1

FORT BONIFACIO DEVELOPMENT G.R. No. 158885

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF CORPORATION
INTERNAL REVENUE- Transitional Input Value Added Tax Petitioner,
- versus -

FACTS: COMMISSIONER OF INTERNAL REVENUE,

REGIONAL DIRECTOR, REVENUE REGION
Petitioner was a real estate developer that bought from the national government a NO. 8, and CHIEF, ASSESSMENT DIVISION,
parcel of land that used to be the Fort Bonifacio military reservation. At the time of the REVENUE REGION NO. 8, BIR,
said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its Respondents.
purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In x-----------------------------------------x
reporting the said sale for VAT purposes (because the VAT had already been
imposed in the interim), Petitioner claimed transitional input VAT corresponding to its
inventory of land. The BIR disallowed the claim of presumptive input VAT and thereby
FORT BONIFACIO DEVELOPMENT
assessed Petitioner for deficiency VAT. CORPORATION
Petitioner,
G.R. No. 170680
- versus -
ISSUE:
Present:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties COMMISSIONER OF INTERNAL REVENUE,
given its nature as a real estate dealer and if so (i) is the transitional input VAT REVENUE DISTRICT OFFICER, REVENUE PUNO, C.J.,
applied only to the improvements on the real property or is it applied on the value of DISTRICT NO. 44, TAGUIG and PATEROS, QUISUMBING,*
the entire real property and (ii) should there have been a previous tax payment for the BUREAU OF INTERNAL REVENUE. YNARES-SANTIAGO,
transitional input VAT to be creditable? CARPIO,
Respondents. CORONA,
CARPIO MORALES,
HELD: CHICO-NAZARIO,
VELASCO, JR.,
YES. Petitioner is entitled to claim transitional input VAT based on the value of not NACHURA,
only the improvements but on the value of the entire real property and regardless of LEONARDO-DE CASTRO,
whether there was in fact actual payment on the purchase of the real property or not. BRION,**
PERALTA,
The amendments to the VAT law do not show any intention to make those in the real BERSAMIN,
estate business subject to a different treatment from those engaged in the sale of DEL CASTILLO, and
other goods or properties or in any other commercial trade or business. On the scope ABAD, JJ.
of the basis for determining the available transitional input VAT, the CIR has no power
to limit the meaning and coverage of the term "goods" in Section 105 of the Tax Code Promulgated:
without statutory authority or basis. The transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies. October 2, 2009
x-----------------------------------------------------------------------------------------x

RESOLUTION

LEONARDO-DE CASTRO, J.:


Before us is respondents Motion for Reconsideration of our Decision dated April 2,
2009 which granted the consolidated petitions of petitioner Fort Bonifacio Development
Corporation, the dispositive portion of which reads:
WHEREFORE, the petitions are GRANTED. The assailed
decisions of the Court of Tax Appeals and the Court of Appeals are
REVERSED and SET ASIDE. Respondents are hereby (1) restrained from
collecting from petitioner the amount of P28,413,783.00 representing the
transitional input tax credit due it for the fourth quarter of 1996; and (2)
directed to refund to petitioner the amount of P347,741,695.74 paid as output
VAT for the third quarter of 1997 in light of the persisting transitional input
tax credit available to petitioner for the said quarter, or to issue a tax credit
corresponding to such amount. No pronouncement as to costs.
2
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.
RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC
by imposing for the first time value-added-tax on sale of real properties. The amendment
reads:

The Motion for Reconsideration raises the following arguments: 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
I every sale, barter or exchange of goods or properties, a value-added tax
equivalent to 10% of the gross selling price or gross value in money of
SECTION 100 OF THE OLD NATIONAL INTERNAL the goods, or properties sold, bartered or exchanged, such tax to be paid
REVENUE CODE (OLD NIRC), AS AMENDED BY by the seller or transferor.
REPUBLIC ACT (R.A.) NO. 7716, COULD NOT HAVE (1) The term 'goods or properties' shall mean all tangible and
SUPPLIED THE DISTINCTION BETWEEN THE intangible objects which are capable of pecuniary estimation and shall
TREATMENT OF REAL PROPERTIES OR REAL ESTATE include:
DEALERS ON THE ONE HAND, AND THE TREATMENT (A) Real properties held primarily for sale to
OF TRANSACTIONS INVOLVING OTHER customers or held for lease in the ordinary course of
COMMERCIAL GOODS ON THE OTHER HAND, AS SAID trade or business; xxx
DISTINCTION IS FOUND IN SECTION 105 AND, The provisions of Section 105 of the NIRC, on the transitional input tax credit,
SUBSEQUENTLY, REVENUE REGULATIONS NO. 7-95 remain intact despite the enactment of RA 7716. Section 105 however was amended with the
WHICH DEFINES THE INPUT TAX CREDITABLE TO A passage of the new National Internal Revenue Code of 1997 (New NIRC), also officially
REAL ESTATE DEALER WHO BECOMES SUBJECT TO known as Republic Act (RA) 8424. The provisions on the transitional input tax credit are now
VAT FOR THE FIRST TIME. embodied in Section 111(A) of the New NIRC, which reads:

II Section 111. Transitional/Presumptive Input Tax Credits.

