter dated December 12, 2002.15
On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First
Commissioner of Internal Revenues motion for reconsideration of its August 24, 2010 Asia to pay the amount of P35,823,680.93 for VAT deficiency for taxable year 1999.16
resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA,
docketed as CTA Case No. 7085.17
lack of merit, and SETS ASIDE the Courts temporary restraining order dated August 13, 2010. CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales
SO ORDERED.
for taxable year 2000 in the amount of P35,840,895.78. First Asia protested the PAN through
a letter dated April 22, 2004.18
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency.19 First Asia
protested the same in a letter dated July 9, 2004.20
On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT
deficiency in the amount ofP35,840,895.78 for taxable year 2000.21
This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004.
The case was docketed as CTA Case No. 7111.22
CTA Case No. 7272
Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount
of P32,802,912.21 was issued against First Asia by the BIR. In response, First Asia filed a
protest-letter dated November 11, 2004. The BIR then sent a Formal Letter of Demand,
which was protested by First Asia on December 14, 2004.23
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of P28,196,376.46 for
the taxable year 2003 was issued by the BIR against First Asia. In a letter dated September
23, 2004, First Asia protested the PAN. A Formal Letter of Demand was thereafter issued by
the BIR to First Asia, which the latter protested through a letter dated November 11, 2004. 24
On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to
pay the amounts ofP33,610,202.91 and P28,590,826.50 for VAT deficiency for taxable years
2002 and 2003, respectively.25
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA
Case No. 7272.26
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM
Prime and First Asia.27
On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272
with CTA Case No. 7079 on the grounds that the issues raised therein are identical and that
SM Prime is a majority shareholder of First Asia. The motion was granted. 28
Upon submission of the parties’ respective memoranda, the consolidated cases were
submitted for decision on the sole issue of whether gross receipts derived from admission
tickets by cinema/theater operators or proprietors are subject to VAT.29
Ruling of the CTA First Division
On September 22, 2006, the First Division of the CTA rendered a Decision granting the
Petition for Review. Resorting to the language used and the legislative history of the law, it
ruled that the activity of showing cinematographic films is not a service covered by VAT
under the National Internal Revenue Code (NIRC) of 1997, as amended, but an activity
subject to amusement tax under RA 7160, otherwise known as the Local Government Code
(LGC) of 1991. Citing House Joint Resolution No. 13, entitled "Joint Resolution Expressing the
True Intent of Congress with Respect to the Prevailing Tax Regime in the Theater and Local
Film Industry Consistent with the State’s Policy to Have a Viable, Sustainable and Competitive
Theater and Film Industry as One of its Partners in National Development,"30 the CTA First
Division held that the House of Representatives resolved that there should only be one
business tax applicable to theaters and movie houses, which is the 30% amusement tax
imposed by cities and provinces under the LGC of 1991. Further, it held that consistent with
the State’s policy to have a viable, sustainable and competitive theater and film industry, the
national government should be precluded from imposing its own business tax in addition to
that already imposed and collected by local government units. The CTA First Division likewise
found that Revenue Memorandum Circular (RMC) No. 28-2001, which imposes VAT on gross
receipts from admission to cinema houses, cannot be given force and effect because it failed
to comply with the procedural due process for tax issuances under RMC No. 20-86.31 Thus, it
disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review.
Respondent’s Decisions denying petitioners’ protests against deficiency value-added taxes
are hereby REVERSED. Accordingly, Assessment Notices Nos. VT-00-000098, VT-99-000057,
VT-00-000122, 003-03 and 008-02 are ORDEREDcancelled and set aside.
SO ORDERED.32
Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its
Resolution dated December 14, 2006.33
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc.34 The case was docketed as CTA EB No. 244.35 The
CTA En Banchowever denied36 the Petition for Review and dismissed37 as well petitioner’s
Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive
enumeration of what services are intended to be subject to VAT. And since the showing or
exhibition of motion pictures, films or movies by cinema operators or proprietors is not
among the enumerated activities contemplated in the phrase "sale or exchange of services,"
then gross receipts derived by cinema/ theater operators or proprietors from admission
tickets in showing motion pictures, film or movie are not subject to VAT. It reiterated that the
exhibition or showing of motion pictures, films, or movies is instead subject to amusement
tax under the LGC of 1991. As regards the validity of RMC No. 28-2001, the CTA En Banc
agreed with its First Division that the same cannot be given force and effect for failure to
comply with RMC No. 20-86.
Issue
Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by operators/proprietors of cinema
houses from admission tickets [are] subject to the 10% VAT because:
(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS TO THE
PAYING PUBLIC IS A SALE OF SERVICE;
(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE EXPRESSLY SUBJECT TO
VAT UNDER SECTION 108 OF THE NIRC OF 1997;
(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW AND THE
APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND EXTRINSIC AIDS IS
UNWARRANTED;
(d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION ARE
APPLICABLE HEREIN, STILL THE HONORABLE COURT ERRONEOUSLY APPLIED THE
SAME AND PROMULGATED DANGEROUS PRECEDENTS;
(e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING RESPONDENTS’
SERVICES FROM THE VAT IMPOSED UNDER SECTION 108 OF THE NIRC OF 1997;
(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES TO BE
TRIED BY THE HONORABLE COURT; and
(g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION 108 OF THE
NIRC.
(2) In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in
coverage;
(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is
merely subject to the amusement tax imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.38
Simply put, the issue in this case is whether the gross receipts derived by operators or
proprietors of cinema/theater houses from admission tickets are subject to VAT.
Petitioner’s Arguments
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC
is not exhaustive because it covers all sales of services unless exempted by law. He claims
that the CTA erred in applying the rules on statutory construction and in using extrinsic aids
in interpreting Section 108 because the provision is clear and unambiguous. Thus, he
maintains that the exhibition of movies by cinema operators or proprietors to the paying
public, being a sale of service, is subject to VAT.
Respondents’ Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of
1997 shows that the gross receipts of proprietors or operators of cinemas/theaters derived
from public admission are not among the services subject to VAT. Respondents insist that
gross receipts from cinema/theater admission tickets were never intended to be subject to
any tax imposed by the national government. According to them, the absence of gross
receipts from cinema/theater admission tickets from the list of services which are subject to
the national amusement tax under Section 125 of the NIRC of 1997 reinforces this legislative
intent. Respondents also highlight the fact that RMC No. 28-2001 on which the deficiency
assessments were based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or real;
warehousing services; lessors or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land, air and water relative to their transport of goods or
cargoes; services of franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of this Code;
services of banks, non-bank financial intermediaries and finance companies; and non-life
insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase "sale or
exchange of services" shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or other like
property or right;
xxxx
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and
cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale
or exchange of services" subject to VAT is not exhaustive. The words, "including," "similar
services," and "shall likewise include," indicate that the enumeration is by way of example
only.39
Among those included in the enumeration is the "lease of motion picture films, films, tapes
and discs." This, however, is not the same as the showing or exhibition of motion pictures or
films. As pointed out by the CTA En Banc:
"Exhibition" in Black’s Law Dictionary is defined as "To show or display. x x x To produce
anything in public so that it may be taken into possession" (6th ed., p. 573). While the word
"lease" is defined as "a contract by which one owning such property grants to another the
right to possess, use and enjoy it on specified period of time in exchange for periodic
payment of a stipulated price, referred to as rent (Black’s Law Dictionary, 6th ed., p. 889). x x
x40
Since the activity of showing motion pictures, films or movies by cinema/ theater operators
or proprietors is not included in the enumeration, it is incumbent upon the court to the
determine whether such activity falls under the phrase "similar services." The intent of the
legislature must therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
Under the NIRC of 1939,41 the national government imposed amusement tax on proprietors,
lessees, or operators of theaters, cinematographs, concert halls, circuses, boxing exhibitions,
and other places of amusement, including cockpits, race tracks, and cabaret.42 In the case of
theaters or cinematographs, the taxes were first deducted, withheld, and paid by the