SECTION 4.105.1 AND PARAGRAPH (A) (III) OF THE (A) Transitional Input Tax Credits. - A person who becomes liable to value-
TRANSITORY PROVISIONS OF REVENUE added tax or any person who elects to be a VAT-registered person shall,
REGULATIONS NO. 7-95 VALIDLY LIMIT THE 8% subject to the filing of an inventory according to rules and regulations
TRANSITIONAL INPUT TAX TO THE IMPROVEMENTS prescribed by the Secretary of finance, upon recommendation of the
ON REAL PROPERTIES. Commissioner, be allowed input tax on his beginning inventory of goods,
materials and supplies equivalent for 8% of the value of such
III inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output
REVENUE REGULATIONS NO. 6-97 DID NOT REPEAL tax. [Emphasis ours.]
REVENUE REGULATIONS NO. 7-95.
The Commissioner of Internal Revenue (CIR) disallowed Fort Bonifacio
The instant motion for reconsideration lacks merit. Development Corporations (FBDC) presumptive input tax credit arising from the land
inventory on the basis of Revenue Regulation 7-95 (RR 7-95) and Revenue Memorandum
The first VAT law, found in Executive Order (EO) No. 273 [1987], took effect on Circular 3-96 (RMC 3-96). Specifically, Section 4.105-1 of RR 7-95 provides:
January 1, 1988. It amended several provisions of the National Internal Revenue Code of 1986
(Old NIRC). EO 273 likewise accommodated the potential burdens of the shift to the VAT Sec. 4.105-1. Transitional input tax on beginning inventories.
system by allowing newly VAT-registered persons to avail of a transitional input tax credit as Taxpayers who became VAT-registered persons upon effectivity of RA No.
provided for in Section 105 of the Old NIRC. Section 105 as amended by EO 273 reads: 7716 who have exceeded the minimum turnover of P500,000.00 or who

voluntarily register even if their turnover does not exceed P500,000.00 shall
be entitled to a presumptive input tax on the inventory on hand as of
December 31, 1995 on the following: (a) goods purchased for resale in their
present condition; (b) materials purchased for further processing, but which
have not yet undergone processing; (c) goods which have been
manufactured by the taxpayer; (d) goods in process and supplies, all of
which are for sale or for use in the course of the taxpayers trade or business
as a VAT-registered person.
However, in the case of real estate dealers, the basis of the
presumptive input tax shall be the improvements, such as buildings, roads,
drainage systems, and other similar structures, constructed on or after the
effectivity of EO 273 (January 1, 1988).
The transitional input tax shall be 8% of the value of the inventory
or actual VAT paid, whichever is higher, which amount may be allowed as
tax credit against the output tax of the VAT-registered person.
In the April 2, 2009 Decision sought to be reconsidered, the Court struck down
Section 4.105-1 of RR 7-95 for being in conflict with the law. It held that the CIR had no
power to limit the meaning and coverage of the term goods in Section 105 of the Old NIRC
sans statutory authority or basis and justification to make such limitation. This it did when it
restricted the application of Section 105 in the case of real estate dealers only to improvements
on the real property belonging to their beginning inventory.
A law must not be read in truncated parts; its provisions must be read in relation to
the whole law. It is the cardinal rule in statutory construction that a statutes clauses and
phrases must not be taken as detached and isolated expressions, but the whole and every part
thereof must be considered in fixing the meaning of any of its parts in order to produce a
harmonious whole. Every part of the statute must be interpreted with reference to the
context, i.e., that every part of the statute must be considered together with other parts of the
statute and kept subservient to the general intent of the whole enactment. [1]
In construing a statute, courts have to take the thought conveyed by the statute as a
whole; construe the constituent parts together; ascertain the legislative intent from the whole
act; consider each and every provision thereof in the light of the general purpose of the
statute; and endeavor to make every part effective, harmonious and sensible.[2]
The statutory definition of the term goods or properties leaves no room for doubt. It
states:
Sec. 100. Value-added tax on sale of goods or properties. (a) Rate
and base of tax. xxx.
(1) The term goods or properties shall mean all tangible and
intangible objects which are capable of pecuniary estimation and shall
include:
(A) Real properties held primarily for sale to
customers or held for lease in the ordinary course of
trade or business; xxx.
3
The amendatory provision of Section 105 of the NIRC, as introduced by RA 7716,
states:
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.
The term goods or properties by the unambiguous terms of Section 100 includes real
properties held primarily for sale to costumers or held for lease in the ordinary course of
business. Having been defined in Section 100 of the NIRC, the term goods as used in Section
105 of the same code could not have a different meaning. This has been explained in the
Decision dated April 2, 2009, thus:
Under Section 105, the beginning inventory of "goods" forms
part of the valuation of the transitional input tax credit. Goods, as
commonly understood in the business sense, refers to the product which
the VAT-registered person offers for sale to the public. With respect to
real estate dealers, it is the real properties themselves which constitute
their "goods." Such real properties are the operating assets of the real
estate dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its
enumeration of "goods or properties" such "real properties held primarily
for sale to customers or held for lease in the ordinary course of trade or
business." Said definition was taken from the very statutory language of
Section 100 of the Old NIRC. By limiting the definition of goods to
"improvements" in Section 4.105-1, the BIR not only contravened the
definition of "goods" as provided in the Old NIRC, but also the definition
which the same revenue regulation itself has provided.
Section 4.105-1 of RR 7-95 restricted the definition of goods, viz:
However, in the case of real estate dealers, the basis of the presumptive
input tax shall be the improvements, such as buildings, roads, drainage systems,
and other similar structures, constructed on or after the effectivity of EO 273
(January 1, 1988).
As mandated by Article 7 of the Civil Code,[3] an administrative rule or regulation
cannot contravene the law on which it is based. RR 7-95 is inconsistent with Section 105
insofar as the definition of the term goods is concerned. This is a legislative act beyond the
authority of the CIR and the Secretary of Finance. The rules and regulations that
administrative agencies promulgate, which are the product of a delegated legislative power to
create new and additional legal provisions that have the effect of law, should be within the
scope of the statutory authority granted by the legislature to the objects and purposes of the
law, and should not be in contradiction to, but in conformity with, the standards prescribed by
law.