proprietors, lessees, or operators of such theaters or cinematographs before the gross
receipts were divided between the proprietors, lessees, or operators of the theaters or
cinematographs and the distributors of the cinematographic films. Section 1143 of the Local
Tax Code,44 however, amended this provision by transferring the power to impose
amusement tax45 on admission from theaters, cinematographs, concert halls, circuses and
other places of amusements exclusively to the local government. Thus, when the NIRC of
197746 was enacted, the national government imposed amusement tax only on proprietors,
lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks.47
On January 1, 1988, the VAT Law48 was promulgated. It amended certain provisions of the
NIRC of 1977 by imposing a multi-stage VAT to replace the tax on original and subsequent
sales tax and percentage tax on certain services. It imposed VAT on sales of services under
Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. — (a) Rate and base of tax. — There shall
be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross
receipts derived by any person engaged in the sale of services. The phrase "sale of services"
means the performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of
personal property; lessors or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties: Provided That the following services performed in the
Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, x x x
xxxx
"Gross receipts" means the total amount of money or its equivalent
representing the contract price, compensation or service fee, including
the amount charged for materials supplied with the services and deposits
or advance payments actually or constructively received during the
taxable quarter for the service performed or to be performed for another
person, excluding value-added tax.
(b) Determination of the tax. — (1) Tax billed as a separate item in the
invoice. — If the tax is billed as a separate item in the invoice, the tax
shall be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. — If the tax is
not billed separately or is billed erroneously in the invoice, the tax shall be
determined by multiplying the gross receipts (including the amount intended to
cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were
exempted from the coverage of VAT.49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which
clarified that the power to impose amusement tax on gross receipts derived from admission
tickets was exclusive with the local government units and that only the gross receipts of
amusement places derived from sources other than from admission tickets were subject to
amusement tax under the NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on
gross receipts arising from admission to places of amusement has been transferred to the
local governments to the exclusion of the national government.
xxxx
Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the
amendatory laws which amended the National Internal Revenue Code, including the value
added tax law under Executive Order No. 273, has amended the provisions of Section 11 of
the Local Tax Code. Accordingly, the sole jurisdiction for collection of amusement tax on
admission receipts in places of amusement rests exclusively on the local government, to the
exclusion of the national government. Since the Bureau of Internal Revenue is an agency of
the national government, then it follows that it has no legal mandate to levy amusement tax
on admission receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under Section 123 of the National
Internal Revenue Code as renumbered by Executive Order No. 273 (Sec. 228, old NIRC)
pertaining to amusement taxes on places of amusement shall be implemented in accordance
with BIR RULING, dated December 4, 1973 and BIR RULING NO. 231-86 dated November 5,
1986 to wit:
"x x x Accordingly, only the gross receipts of the amusement places derived from sources
other than from admission tickets shall be subject to x x x amusement tax prescribed under
Section 228 of the Tax Code, as amended (now Section 123, NIRC, as amended by E.O.
273). The tax on gross receipts derived from admission tickets shall be levied and collected
by the city government pursuant to Section 23 of Presidential Decree No. 231, as amended
x x x" or by the provincial government, pursuant to Section 11 of P.D. 231, otherwise
known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local government retained
the power to impose amusement tax on proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of
not more than thirty percent (30%) of the gross receipts from admission fees under Section
140 thereof.50 In the case of theaters or cinemas, the tax shall first be deducted and withheld
by their proprietors, lessees, or operators and paid to the local government before the gross
receipts are divided between said proprietors, lessees, or operators and the distributors of
the cinematographic films. However, the provision in the Local Tax Code expressly excluding
the national government from collecting tax from the proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses and other places of amusements was no
longer included.
In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its
administration. Three years later, RA 7716 was amended by RA 8241. Shortly thereafter, the
NIRC of 199751 was signed into law. Several amendments52 were made to expand the
coverage of VAT. However, none pertain to cinema/theater operators or proprietors. At
present, only lessors or distributors of cinematographic films are subject to VAT. While
persons subject to amusement tax53 under the NIRC of 1997 are exempt from the coverage
of VAT.54
Based on the foregoing, the following facts can be established:
(1) Historically, the activity of showing motion pictures, films or movies by
cinema/theater operators or proprietors has always been considered as a form of
entertainment subject to amusement tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the
national government.
(3) When the Local Tax Code was enacted, amusement tax on admission tickets
from theaters, cinematographs, concert halls, circuses and other places of
amusements were transferred to the local government.
(4) Under the NIRC of 1977, the national government imposed amusement tax only
on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and
race tracks.
(5) The VAT law was enacted to replace the tax on original and subsequent sales
tax and percentage tax on certain services.
(6) When the VAT law was implemented, it exempted persons subject to
amusement tax under the NIRC from the coverage of VAT.1auuphil
(7) When the Local Tax Code was repealed by the LGC of 1991, the local
government continued to impose amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of amusements.
(8) Amendments to the VAT law have been consistent in exempting persons subject
to amusement tax under the NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films are included in the
coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the
amusement tax. This holds true even in the case of cinema/theater operators taxed under
the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax
on certain services. The mere fact that they are taxed by the local government unit and not
by the national government is immaterial. The Local Tax Code, in transferring the power to
tax gross receipts derived by cinema/theater operators or proprietor from admission tickets
to the local government, did not intend to treat cinema/theater houses as a separate class.
No distinction must, therefore, be made between the places of amusement taxed by the which imposes VAT on the gross receipts from admission to cinema houses must be struck
national government and those taxed by the local government. down. We cannot overemphasize that RMCs must not override, supplant, or modify the law,
To hold otherwise would impose an unreasonable burden on cinema/theater houses but must remain consistent and in harmony with, the law they seek to apply and
operators or proprietors, who would be paying an additional 10% 55 VAT on top of the 30% implement.60
amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax. Such In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied
imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a with the procedural due process for tax issuances as prescribed under RMC No. 20-86.
better position than those taxed under the LGC of 1991. We need not belabor that a literal Rule on tax exemption does not apply
application of a law must be rejected if it will operate unjustly or lead to absurd Moreover, contrary to the view of petitioner, respondents need not prove their entitlement
results.56 Thus, we are convinced that the legislature never intended to include to an exemption from the coverage of VAT. The rule that tax exemptions should be
cinema/theater operators or proprietors in the coverage of VAT. construed strictly against the taxpayer presupposes that the taxpayer is clearly subject to the
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals,57 to wit: tax being levied against him.61 The reason is obvious: it is both illogical and impractical to
The power of taxation is sometimes called also the power to destroy. Therefore, it should be determine who are exempted without first determining who are covered by the
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be provision.62Thus, unless a statute imposes a tax clearly, expressly and unambiguously, what
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden applies is the equally well-settled rule that the imposition of a tax cannot be presumed. 63 In
egg." And, in order to maintain the general public's trust and confidence in the Government fact, in case of doubt, tax laws must be construed strictly against the government and in
this power must be used justly and not treacherously. favor of the taxpayer.64
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court
VAT of Tax AppealsEn Banc holding that gross receipts derived by respondents from admission
Petitioner, in issuing the assessment notices for deficiency VAT against respondents, tickets in showing motion pictures, films or movies are not subject to value-added tax under
ratiocinated that: Section 108 of the National Internal Revenue Code of 1997, as amended, and its June 24,
Basically, it was acknowledged that a cinema/theater operator was then subject to 2008 Resolution denying the motion for reconsideration are AFFIRMED.
amusement tax under Section 260 of Commonwealth Act No. 466, otherwise known as the SO ORDERED.
National Internal Revenue Code of 1939, computed on the amount paid for admission. With MARIANO C. DEL CASTILLO
the enactment of the Local Tax Code under Presidential Decree (PD) No. 231, dated June 28, Associate Justice
1973, the power of imposing taxes on gross receipts from admission of persons to
cinema/theater and other places of amusement had, thereafter, been transferred to the
provincial government, to the exclusion of the national or municipal government (Sections 11
& 13, Local Tax Code). However, the said provision containing the exclusive power of the
provincial government to impose amusement tax, had also been repealed and/or deleted by
Republic Act (RA) No. 7160, otherwise known as the Local Government Code of 1991,
enacted into law on October 10, 1991. Accordingly, the enactment of RA No. 7160, thus,
eliminating the statutory prohibition on the national government to impose business tax on
gross receipts from admission of persons to places of amusement, led the way to the valid
imposition of the VAT pursuant to Section 102 (now Section 108) of the old Tax Code, as
amended by the Expanded VAT Law (RA No. 7716) and which was implemented beginning
January 1, 1996.58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of
VAT on the gross receipts of cinema/theater operators or proprietors derived from admission
tickets. The removal of the prohibition under the Local Tax Code did not grant nor restore to
the national government the power to impose amusement tax on cinema/theater operators
or proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a
burden on the taxpayer, it cannot be presumed nor can it be extended by implication. A law
will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously.59 As it is, the power to impose amusement tax on cinema/theater operators
or proprietors remains with the local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets, RMC No. 28-2001
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 173425 September 4, 2012
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE
DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.
DECISION
DEL CASTILLO, J.:
Courts cannot limit the application or coverage of a law, nor can it impose conditions not
provided therein. To do so constitutes judicial legislation.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the July 7,
2006 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 61436, the dispositive portion
of which reads.
WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision dated
October 12, 2000 of the Court of Tax Appeals in CTA Case No. 5735, denying petitioner’s
claim for refund in the amount of Three Hundred Fifty-Nine Million Six Hundred Fifty-Two
Thousand Nine Pesos and Forty-Seven Centavos (P 359,652,009.47), is hereby AFFIRMED.
SO ORDERED.2
Factual Antecedents
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic
corporation engaged in the development and sale of real property. 3 The Bases Conversion
Development Authority (BCDA), a wholly owned government corporation created under
Republic Act (RA) No. 7227,4 owns 45% of petitioner’s issued and outstanding capital stock;
while the Bonifacio Land Corporation, a consortium of private domestic corporations, owns
the remaining 55%.5
On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40, 6 dated December 8,
1992, petitioner purchased from the national government a portion of the Fort Bonifacio
reservation, now known as the Fort Bonifacio Global City (Global City).7
On January 1, 1996, RA 77168 restructured the Value-Added Tax (VAT) system by amending
certain provisions of the old National Internal Revenue Code (NIRC). RA 7716 extended the
coverage of VAT to real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business.9
On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue (BIR)
Revenue District No. 44, Taguig and Pateros, an inventory of all its real properties, the book
value of which aggregated P71,227,503,200.10 Based on this value, petitioner claimed that it
is entitled to a transitional input tax credit of P5,698,200,256,11 pursuant to Section 10512 of
the old NIRC.
In October 1996, petitioner started selling Global City lots to interested buyers.13
For the first quarter of 1997, petitioner generated a total amount of P 3,685,356,539.50 from
its sales and lease of lots, on which the output VAT payable
was P 368,535,653.95.14 Petitioner paid the output VAT by making cash payments to the BIR
totalling P 359,652,009.47 and crediting its unutilized input tax credit on purchases of goods
and services of P 8,883,644.48.15
Realizing that its transitional input tax credit was not applied in computing its output VAT for
the first quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim for
refund of the amount of P 359,652,009.47 erroneously paid as output VAT for the said
period.16
Ruling of the Court of Tax Appeals
On February 24, 1999, due to the inaction of the respondent Commissioner of Internal
Revenue (CIR), petitioner elevated the matter to the Court of Tax Appeals (CTA) via a Petition
for Review.17
In opposing the claim for refund, respondents interposed the following special and
affirmative defenses:
xxxx
8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as
amended by E.O. 273, the basis of the presumptive input tax, in the case of real estate
dealers, is the improvements, such as buildings, roads, drainage systems, and other similar
structures, constructed on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on September 19,
1996, failed to comply with the aforesaid revenue regulations mandating that for purposes of
availing the presumptive input tax credits under its Transitory Provisions, "an inventory as of
December 31, 1995, of such goods or properties and improvements showing the quantity,
description, and amount should be filed with the RDO no later than January 31, 1996. x x x"18
On October 12, 2000, the CTA denied petitioner’s claim for refund. According to the CTA,
"the benefit of transitional input tax credit comes with the condition that business taxes
should have been paid first."19 In this case, since petitioner acquired the Global City property
under a VAT-free sale transaction, it cannot avail of the transitional input tax credit. 20 The
CTA likewise pointed out that under Revenue Regulations No. (RR) 7-95, implementing
Section 105 of the old NIRC, the 8% transitional input tax credit should be based on the value
of the improvements on land such as buildings, roads, drainage system and other similar
structures, constructed on or after January 1, 1998, and not on the book value of the real
property.21 Thus, the CTA disposed of the case in this manner:
WHEREFORE, in view of all the foregoing, the claim for refund representing alleged overpaid
value-added tax covering the first quarter of 1997 is hereby DENIED for lack of merit.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner filed a Petition for Review23 under Rule 43 of the Rules of Court before
the CA.
On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that petitioner is not
entitled to the 8% transitional input tax credit since it did not pay any VAT when it purchased
the Global City property.24 The CA opined that transitional input tax credit is allowed only
when business taxes have been paid and passed-on as part of the purchase price.25 In arriving
at this conclusion, the CA relied heavily on the historical background of transitional input tax
credit.26 As to the validity of RR 7-95, which limited the 8% transitional input tax to the value
of the improvements on the land, the CA said that it is entitled to great weight as it was
issued pursuant to Section 24527 of the old NIRC.28
Issues
Hence, the instant petition with the principal issue of whether petitioner is entitled to a
refund of P 359,652,009.47 erroneously paid as output VAT for the first quarter of 1997, the
resolution of which depends on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated Revenue
Regulations No. 7-95 insofar as the latter limited the transitional/presumptive input tax
credit which may be claimed under Section 105 of the National Internal Revenue Code to the
"improvements" on real properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of
the National Internal Revenue Code.
3.05.d. Whether there is basis and necessity to interpret and construe the provisions of
Section 105 of the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax by petitioner on its
land before it may claim the input tax credit granted by Section 105 of the National Internal
Revenue Code.
3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the
purpose of the transitional/presumptive input tax provided for in Section 105 of the National
Internal Revenue Code.
3.05.g. Whether the economic and social objectives in the acquisition of the subject property
by petitioner from the Government should be taken into consideration.29
Petitioner’s Arguments
Petitioner claims that it is entitled to recover the amount of P 359,652,009.47 erroneously
paid as output VAT for the first quarter of 1997 since its transitional input tax credit
of P 5,698,200,256 is more than sufficient to cover its output VAT liability for the said
period.30
Petitioner assails the pronouncement of the CA that prior payment of taxes is required to
avail of the 8% transitional input tax credit.31 Petitioner contends that there is nothing in
Section 105 of the old NIRC to support such conclusion.32
Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit to
the value of the improvements on the land, is invalid because it goes against the express
provision of Section 105 of the old NIRC, in relation to Section 10033 of the same Code, as
amended by RA 7716.34
Respondents’ Arguments
Respondents, on the other hand, maintain that petitioner is not entitled to a transitional
input tax credit because no taxes were paid in the acquisition of the Global City
property.35 Respondents assert that prior payment of taxes is inherent in the nature of a
transitional input tax.36 Regarding RR 7-95, respondents insist that it is valid because it was
issued by the Secretary of Finance, who is mandated by law to promulgate all needful rules
and regulations for the implementation of Section 105 of the old NIRC.37
Our Ruling
The petition is meritorious.