To be valid, an administrative rule or regulation must conform, not contradict, the
provisions of the enabling law. An implementing rule or regulation cannot modify, expand, or
subtract from the law it is intended to implement. Any rule that is not consistent with the
statute itself is null and void. [4]
While administrative agencies, such as the Bureau of Internal Revenue, may issue
regulations to implement statutes, they are without authority to limit the scope of the statute to
less than what it provides, or extend or expand the statute beyond its terms, or in any way
modify explicit provisions of the law. Indeed, a quasi-judicial body or an administrative
agency for that matter cannot amend an act of Congress. Hence, in case of a discrepancy
between the basic law and an interpretative or administrative ruling, the basic law prevails. [5]
To recapitulate, RR 7-95, insofar as it restricts the definition of goods as basis of
transitional input tax credit under Section 105 is a nullity.
On January 1, 1997, RR 6-97 was issued by the Commissioner of Internal
Revenue. RR 6-97 was basically a reiteration of the same Section 4.105-1 of RR 7-95, except
that the RR 6-97 deleted the following paragraph:
However, in the case of real estate dealers, the basis of the
presumptive input tax shall be the improvements, such as buildings,
roads, drainage systems, and other similar structures, constructed on or
after the effectivity of E.O. 273 (January 1, 1988).
It is clear, therefore, that under RR 6-97, the allowable transitional input tax credit
is not limited to improvements on real properties. The particular provision of RR 7-95 has
effectively been repealed by RR 6-97 which is now in consonance with Section 100 of the
NIRC, insofar as the definition of real properties as goods is concerned. The failure to add a
specific repealing clause would not necessarily indicate that there was no intent to repeal RR
7-95. The fact that the aforequoted paragraph was deleted created an irreconcilable
inconsistency and repugnancy between the provisions of RR 6-97 and RR 7-95.
We now address the points raised in the dissenting opinion of the Honorable Justice
Antonio T. Carpio.
At the outset, it must be stressed that FBDC sought the refund of the total amount
of P347,741,695.74 which it had itself paid in cash to the BIR. It is argued that the transitional
input tax credit applies only when taxes were previously paid on the properties in the
beginning inventory and that there should be a law imposing the tax presumed to have been
paid. The thesis is anchored on the argument that without any VAT or other input business tax
imposed by law on the real properties at the time of the sale, the 8% transitional input tax
cannot be presumed to have been paid.
The language of Section 105 is explicit. It precludes reading into the law that the
transitional input tax credit is limited to the amount of VAT previously paid. When the
aforesaid section speaks of eight percent (8%) of the value of such inventory followed by the
clause or the actual value-added tax paid on such goods, materials and supplies, the
implication is clear that under the first clause, eight percent (8%) of the value of such
inventory, the law does not contemplate the payment of any prior tax on such inventory.This
is distinguished from the second clause, the actual value-added tax paid on the goods,
materials and supplies where actual payment of VAT on the goods, materials and supplies is
4
assumed. Had the intention of the law been to limit the amount to the actual VAT paid, there
would have been no need to explicitly allow a claim based on 8% of the value of such
inventory.
The contention that the 8% transitional input tax credit in Section 105 presumes that
a previous tax was paid, whether or not it was actually paid, requires a transaction where a tax
has been imposed by law, is utterly without basis in law. The rationale behind the provisions
of Section 105 was aptly elucidated in the Decision sought to be reconsidered, thus:
It is apparent that the transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they previously
paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition from non-VAT to
VAT status, the transitional input tax credit serves to alleviate the impact
of the VAT on the taxpayer. At the very beginning, the VAT-registered
taxpayer is obliged to remit a significant portion of the income it derived
from its sales as output VAT. The transitional input tax credit mitigates
this initial diminution of the taxpayers income by affording the
opportunity to offset the losses incurred through the remittance of the
output VAT at a stage when the person is yet unable to credit input VAT
payments.
As pointed out in Our Decision of April 2, 2009, to give Section 105 a restrictive
construction that transitional input tax credit applies only when taxes were previously paid on
the properties in the beginning inventory and there is a law imposing the tax which is
presumed to have been paid, is to impose conditions or requisites to the application of the
transitional tax input credit which are not found in the law. The courts must not read into the
law what is not there. To do so will violate the principle of separation of powers which
prohibits this Court from engaging in judicial legislation.[6]
WHEREFORE, premises considered, the Motion for Reconsideration is DENIED
WITH FINALITY for lack of merit.
SO ORDERED.

Toshiba Information Equipment (Phils.) Inc. v. CIR, G.R. No. 157594, 09 March 2010
[LEONARDO-DE CASTRO, J.]
FACTS
Toshiba is a domestic corporation registered with the Philippine Economic Zone Authority
(PEZA) as an Economic Zone (ECOZONE) export enterprise.It filed two separate applications
for tax credit/refund of its unutilized input VAT payments. The CIR denied the application. On
appeal, the CTA ruled that Toshiba is entitled to the credit/refund of the input VAT paid on its
purchases of goods and services relative to such zero-rated export sales. The Court of
Appeals reversed the decision of the CTA in the petition for review stating that Toshiba is a
tax exempt entity under R.A. No. 7916 thus not entitled to refund the VAT payments made in
the domestic purchase of goods and services.
ISSUE
Is Toshiba entitled to VAT refund?
HELD
YES.Such export sales took place before October 15, 1999, when the old rule on the VAT
treatment of PEZA-registered enterprises still applied. Under this old rule, it was not only
possible, but even acceptable, for Toshiba, availing itself of the income tax holiday option
under Section 23 of Republic Act No. 7916, in relation to Section 39 of the Omnibus
Investments Code of 1987, to be subject to VAT, both indirectly (as purchaser to whom the
seller shifts the VAT burden) and directly (as seller whose sales were subject to VAT, either at
ten percent [10%] or zero percent [0%])
5
CIR vs Toshiba Information Equipment (Phil.) G.R. No. 150154, 9
August 2005
Facts:
Toshiba was claiming a refund for the input tax it paid on unutilized capital goods pur
chased. However, the CIR said that it cannot because the capital goods and services it
purchased are considered not used in VAT taxable business and therefore, it is not ent
itled to refund of input taxes. Toshiba, on the other hand, contended that it is PEZA-
registered and located within the ecozone and therefore for, VAT-exempt entity.
Issue:
Whether or not Toshiba is entitled to refund for the input tax it paid on unutilized cap
ital goods purchased considering that it is registered with PEZA and located within th
e ecozone.
Ruling:
Yes. CIR failed to differentiate between VAT-exempt transactions from VAT-
exempt entities. An exempt transactions are transactions specifically listed in and exp
ressly exempted from VAT under the Tax Code without regard to the tax status, VAT-
exempt or not, of the taxpayer. An exempt party, on the other hand, is a person or enti
ty granted VAT-
exemption under the Tax Code, special law or an international agreement to which the
Philippines is a signatory and by virtue of which its taxable transactions become exem
pt from VAT.
Toshiba, a PEZA-registered and located within a ecozone is a VAT-
exempt entity because of Sec 8 of Ta 7916 which establishes the fiction that ecozones a
re foreign territory. Therefore, a supplier from the custom territory cannot pass on out
put VAT to an ecozone enterprise, like Toshiba, since it is exempt.
 6
G.R. No. 190506 Issue
CORAL BAY NICKEL CORPORATION, Petitioner, Was the petitioner, an entity located within an ECOZONE, entitled to the refund of its unutilized
vs. input taxes incurred before it became a PEZA-registered entity?
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Ruling of the Court
DECISION The appeal is bereft of merit.
BERSAMIN, J.:
This appeal is brought by a taxpayer whose claim for the refund or credit pertaining to its alleged
We first explain why we have given due course to the petition for review on certiorari despite the
unutilized input tax for the third and fourth quarters of the year 2002 amounting to ₱50,
petitioner's premature filing of its judicial claim in the CTA.
124,086.75 had been denied by the Commissioner of Internal Revenue. The Court of Tax
Appeals (CTA) En Banc and in Division denied its appeal.
The petitioner filed with the BIR on June 10, 2004 its application for tax refund or credit
We sustain the denial of the appeal. representing the unutilized input tax for the third and fourth quarters of 2002. Barely 28 days
Antecedents later, it brought its appeal in the CTA contending that there was inaction on the part of the
The petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt mixed petitioner despite its not having waited for the lapse of the 120-day period mandated by Section
sulphide, is a VAT entity registered with the Bureau of Internal Revenue (BIR). It is also 112 (D) of the 1997 NIRC. At the time of the petitioner's appeal, however, the applicable rule
registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise was that provided under BIR Ruling No. DA-489-03, issued on December 10, 2003, to wit:
14

at the Rio Tuba Export Processing Zone under PEZA Certificate of Registration dated December
27, 2002. 1

On August 5, 2003, the petitioner filed its Amended VAT Return declaring unutilized input tax
2
from its domestic purchases of capital goods, other than capital goods and services, for its third
and fourth quarters of 2002 totalling ₱50,124,086.75. On June 14, 2004, it filed with Revenue
3
District Office No. 36 in Palawan its Application for Tax Credits/Refund (BIR Form 1914)
together with supporting documents.
Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA on July
8, 2004 by petition for review, praying for the refund of the aforesaid input VAT (CTA Case No.
7022).4
It appears, therefore, that it is not necessary for the Commissioner of Internal Revenue to first
act unfavorably on the claim for refund before the Court of Tax Appeals could validly take
cognizance of the case. This is so because of the positive mandate of Section 230 of the Tax
Code and also by virtue of the doctrine that the delay of the Commissioner in rendering his
decision does not extend the reglementary period prescribed by statute.
Incidentally, the taxpayer could not be faulted for taking advantage of the full two-year period set
by law for filing his claim for refund [with the Commissioner of Internal Revenue]. Indeed, no
provision in the tax code requires that the claim for refund be filed at the earliest instance in
order to give the Commissioner an opportunity to rule on it and the court to review the ruling of
the Commissioner of Internal Revenue on appeal.
xxx
As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue, the exception
15