3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal
The issues before us are no longer new or novel as these have been resolved in the related
Revenue, and declaration of validity of said Regulations by the Court of Tax Appeals and
case of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue.38
Court of Appeals, were in violation of the fundamental principle of separation of powers.
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or
any person who elects to be a VAT-registered person shall, subject to the filing of an
inventory as prescribed by regulations, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to 8% of the value of such inventory or the actual
value-added tax paid on such goods, materials and supplies, whichever is higher, which shall
be creditable against the output tax. (Emphasis supplied.)
Contrary to the view of the CTA and the CA, there is nothing in the above-quoted provision to
indicate that prior payment of taxes is necessary for the availment of the 8% transitional
input tax credit. Obviously, all that is required is for the taxpayer to file a beginning inventory
with the BIR.
To require prior payment of taxes, as proposed in the Dissent is not only tantamount to
judicial legislation but would also render nugatory the provision in Section 105 of the old
NIRC that the transitional input tax credit shall be "8% of the value of [the beginning]
inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is
higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would
always be higher than the 8% (now 2%) of the beginning inventory which, following the view
of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes
were paid. Clearly, limiting the value of the beginning inventory only to goods, materials, and
supplies, where prior taxes were paid, was not the intention of the law. Otherwise, it would
have specifically stated that the beginning inventory excludes goods, materials, and supplies
where no taxes were paid. As retired Justice Consuelo Ynares-Santiago has pointed out in her
Concurring Opinion in the earlier case of Fort Bonifacio:
If the intent of the law were to limit the input tax to cases where actual VAT was paid, it
could have simply said that the tax base shall be the actual value-added tax paid. Instead, the
law as framed contemplates a situation where a transitional input tax credit is claimed even
if there was no actual payment of VAT in the underlying transaction. In such cases, the tax
base used shall be the value of the beginning inventory of goods, materials and supplies. 39
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit
because it is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax
refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by
the taxing authority.40 Tax credit, on the other hand, is an amount subtracted directly from
one’s total tax liability.41 It is any amount given to a taxpayer as a subsidy, a refund, or an
incentive to encourage investment. Thus, unlike a tax refund, prior payment of taxes is not a
prerequisite to avail of a tax credit. In fact, in Commissioner of Internal Revenue v. Central
Luzon Drug Corp.,42 we declared that prior payment of taxes is not required in order to avail
of a tax credit.43 Pertinent portions of the Decision read:
While a tax liability is essential to the availment or use of any tax credit, prior tax payments
are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability
nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or
allowing tax credits, even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to
certain limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is
a similar provision for donor’s taxes -- again when paid to a foreign country -- in computing
for the donor’s tax due. The tax credits in both instances allude to the prior payment of
taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax) - registered person engaging in transactions --
whether or not subject to the VAT -- is also allowed a tax credit that includes a ratable
portion of any input tax not directly attributable to either activity. This input tax may either
be the VAT on the purchase or importation of goods or services that is merely due from -- not
necessarily paid by -- such VAT-registered person in the course of trade or business; or the
transitional input tax determined in accordance with Section 111(A). The latter type may in
fact be an amount equivalent to only eight percent of the value of a VAT-registered person’s
beginning inventory of goods, materials and supplies, when such amount -- as computed -- is
higher than the actual VAT paid on the said items. Clearly from this provision, the tax credit
refers to an input tax that is either due only or given a value by mere comparison with the
VAT actually paid -- then later prorated. No tax is actually paid prior to the availment of such
credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is
allowed. For the purchase of primary agricultural products used as inputs -- either in the
processing of sardines, mackerel and milk, or in the manufacture of refined sugar and
cooking oil -- and for the contract price of public works contracts entered into with the
government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-
rated may, under Section 112(A), apply for the issuance of a tax credit certificate for the
amount of creditable input taxes merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent that the input taxes have not been
applied against output taxes. Where a taxpayer is engaged in zero-rated or effectively zero-
rated sales and also in taxable or exempt sales, the amount of creditable input taxes due that
are not directly and entirely attributable to any one of these transactions shall be
proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax
credit for VAT purposes, this provision -- as well as the one earlier mentioned -- shows that
the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit
allowed, even though no prior tax payments are not required. Specifically, in this provision,
the imposition of a final withholding tax rate on cash and/or property dividends received by a
nonresident foreign corporation from a domestic corporation is subjected to the condition
that a foreign tax credit will be given by the domiciliary country in an amount equivalent to
taxes that are merely deemed paid. Although true, this provision actually refers to the tax
credit as a condition only for the imposition of a lower tax rate, not as a deduction from the
corresponding tax liability. Besides, it is not our government but the domiciliary country that
credits against the income tax payable to the latter by the foreign corporation, the tax to be
foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits,
against the income tax imposable under Title II, the amount of income taxes merely incurred
-- not necessarily paid -- by a domestic corporation during a taxable year in any foreign
country. Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, a tax
credit may be allowed, subject to the condition precedent that the taxpayer shall simply give
a bond with sureties satisfactory to and approved by petitioner, in such sum as may be
required; and further conditioned upon payment by the taxpayer of any tax found due, upon
petitioner’s redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and
special laws that grant or allow tax credits, even though no prior tax payments have been
made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation,
income that is taxed in the state of source is also taxable in the state of residence, but the tax
paid in the former is merely allowed as a credit against the tax levied in the latter.
Apparently, payment is made to the state of source, not the state of residence. No tax,
therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives.
To illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as
amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five
percent of the net value earned, or five or ten percent of the net local content of export. In
order to avail of such credits under the said law and still achieve its objectives, no prior tax
payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable
to the availment of a tax credit. Thus, the CA correctly held that the availment under RA 7432
did not require prior tax payments by private establishments concerned. However, we do not
agree with its finding that the carry-over of tax credits under the said special law to
succeeding taxable periods, and even their application against internal revenue taxes, did not
necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use,
not the existence or grant, of a tax credit. Regarding this matter, a private establishment
reporting a net loss in its financial statements is no different from another that presents a
net income. Both are entitled to the tax credit provided for under RA 7432, since the law
itself accords that unconditional benefit. However, for the losing establishment to
immediately apply such credit, where no tax is due, will be an improvident usance.44
In this case, when petitioner realized that its transitional input tax credit was not applied in
computing its output VAT for the 1st quarter of 1997, it filed a claim for refund to recover the
output VAT it erroneously or excessively paid for the 1st quarter of 1997. In filing a claim for
tax refund, petitioner is simply applying its transitional input tax credit against the output
VAT it has paid. Hence, it is merely availing of the tax credit incentive given by law to first
time VAT taxpayers. As we have said in the earlier case of Fort Bonifacio, the provision on
transitional input tax credit was enacted to benefit first time VAT taxpayers by mitigating the
impact of VAT on the taxpayer.45 Thus, contrary to the view of Justice Carpio, the granting of
a transitional input tax credit in favor of petitioner, which would be paid out of the general
fund of the government, would be an appropriation authorized by law, specifically Section
105 of the old NIRC.
The history of the transitional input tax credit likewise does not support the ruling of the CTA
and CA. In our Decision dated April 2, 2009, in the related case of Fort Bonifacio, we
explained that:
If indeed the transitional input tax credit is integrally related to previously paid sales taxes,
the purported causal link between those two would have been nonetheless extinguished
long ago. Yet Congress has reenacted the transitional input tax credit several times; that fact
simply belies the absence of any relationship between such tax credit and the long-abolished
sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not confined to the
transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its possible meaning
to the shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the
transition one undergoes from not being a VAT-registered person to becoming a VAT-
registered person. Such transition does not take place merely by operation of law, E.O. No.
273 or Rep. Act No. 7716 in particular. It could also occur when one decides to start a
business. Section 105 states that the transitional input tax credits become available either to
(1) a person who becomes liable to VAT; or (2) any person who elects to be VAT-registered.
The clear language of the law entitles new trades or businesses to avail of the tax credit once
they become VAT-registered. The transitional input tax credit, whether under the Old NIRC or
the New NIRC, may be claimed by a newly-VAT registered person such as when a business as
it commences operations. If we view the matter from the perspective of a starting
entrepreneur, greater clarity emerges on the continued utility of the transitional input tax
credit.
Following the theory of the CTA, the new enterprise should be able to claim the transitional
input tax credit because it has presumably paid taxes, VAT in particular, in the purchase of
the goods, materials and supplies in its beginning inventory. Consequently, as the CTA held
below, if the new enterprise has not paid VAT in its purchases of such goods, materials and
supplies, then it should not be able to claim the tax credit. However, it is not always true that
the acquisition of such goods, materials and supplies entail the payment of taxes on the part
of the new business. In fact, this could occur as a matter of course by virtue of the operation
of various provisions of the NIRC, and not only on account of a specially legislated exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or properties are not Section 4.105-1 of RR 7-95 is
acquired from a person in the course of trade or business, the transaction would not be inconsistent with Section 105 of the old
subject to VAT under Section 105. The sale would be subject to capital gains taxes under NIRC
Section 24 (D), but since capital gains is a tax on passive income it is the seller, not the buyer,
who generally would shoulder the tax. As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input tax credit to
the value of the improvements on the land, the same contravenes the provision of Section
If the goods or properties are acquired through donation, the acquisition would not be 105 of the old NIRC, in relation to Section 100 of the same Code, as amended by RA 7716,
subject to VAT but to donor’s tax under Section 98 instead. It is the donor who would be which defines "goods or properties," to wit:
liable to pay the donor’s tax, and the donation would be exempt if the donor’s total net gifts
during the calendar year does not exceed P 100,000.00. 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
If the goods or properties are acquired through testate or intestate succession, the transfer properties, a value-added tax equivalent to 10% of the gross selling price or gross value in
would not be subject to VAT but liable instead for estate tax under Title III of the New NIRC. If money of the goods or properties sold, bartered or exchanged, such tax to be paid by the
the net estate does not exceed P 200,000.00, no estate tax would be assessed. seller or transferor.