After trial on the merits, the CTA in Division promulgated its decision on March 10, 2008 denying
5

to the mandatory and jurisdictional compliance with the 120+30 day-period is when the claim for
the petitioner's claim for refund on the ground that the petitioner was not entitled to the refund of
the tax refund or credit was filed in the period between December 10, 2003 and October 5, 2010
alleged unutilized input VAT following Section 106(A)(2)(a)(5) of the National Internal Revenue
during which BIR Ruling No. DA-489-03 was still in effect. Accordingly, the premature filing of
Code (NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus Investment Code
the judicial claim was allowed, giving to the CTA jurisdiction over the appeal.
and conformably with the Cross Border Doctrine. In support of its ruling, the CTA in Division
cited Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils) Inc.
(Toshiba) and Revenue Memorandum Circular ("RMC") No. 42-03.
6 7
As to the main issue, we sustain the assailed decision of the CTA En Banc.

After the CTA in Division denied its Motion for Reconsideration on July 2, 2008, the petitioner
8 9
elevated the matter to the CTA En Banc (CTA EB Case No. 403), which also denied the petition
through the assailed decision promulgated on May 29, 2009. 10
The petitioner's insistence, that Toshiba is not applicable because Toshiba Information
Equipment (Phils) Inc., the taxpayer involved thereat, was a PEZA-registered entity during the
time subject of the claim for tax refund or credit, is unwarranted. The most significant difference
between Toshiba and this case is that Revenue Memorandum Circular No. 74-99 was not yet in
16

effect at the time Toshiba Information Equipment (Phils) Inc. brought its claim for refund.
The CTA En Banc denied the petitioner's Motion for Reconsideration through the resolution
Regardless of the distinction, however, Toshiba actually discussed the VAT implication of PEZA-
dated December 10, 2009. 11

registered enterprises and ECOZONE-located enterprises in its entirety, which

renders Toshiba applicable to the petitioner's case.
Hence, this appeal, whereby the petitioner contends that Toshiba is not applicable inasmuch as
the unutilized input VAT subject of its claim was incurred from May 1, 2002 to December 31,
Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered enterprises was
2002 as a VAT-registered taxpayer, not as a PEZA-registered enterprise; that during the period
based on their choice of fiscal incentives, namely: (1) if the PEZA-registered enterprise chose
subject of its claim, it was not yet registered with PEZA because it was only on December 27,
the 5% preferential tax on its gross income in lieu of all taxes, as provided by Republic Act No.
2002 that its Certificate of Registration was issued; that until then, it could not have refused the
12

7916, as amended, then it was VAT-exempt; and (2) if the PEZA-registered enterprise availed
payment of VAT on its purchases because it could not present any valid proof of zero-rating to
itself of the income tax holiday under Executive Order No. 226, as amended, it was subject to
its VAT-registered suppliers; and that it complied with all the procedural and substantive
VAT at 10% (now, 12%). Based on this old rule, Toshiba allowed the claim for refund or credit
17

requirements under the law and regulations for its entitlement to the refund. 13

on the part of Toshiba Information Equipment (Phils) Inc.