The interpretation proffered by the CTA would exclude goods and properties which are (1) The term "goods or properties" shall mean all tangible and intangible objects which are
acquired through sale not in the ordinary course of trade or business, donation or through capable of pecuniary estimation and shall include:
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, (A) Real properties held primarily for sale to customers or held for lease in the
nothing in the Old NIRC (or even the New NIRC) speaks of such a possibility or qualifies the ordinary course of trade or business; x x x
previous payment of VAT or any other taxes on the goods, materials and supplies as a pre-
requisite for inclusion in the beginning inventory.
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
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered the value of the improvement of the real properties, is a nullity.48 Pertinent portions of the
persons, whether or not they previously paid taxes in the acquisition of their beginning Resolution read:
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
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant
contravene the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar as
portion of the income it derived from its sales as output VAT. The transitional input tax credit
the definition of the term "goods" is concerned. This is a legislative act beyond the authority
mitigates this initial diminution of the taxpayer's income by affording the opportunity to
of the CIR and the Secretary of Finance. The rules and regulations that administrative
offset the losses incurred through the remittance of the output VAT at a stage when the
agencies promulgate, which are the product of a delegated legislative power to create new
person is yet unable to credit input VAT payments.
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
There is another point that weighs against the CTA’s interpretation. Under Section 105 of the should not be in contradiction to, but in conformity with, the standards prescribed by law.
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."
To be valid, an administrative rule or regulation must conform, not contradict, the provisions
If indeed the transitional input tax credit is premised on the previous payment of VAT, then it
of the enabling law.1âwphi1 An implementing rule or regulation cannot modify, expand, or
does not make sense to afford the taxpayer the benefit of such credit based on "8% of the
subtract from the law it is intended to implement. Any rule that is not consistent with the
value of such inventory" should the same prove higher than the actual VAT paid. This intent
statute itself is null and void.
that the CTA alluded to could have been implemented with ease had the legislature shared
such intent by providing the actual VAT paid as the sole basis for the rate of the transitional
input tax credit.46 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
In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit
modify explicit provisions of the law. Indeed, a quasi-judicial body or an administrative
provided in Section 105 of the old NIRC. The fact that it acquired the Global City property
agency for that matter cannot amend an act of Congress. Hence, in case of a discrepancy
under a tax-free transaction makes no difference as prior payment of taxes is not a pre-
between the basic law and an interpretative or administrative ruling, the basic law prevails.
requisite.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional
input tax credit under Section 105 is a nullity.49
DECISION
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. DEL CASTILLO, J.:

In this case, since petitioner is entitled to a transitional input tax credit of P 5,698,200,256,
which is more than sufficient to cover its output VAT liability for the first quarter of 1997, a A taxpayer is entitled to a refund either by authority of a statute expressly granting such right,
refund of the amount of P 359,652,009.47 erroneously paid as output VAT for the said
quarter is in order. 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
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of
the Court of Appeals in CA-G.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent refund but also his compliance with the procedural due process as non-observance of the prescriptive
Commissioner of Internal Revenue is ordered to refund to petitioner Fort Bonifacio periods within which to file the administrative and the judicial claims would result in the denial of his
Development Corporation the amount of P359,652,009.47 paid as output VAT for the first
quarter of 1997 in light of the transitional input tax credit available to petitioner for the said claim.
quarter, or in the alternative, to issue a tax credit certificate corresponding to such amount.

SO ORDERED. 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
Republic of the Philippines
Supreme Court Banc.
Manila
Factual Antecedents
FIRST DIVISION

COMMISSIONER OF INTERNAL G.R. No. 184823 Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing
REVENUE, under the laws of the Republic of thePhilippines, is engaged in the manufacturing, producing, and
Petitioner, processing of steel and its by-products.[3] It is registered with the Bureau of Internal Revenue (BIR) as a
Present:
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]

CORONA, C. J., Chairperson,
- versus - VELASCO, JR.,
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the
LEONARDO-DE CASTRO,
DEL CASTILLO, and period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner

PEREZ, JJ. Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop
AICHI FORGING COMPANY OF Inter-Agency Tax Credit and Duty Drawback Center.[6]
ASIA, INC., Promulgated:
Respondent. October 6, 2010 Proceedings before the Second Division of the CTA
x-------------------------------------------------------------------x

On even date, respondent filed a Petition for Review[7] with the CTA for the refund/credit of
the same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second
Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to September
30, 2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00,[8] which was
paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997
(NIRC);[9] that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from
purchases and importation attributable to its zero-rated sales;[10] and that in its application for
refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it
only claimed the amount of P3,891,123.82.[11]
In response, petitioner filed his Answer[12] raising the following special and affirmative
defenses, to wit:
4. Petitioners alleged claim for refund is subject to administrative
investigation by the Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in
question;
6. Petitioner must prove that its sales are export sales contemplated under
Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2) year
period prescribed in Section 229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to establish
its right to refund, and failure to sustain the burden is fatal to the claim for
refund; and
9. Claims for refund are construed strictly against the claimant for the same
partake of the nature of exemption from taxation.[13]
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a
Decision partially granting 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 P 3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37
Net Creditable Input VAT P 3,850,103.45
Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT 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 until October 20, 2004 within which to file its claim for refund.
 In addition, We do not agree with the petitioner's contention that the
1997 NIRC requires the previous filing of an administrative claim for refund prior to
the judicial claim. This should not be the case as the law does not prohibit the
simultaneous filing of the administrative and judicial claims for refund. What is
controlling is that both claims for refund must be filed within the two-year
prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the
findings and conclusion spelled out in the assailed January 4, 2008 Decision and
March 13, 2008 Resolution of the CTA Second Division. What the instant petition
seeks is for the Court En Banc to view and appreciate the evidence in their own
perspective of things, which unfortunately had already been considered and
passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE
COURSE and DISMISSED for lack of merit. Accordingly, the January 4, 2008
Decision and March 13, 2008 Resolution of the CTA Second Division in CTA Case
No. 7065 entitled, AICHI Forging Company of Asia, Inc. petitioner vs. Commissioner
of Internal Revenue, respondent are hereby 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-year prescriptive
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 on September 29, 2004.[27]
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in
determining the start of the two-year period as the said provision pertains to the compliance
requirements in the payment of VAT.[28] He asserts that it is Section 112, paragraph (A), of the same
Code that should apply because it specifically provides for the period within which a claim for tax refund/
credit should be made.[29]
Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim
with the CTA were filed on the same day.[30] He opines that the simultaneous filing of the administrative
and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an
administrative claim.[31] He insists that such procedural requirement is based on the doctrine of
exhaustion of administrative remedies and the fact that the CTA is an appellate body exercising judicial
review over administrative actions of the CIR.[32]
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 CTAEn 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 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. (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
penaltyregardless 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]
 good condition by the purchaser, and, in his discretion,
The pivotal question of when to reckon the running of the two-year prescriptive period, however, has redeem or change unused stamps that have been rendered
already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,[44] where we unfit for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties shall be
ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2)
period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC
years after the payment of the tax or penalty: Provided,
are inapplicable as both provisions apply only to instances of erroneous payment or illegal collection of however, That a return filed showing an overpayment shall
be considered as a written claim for credit or refund.
internal revenue taxes.[45] We explained that:
xxxx
The above proviso [Section 112 (A) of the NIRC] clearly provides in no
Sec. 229. Recovery of Tax Erroneously or Illegally
uncertain terms that unutilized input VAT payments not otherwise used for any
Collected. No suit or proceeding shall be maintained in any
internal revenue tax due the taxpayer must be claimed within two years
court for the recovery of any national internal revenue tax
reckoned from the close of the taxable quarter when the relevant sales were
hereafter alleged to have been erroneously or illegally
made pertaining to the input VAT regardless of whether said tax was paid or
assessed or collected, or of any penalty claimed to have
not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112
been collected without authority, of any sum alleged to
(A), [P]rescriptive period commences from the close of the taxable quarter when
have been excessively or in any manner wrongfully collected
the sales were made and not from the time the input VAT was paid nor from the
without authority, or of any sum alleged to have been
time the official receipt was issued. Thus, when a zero-rated VAT taxpayer pays its
excessively or in any manner wrongfully collected, until a
input VAT a year after the pertinent transaction, said taxpayer only has a year to
claim for refund or credit has been duly filed with the
file a claim for refund or tax credit of the unutilized creditable input VAT. The
Commissioner; but such suit or proceeding may be
reckoning frame would always be the end of the quarter when the pertinent sales
maintained, whether or not such tax, penalty, or sum has
or transaction was made, regardless when the input VAT was paid. Be that as it
been paid under protest or duress.
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
In any case, no such suit or proceeding shall be
September 30, 1996, any claim for unutilized creditable input VAT refund or tax
filed after the expiration of two (2) years from the date of
credit for said quarter prescribed two years after September 30, 1996 or, to be
payment of the tax or penalty regardless of any supervening
precise, on September 30, 1998. Consequently, MPCs claim for refund or tax
cause that may arise after payment: Provided, however,
credit filed on December 10, 1999 had already prescribed.
That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the
Reckoning for prescriptive period under
return upon which payment was made, such payment
Secs. 204(C) and 229 of the NIRC inapplicable
appears clearly to have been erroneously paid.
To be sure, MPC cannot avail itself of the provisions of either Sec.
Notably, the above provisions also set a two-year prescriptive period,
204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different
reckoned from date of payment of the tax or penalty, for the filing of a claim of
starting point for the two-year prescriptive limit for the filing of a claim therefor.
refund or tax credit. Notably too, both provisions apply only to instances of
Secs. 204(C) and 229 respectively provide:
erroneous payment or illegal collection of internal revenue taxes.
Sec. 204. Authority of the Commissioner to
MPCs creditable input VAT not erroneously paid
Compromise, Abate and Refund or Credit Taxes. The
Commissioner may
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
xxxx
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
(c) Credit or refund taxes erroneously or illegally
effectively zero-rated transaction, does not, standing alone, deprive the taxpayer
received or penalties imposed without authority, refund the
of its right to a refund for any unutilized creditable input VAT, albeit the erroneous,
value of internal revenue stamps when they are returned in
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.)
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.