This is not true with the petitioner. With the issuance of RMC 74-99, the distinction under the old
rule was disregarded and the new circular took into consideration the two important principles of
the Philippine VAT system: the Cross Border Doctrine and the Destination Principle.
Thus, Toshiba opined:
The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-
registered enterprise shall be considered an export sale and subject to zero percent (0%) VAT
was clearly established only on 15 October 1999, upon the issuance of RMC No. 74-99. Prior to
the said date, however, whether or not a PEZA-registered enterprise was VAT-exempt
depended on the type of fiscal incentives availed of by the said enterprise. This old rule on VAT-
exemption or liability of PEZA-registered enterprises, followed by the BIR, also recognized and
affirmed by the CTA, the Court of Appeals, and even this Court, cannot be lightly disregarded
considering the great number of PEZA-registered enterprises which did rely on it to determine its
tax liabilities, as well as, its privileges.
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-
registered enterprise the option to choose between two sets of fiscal incentives: (a) The five
percent (5%) preferential tax rate on its gross income under Rep. Act No. 7916, as amended;
and (b) the income tax holiday provided under Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 1987, as amended.
xxxx
This old rule clearly did not take into consideration the Cross Border Doctrine essential to
the VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on the
choice of fiscal incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT
rule for PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If the
PEZA-registered enterprise chose the five percent (5%) preferential tax on its gross income, in
lieu of all taxes, as provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt;
(2) If the PEZA-registered enterprise availed of the income tax holiday under Exec. Order No.
226, as amended, it shall be subject to VAT at ten percent (10%). Such distinction was
abolished by RMC No. 74-99, which categorically declared that all sales of goods,
properties, and services made by a VAT-registered supplier from the Customs Territory to
an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of
the latter's type or class of PEZA registration; and, thus, affirming the nature of a PEZA-
registered or an ECOZONE enterprise as a VAT-exempt entity. (underscoring and emphasis
18
supplied)
Furthermore, Section 8 of Republic Act No. 7916 mandates that PEZA shall manage and
operate the ECOZONE as a separate customs territory. The provision thereby establishes the
1âwphi1
fiction that an ECOZONE is a foreign territory separate and distinct from the customs territory.
Accordingly, the sales made by suppliers from a customs territory to a purchaser located within
an ECOZONE will be considered as exportations. Following the Philippine VAT system's
adherence to the Cross Border Doctrine and Destination Principle, the VAT implications are that
"no VAT shall be imposed to form part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority" Thus, Toshiba has discussed that:
19
This Court agrees, however, that PEZA-registered enterprises, which would necessarily be
located within ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act
No. 7916, as amended, which imposes the five percent (5%) preferential tax rate on gross
income of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of
the same statute which establishes the fiction that ECOZONES are foreign territory.
It is important to note herein that respondent Toshiba is located within an ECOZONE. An
ECOZONE or a Special Economic Zone has been described as –
7
. . . [S]elected areas with highly developed or which have the -Q potential to be developed into
agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial
centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An
ECOZONE may contain any or all of the following: industrial estates (IEs), export processing
zones (EPZs), free trade zones and tourist/recreational centers.
The national territory of the Philippines outside of the proclaimed borders of the ECO ZONE
shall be referred to as the Customs Territory. 1âwphi 1
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and
operate the ECOZONES as a separate customs territory; thus, creating the fiction that the
ECOZONE is a foreign territory. As a result, sales made by a supplier in the Customs
Territory to a purchaser in the ECOZONE shall be treated as an exportation from the
Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in
the Customs Territory shall be considered as an importation into the Customs
Territory. (underscoring and emphasis are supplied)
20
The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan. Its plant
21
site was specifically located inside the Rio Tuba Export Processing Zone - a special economic
zone (ECOZONE) created by Proclamation No. 304, Series of 2002, in relation to Republic Act
No. 7916. As such, the purchases of goods and services by the petitioner that were destined for
consumption within the ECOZONE should be free of VAT; hence, no input VAT should then be
paid on such purchases, rendering the petitioner not entitled to claim a tax refund or credit.
Verily, if the petitioner had paid the input VAT, the CTA was correct in holding that the
petitioner's proper recourse was not against the Government but against the seller who had
shifted to it the output VAT following RMC No. 42-03, which provides:
22
In case the supplier alleges that it reported such sale as a taxable sale, the substantiation of
remittance of the output taxes of the seller (input taxes of the exporter-buyer) can only be
established upon the thorough audit of the suppliers' VAT returns and corresponding books and
records. It is, therefore, imperative that the processing office recommends to the concerned BIR
Office the audit of the records of the seller.
In the meantime, the claim for input tax credit by the exporter-buyer should be denied without
prejudice to the claimant's right to seek reimbursement of the VAT paid, if any, from its supplier.
We should also take into consideration the nature of VAT as an indirect tax. Although the seller
is statutorily liable for the payment of VAT, the amount of the tax is allowed to be shifted or
passed on to the buyer. However, reporting and remittance of the VAT paid to the BIR
23
remained to be the seller/supplier's obligation. Hence, the proper party to seek the tax refund or
credit should be the suppliers, not the petitioner.
In view of the foregoing considerations, the Court must uphold the rejection of the appeal of the
petitioner. This Court has repeatedly pointed out that a claim for tax refund or credit is similar to
a tax exemption and should be strictly construed against the taxpayer. The burden of proof to
show that he is ultimately entitled to the grant of such tax refund or credit rests on the
taxpayer. Sadly, the petitioner has not discharged its burden.
24
WHEREFORE, the Court AFFIRMS the decision promulgated on May 29, 2009 in CTA EB Case
No. 403; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
 8
sale of gold to the Central Bank is considered an export sale and
therefore subject to VAT at 0% rate. On December 14, 1988, then Deputy
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 145559 Commissioner Santos also issued Revenue Memorandum Circular (RMC)
Petitioner, No. 59-88, again declaring that the sale of gold by a VAT-registered
Present: taxpayer to the Central Bank is subject to the zero-rate VAT. No less than
five Rulings were subsequently issued by [petitioner] from 1988 to 1990
PUNO, J., Chairperson, reiterating and confirming its position that the sale of gold by a VAT-
- versus - SANDOVAL-GUTIERREZ, registered taxpayer to the Central Bank is subject to the zero-rate VAT.
CORONA,
AZCUNA, and As a corollary, and in reliance, of the foregoing issuances, [respondent],
GARCIA, JJ. during the six (6) taxable quarters in question covering the period January
1, 1988 to July 31, 1989, sold gold to the Central Bank and treated these
BENGUET CORPORATION, Promulgated: sales as zero-rated that is, subject to the 0% VAT. During the same period,
Respondent. [respondent] thus incurred input taxes attributable to said sales to the
July 14, 2006 Central Bank. Consequently, [respondent] filed with the Commissioner of
Internal Revenue applications for the issuance of Tax Credit Certificates
x------------------------------------------------------------------------------------x for input VAT Credits attributable to its export sales - that is, inclusive of
direct export sales and sale of gold to the Central Bank corresponding to
DECISION the same taxable periods, to wit:

GARCIA, J.: AMOUNT OF TAX CREDIT APPLIED FOR TAXABLE PERIOD

In this petition for review under Rule 45 of the Rules of Court, petitioner
Commissioner of Internal Revenue seeks the reversal and setting aside of the following
Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 38413, to wit:
1. Resolution dated May 10, 2000[1] insofar as it ordered petitioner to
issue a tax credit to respondent Benguet Corporation in the
amount of P49,749,223.31 representing input VAT/tax
attributable to its sales of gold to the Central Bank (now Bangko
Sentral ng Pilipinas or BSP) covering the period from January 1,
1988 to July 31, 1989; and
2. Resolution dated October 16, 2000[2] denying petitioners motion for
reconsideration.
The facts, as narrated by the CA in its basic Resolution of May 10, 2000, are:
[Respondent] is a domestic corporation engaged in mining business,
specifically the exploration, development and operation of mining
properties for purposes of commercial production and the marketing of
mine products. It is a VAT-registered enterprise, with VAT Registration
No. 31-0-000027 issued on January 1, 1988. Sometime in January 1988,
[respondent] filed an application for zero-rating of its sales of mine
products, which application was duly approved by the [petitioner]
Commissioner of Internal Revenue.
P34,449,817.71 01Jan88 to 30 Apr88
P30,382,666.86 01May88 to 31Jul88
P30,146,774.47 01Aug88 to 31Oct88
P13,467,663.41 01Nov88 to 31Jan89
P 7,030,261.29 01Feb89 to 30Apr89
P18,263,960.28 01May89 to 31Jul89
(CTA Decision dated March 23, 1995; Pages 83-86, rollo)
Meanwhile, on January 23, 1992, then Commissioner Jose U. Ong issued
VAT Ruling No. 008-92 declaring and holding that the sales of gold to the
Central Bank are considered domestic sales subject to 10% VAT instead of
0% VAT as previously held in BIR Issuances from 1998 to 1990.
Subsequently, VAT Ruling No. 59-92, dated April 28, 1992, x x x were
issued by [petitioner] reiterating the treatment of sales of gold to the
Central Bank as domestic sales, and expressly countenancing the
Retroactive application of VAT Ruling No. 008-92 to all such sales made
starting January 1, 1988, ratiocinating, inter alia, that the mining
companies will not be unduly prejudiced by a retroactive application of
VAT Ruling 008-92 because their claim for refund of input taxes are not
lost because the same are allowable on its output taxes on the sales of
gold to Central Bank; on its output taxes on other sales; and as deduction
to income tax under Section 29 of the Tax Code.

On August 28, 1988, then Deputy Commissioner of Internal Revenue On the basis of the aforequoted BIR Issuances, [petitioner] thus treated
Eufracio D. Santos issued VAT Ruling No. 378-88 which declared that the [respondents] sales of gold to the Central Bank as domestic sales subject