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of Applying Section 31, Chapter VIII, Book I of the Administrative Code of
the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized input 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
VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input calendar months, computed as follows:
VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales
Year 1 1st calendar month
were made. 2nd calendar month
The administrative claim was timely 3rd calendar month
filed 4th calendar month
5th calendar month
6th calendar month
7th calendar month
Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely 8th calendar month
9th calendar month
filed.
10th calendar month
11th calendar month
12th calendar month
Relying on Article 13 of the Civil Code,[47] which provides that a year is equivalent to 365 days, Year 2 13th calendar month
and taking into account the fact that the year 2004 was a leap year, petitioner submits that the two-year 14th calendar month
15th calendar month
period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on 16th calendar month
17th calendar month
September 29, 2004.[48] 18th calendar month
19th calendar month
20th calendar month
We do not agree. 21st calendar month
22nd calendar month
23rd calendar month
In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,[49] we said that as 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

between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative 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
Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must
its final adjusted return. Hence, it was filed within the reglementary period.[51]
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
 Applying this to the present case, the two-year period to file a claim for tax refund/credit for In this case, the administrative and the judicial claims were simultaneously filed on

the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondents September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the

administrative claim was timely filed. 120-day period. For this reason, we find the filing of the judicial claim with the CTA premature.

The filing of the judicial claim was

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.

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
There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of
Section 112(D) of the NIRC, which provides that:
the said provision states that any VAT-registered person, whose sales are zero-rated or effectively zero-

SEC. 112. Refunds or Tax Credits of Input Tax. rated may, within two years after the close of the taxable quarter when the sales were made, apply for
xxxx
the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
(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 sales.The phrase within two (2) years x x x apply for the issuance of a tax credit certificate or refund
certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents in support of the application refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is
filed in accordance with Subsections (A) and (B) hereof.
apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has
In case of full or partial denial of the claim for tax refund or tax credit, or the failure 120 days from the submission of complete documents in support of the application filed in accordance
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 with Subsections (A)and (B) within which to decide on the claim.
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.) 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

Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the date of the submission of decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two

the complete documents in support of the application [for tax refund/credit], within which to grant or scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when

deny the claim. In case of full or partial denial by the CIR, the taxpayers recourse is to file an appeal no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to

before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the

period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to CTA.

appeal the inaction of the CIR to CTA within 30 days. 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 and SET ASIDE. The Court

of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely

filed.

SO ORDERED.
 Republic of the Philippines cannot be the source of any legal rights or duties. Nor can it justify any official act taken
SUPREME COURT under it. Its repugnancy to the fundamental law once judicially declared results in its being to
Manila all intents and purposes a mere scrap of paper. As the new Civil Code puts it: "When the
EN BANC courts declare a law to be inconsistent with the Constitution, the former shall be void and
G.R. No. 187485 October 8, 2013 the latter shall govern. Administrative or executive acts, orders and regulations shall be valid
COMMISSIONER OF INTERNAL REVENUE, Petitioner, only when they are not contrary to the laws of the Constitution." It is understandable why it
vs. should be so, the Constitution being supreme and paramount. Any legislative or executive act
SAN ROQUE POWER CORPORATION, Respondent. contrary to its terms cannot survive.
x-----------------------x Such a view has support in logic and possesses the merit of simplicity. It may not however be
G.R. No. 196113 sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such
TAGANITO MINING CORPORATION, Petitioner, challenged legislative or executive act must have been in force and had to be complied with.
vs. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is
COMMISSIONER OF INTERNAL REVENUE, Respondent. entitled to obedience and respect. Parties may have acted under it and may have changed
x-----------------------x their positions. What could be more fitting than that in a subsequent litigation regard be had
G.R. No. 197156 to what has been done while such legislative or executive act was in operation and presumed
PHILEX MINING CORPORATION, Petitioner, to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its
vs. existence as a fact must be reckoned with. This is merely to reflect awareness that precisely
COMMISSIONER OF INTERNAL REVENUE, Respondent. because the judiciary is the governmental organ which has the final say on whether or not a
RESOLUTION legislative or executive measure is valid, a period of time may have elapsed before it can
CARPIO, J.: exercise the power of judicial review that may lead to a declaration of nullity. It would be to
This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for deprive the law of its quality of fairness and justice then, if there be no recognition of what
Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the had transpired prior to such adjudication.
Comment to the Motion for Reconsideration filed by the Commissioner of Internal Revenue In the language of an American Supreme Court decision: "The actual existence of a statute,
(CIR) in G.R. No. 187485, the Motion for Reconsideration filed by the CIR in G.R.No. 196113, prior to such a determination of unconstitutionality, is an operative fact and may have
and the Comment to the Motion for Reconsideration filed by Taganito Mining Corporation consequences which cannot justly be ignored. The past cannot always be erased by a new
(Taganito) in G.R. No. 196113. judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
San Roque prays that the rule established in our 12 February 2013 Decision be given only a considered in various aspects, with respect to particular relations, individual and corporate,
prospective effect, arguing that "the manner by which the Bureau of Internal Revenue (BIR) and particular conduct, private and official." This language has been quoted with approval in
and the Court of Tax Appeals(CTA) actually treated the 120 + 30 day periods constitutes an a resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. An even
operative fact the effects and consequences of which cannot be erased or undone." 1 more recent instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v.
The CIR, on the other hand, asserts that Taganito Mining Corporation's (Taganito) judicial Cuerva and Co. (Boldfacing and italicization supplied)
claim for tax credit or refund was prematurely filed before the CTA and should be disallowed Clearly, for the operative fact doctrine to apply, there must be a "legislative or executive
because BIR Ruling No. DA-489-03 was issued by a Deputy Commissioner, not by the measure," meaning a law or executive issuance, that is invalidated by the court. From the
Commissioner of Internal Revenue. passage of such law or promulgation of such executive issuance until its invalidation by the
We deny both motions. court, the effects of the law or executive issuance, when relied upon by the public in good
The Doctrine of Operative Fact faith, may have to be recognized as valid. In the present case, however, there is no such law
The general rule is that a void law or administrative act cannot be the source of legal rights or or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-
duties. Article 7 of the Civil Code enunciates this general rule, as well as its exception: "Laws 03.
are repealed only by subsequent ones, and their violation or non-observance shall not be To justify the application of the doctrine of operative fact as an exemption, San Roque
excused by disuse, or custom or practice to the contrary. When the courts declared a law to asserts that "the BIR and the CTA in actual practice did not observe and did not require
be inconsistent with the Constitution, the former shall be void and the latter shall govern. refund seekers to comply with the120+30 day periods."4 This is glaring error because an
Administrative or executive acts, orders and regulations shall be valid only when they are not administrative practice is neither a law nor an executive issuance. Moreover, in the present
contrary to the laws or the Constitution." case, there is even no such administrative practice by the BIR as claimed by San Roque.
The doctrine of operative fact is an exception to the general rule, such that a judicial In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finance’s One-Stop
declaration of invalidity may not necessarily obliterate all the effects and consequences of a Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) asked the BIR to rule on
void act prior to such declaration.2 In Serrano de Agbayani v. Philippine National Bank,3 the the propriety of the actions taken by Lazi Bay Resources Development, Inc. (LBRDI). LBRDI
application of the doctrine of operative fact was discussed as follows: filed an administrative claim for refund for alleged input VAT for the four quarters of 1998.
The decision now on appeal reflects the orthodox view that an unconstitutional act, for that Before the lapse of 120 days from the filing of its administrative claim, LBRDI also filed a
matter an executive order or a municipal ordinance likewise suffering from that infirmity, judicial claim with the CTA on 28March 2000 as well as a supplemental judicial claim on 29
September 2000.In its Memorandum dated 13 August 2002 before the BIR, the DOF-OSS
pointed out that LBRDI is "not yet on the right forum in violation of the provision of Section
112(D) of the NIRC" when it sought judicial relief before the CTA. Section 112(D) provides for
the 120+30 day periods for claiming tax refunds.
The DOF-OSS itself alerted the BIR that LBRDI did not follow the120+30 day periods. In BIR
Ruling No. DA-489-03, Deputy Commissioner Jose Mario C. Buñag ruled that "a 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." Deputy Commissioner Buñag, citing the
7February 2002 decision of the Court of Appeals (CA) in Commissioner of Internal Revenue v.
Hitachi Computer Products (Asia) Corporation5 (Hitachi), stated that the claim for refund with
the Commissioner could be pending simultaneously with a suit for refund filed before the
CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no
administrative practice by the BIR that supported simultaneous filing of claims. Prior to BIR
Ruling No. DA-489-03, the BIR considered the 120+30 day periods mandatory and
jurisdictional.
Thus, prior to BIR Ruling No. DA-489-03, the BIR’s actual administrative practice was to
contest simultaneous filing of claims at the administrative and judicial levels, until the CA
declared in Hitachi that the BIR’s position was wrong. The CA’s Hitachi decision is the basis of
BIR Ruling No. DA-489-03 dated 10 December 2003 allowing simultaneous filing. From then
on taxpayers could rely in good faith on BIR Ruling No. DA-489-03 even though it was
erroneous as this Court subsequently decided in Aichi that the 120+30 day periods were
mandatory and jurisdictional.
We reiterate our pronouncements in our Decision as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory
periods were already in the law. Section112(C) expressly grants the Commissioner 120 days
within which to decide the taxpayer’s 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 verbalegis 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 Commissioner’s decision within the 120-daymandatory and
jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or
"deemed a denial" decision of the Commissioner for the CTA to review. In San Roque’s case,
it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the
Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period,
and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the
decision or inaction of the Commissioner x x x.
xxxx
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly
against the taxpayer.1âwphi1 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.6
San Roque’s argument must, therefore, fail. The doctrine of operative fact is an argument for
the application of equity and fair play. In the present case, we applied the doctrine of
operative fact when we recognized simultaneous filing during the period between 10
December 2003, when BIR Ruling No. DA-489-03 was issued, and 6 October 2010, when this
Court promulgated Aichi declaring the 120+30 day periods mandatory and jurisdictional, thus
reversing BIR Ruling No. DA-489-03.
The doctrine of operative fact is in fact incorporated in Section 246 of the Tax Code, which
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,
except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from
the time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The
reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact.
There must, however, be a rule or ruling issued by the Commissioner that is relied upon by
the taxpayer in good faith. A mere administrative practice, not formalized into a rule or
ruling, will not suffice because such a mere administrative practice may not be uniformly and
consistently applied. An administrative practice, if not formalized as a rule or ruling, will not
be known to the general public and can be availed of only by those within formal contacts
with the government agency.
Since the law has already prescribed in Section 246 of the Tax Code how the doctrine of
operative fact should be applied, there can be no invocation of the doctrine of operative fact
other than what the law has specifically provided in Section 246. In the present case, the rule
or ruling subject of the operative fact doctrine is BIR Ruling No. DA-489-03 dated 10
December 2003. Prior to this date, there is no such rule or ruling calling for the application of
the operative fact doctrine in Section 246. Section246, being an exemption to statutory
taxation, must be applied strictly against the taxpayer claiming such exemption.
San Roque insists that this Court should not decide the present case in violation of the rulings
of the CTA; otherwise, there will be adverse effects on the national economy. In effect, San
Roque’s doomsday scenario is a protest against this Court’s power of appellate review. San
Roque cites cases decided by the CTA to underscore that the CTA did not treat the 120+30
day periods as mandatory and jurisdictional. However, CTA or CA rulings are not the
executive issuances covered by Section 246 of the Tax Code, which adopts the operative fact
doctrine. CTA or CA decisions are specific rulings applicable only to the parties to the case
and not to the general public. CTA or CA decisions, unlike those of this Court, do not form
part of the law of the land. Decisions of lower courts do not have any value as precedents.
Obviously, decisions of lower courts are not binding on this Court. To hold that CTA or CA
decisions, even if reversed by this Court, should still prevail is to turn upside down our legal
system and hierarchy of courts, with adverse effects far worse than the dubious doomsday
scenario San Roque has conjured.
San Roque cited cases7 in its Supplemental Motion for Reconsideration to support its position
that retroactive application of the doctrine in the present case will violate San Roque’s right
to equal protection of the law. However, San Roque itself admits that the cited cases never
mentioned the issue of premature or simultaneous filing, nor of compliance with the 120+30
day period requirement. We reiterate that "any issue, whether raised or not by the parties,
but not passed upon by the Court, does not have any value as precedent." 8 Therefore, the
cases cited by San Roque to bolster its claim against the application of the 120+30 day period
requirement do not have any value as precedents in the present case.
Authority of the Commissioner
to Delegate Power
In asking this Court to disallow Taganito’s claim for tax refund or credit, the CIR repudiates
the validity of the issuance of its own BIR Ruling No. DA-489-03. "Taganito cannot rely on the
pronouncements in BIR Ruling No. DA-489-03, being a mere issuance of a Deputy
Commissioner."9
Although Section 4 of the 1997 Tax Code provides that 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," Section 7 of the same Code
does not prohibit the delegation of such power. Thus, "the Commissioner may delegate the
powers vested in him under the pertinent provisions of this Code to any or such subordinate
officials with the rank equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner."
WHEREFORE, we DENY with FINALITY the Motions for Reconsideration filed by San Roque
Power Corporation in G.R. No. 187485,and the Commissioner of Internal Revenue in G.R. No.
196113.
SO ORDERED.