to 10% VAT but allowed [respondent] a total tax credit of
only P81,991,810.91 which corresponded to VAT input taxes attributable
to its direct export sales (CTA Decision dated March 23, 1995; Page 87).
Notwithstanding this finding of the [petitioner], [respondent] was not
refunded the said amounts of tax credit claimed. Thus, to suspend the
running of the two-year prescriptive period (Sec. 106, NIRC) for claiming
refunds or tax credits, [respondent] instituted x x x consolidated Petitions
for Review with the Court of Tax Appeals, praying for the issuance of Tax
Credit Certificates for the following input VAT credits attributable to
export sales transacted during the taxable quarters or periods in
question, to wit:
CTA Case
Number Amount of Tax Credit Applied for Taxable Period
4429 P64,832,374.67 01JAN88 to31JUL88
4495 P43,614,437.88 01AUG88to31JAN89
4575 P23,294,221.77 01FEB89 to31JUL89
P131,741,034.22 = TOTAL
Significantly, the total amount of P131,741,034.22, as hereinabove
computed, corresponds to the total input VAT credits attributable to
export sales made by [respondent] during the taxable periods set forth
and therefore, represents a combination of input tax attributable to both
(1) direct export sales and (2) sales of gold to the Central Bank. (Words in
brackets added).[3]
In a decision dated March 23, 1995,[4] the Court of Tax Appeals (CTA) dismissed
respondents aforementioned consolidated Petitions for Review and denied the whole
amount of its claim for tax credit of P131,741,034.22. The tax court held that the alleged
prejudice to respondent as a result of the retroactive application of VAT Ruling No. 008-92
issued on January 23, 1992 to the latters gold sales to the Central Bank (CB) from January 1,
1988 to July 31, 1989 is merely speculative and not actual and imminent so as to proscribe
said Rulings retroactivity. The CTA further held that respondent would not be unduly
prejudiced considering that VAT Ruling No. 59-92 which mandates the retroactivity of VAT
Ruling No. 008-92 likewise provides for alternative remedies for the recovery of the input
VAT.
Its motion for reconsideration having been denied by the tax court, respondent
appealed to the CA whereat its recourse was docketed as CA-G.R. SP No. 38413.
At first, the CA, in a decision dated May 30, 1996,[5] affirmed in toto that of the tax
court.
However, upon respondents motion for reconsideration, the CA, in the herein
assailed basic Resolution dated May 10, 2000, reversed itself by setting aside its earlier
decision of May 30, 1996 and ordering herein petitioner to issue in respondents favor a tax
credit in the amount of P131,741,034.22, to wit:
9
IN THE LIGHT OF ALL THE FOREGOING, [respondents] Motion
for Reconsideration, x x x as supplemented, is GRANTED. The Decision of
this Court, dated May 30, 1996, affirming the Decision of the Court of Tax
Appeals x x x is SET ASIDE. The [petitioner Commissioner of Internal
Revenue] is hereby ordered to issue [respondent] a TAX CREDIT in the
amount of P131,741,034.22.
SO ORDERED.
In its reversal action, the CA ruled that the tax credit in the total amount
of P131,741,034.22 consists of (1) P81,991,810.91, representing input VAT credits
attributable to direct export sales subject to 0% VAT, and (2) P49,749,223.31, representing
input VAT attributable to sales of gold to the CB which were subject to 0% when said sales
were made in 1988 and 1989. In effect, the CA rejected the retroactive application of VAT
Ruling No. 008-92 to the subject gold sales of respondent because of the resulting prejudice
to the latter despite the existence of alternative modes for the recovery of the input VAT.
This time, it was petitioner who moved for a reconsideration but his motion was
denied by the CA in its subsequent Resolution of October 16, 2000.
Hence, petitioners present recourse assailing only that portion of the CA Resolution
of May 10, 2000 allowing respondent the amount of P49,749,223.31 as tax credit
corresponding to the input VAT attributable to its sales of gold to the CB for the period
January 1, 1988 to July 31, 1989. It is petitioners sole contention that the CA erred in
rejecting the retroactive application of VAT Ruling No. 008-92, dated January 23, 1992,
subjecting sales of gold to the CB to 10% VAT to respondents sales of gold during the period
from January 1, 1988 to July 31, 1989. Petitioner posits that, contrary to the ruling of the
appellate court, the retroactive application of VAT Ruling No. 008-92 to respondent would
not prejudice the latter.
Initially, the Court, in its Resolution of January 24, 2001, [6] denied the Petition for
lack of verification and certification against forum shopping. However, upon petitioners
manifestation and motion for reconsideration, the Court reinstated the Petition in its
subsequent Resolution of March 5, 2001.[7]
The petition must have to fall.
We start with the well-entrenched rule that rulings and circulars, rules and
regulations, promulgated by the Commissioner of Internal Revenue, would have no
retroactive application if to so apply them would be prejudicial to the taxpayers.[8]
And this is as it should be, for the Tax Code, specifically Section 246 thereof, is
explicit that:
x x x Any revocation, modification, or reversal of any rules and
regulations promulgated in accordance with the preceding section or any
of the rulings or circulars promulgated by the Commissioner of Internal
Revenue 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 in 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.
There is no question, therefore, as to the prohibition against the retroactive
application of the revocation, modification or reversal, as the case maybe, of previously
established Bureau on Internal Revenue (BIR) Rulings when the taxpayers interest would be
prejudiced thereby. But even if prejudicial to a taxpayer, retroactive application is still
allowed where: (a) a taxpayer deliberately misstates or omits material facts from his return
or any document required by the BIR; (b) where subsequent facts gathered by the BIR are
materially different from which the ruling is based; and (c) where the taxpayer acted in bad
faith.
As admittedly, respondents case does not fall under any of the above exceptions,
what is crucial to determine then is whether the retroactive application of VAT Ruling No.
008-92 would be prejudicial to respondent Benguet Corporation.
The Court resolves the question in the affirmative.
Input VAT or input tax represents the actual payments, costs and expenses incurred
by a VAT-registered taxpayer in connection with his purchase of goods and services.Thus,
input tax means the value-added tax paid by a VAT-registered person/entity in the course of
his/its trade or business on the importation of goods or local purchases of goods or services
from a VAT-registered person.[9]
On the other hand, when that person or entity sells his/its products or services, the
VAT-registered taxpayer generally becomes liable for 10% of the selling price as output VAT
or output tax.[10] Hence, output tax is the value-added tax on the sale of taxable goods or
services by any person registered or required to register under Section 107 of the (old) Tax
Code.[11]
The VAT system of taxation allows a VAT-registered taxpayer to recover its input
VAT either by (1) passing on the 10% output VAT on the gross selling price or gross receipts,
as the case may be, to its buyers, or (2) if the input tax is attributable to the purchase of
capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR.[12]
Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and
services may recover its input VAT costs by passing on said costs as output VAT to its buyers
of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer
subject to 0% on its sales of goods and services may only recover its input VAT costs by filing
a refund or tax credit with the BIR.
Here, the claimed tax credit of input tax amounting to P49,749,223.31 represents
the costs or expenses incurred by respondent in connection with its gold production.Relying
on BIR Rulings, specifically VAT Ruling No. 378-88, dated August 28, 1988, and VAT Ruling No.
10
59-88, dated December 14, 1988, both of which declared that sales of gold to the CB are
considered export sales subject to 0%, respondent sold gold to the CB from January 1, 1988
to July 31, 1989 without passing on to the latter its input VAT costs, obviously intending to
obtain a refund or credit thereof from the BIR at the end of the taxable period. However, by
the time respondent applied for refund/credit of its input VAT costs, VAT Ruling No. 008-92
dated January 23, 1992, treating sales of gold to the CB as domestic sales subject to 10% VAT,
and VAT Ruling No. 059-92 dated April 28, 1992, retroactively applying said VAT Ruling No.
008-92 to such sales made from January 1, 1988 onwards, were issued. As a result,
respondents application for refund/credit was denied and, as likewise found by the CA, it was
even subsequently assessed deficiency output VAT on October 19, 1992 in the total amounts
of P252,283,241.95 for the year 1988, and P244,318,148.56 for the year 1989.[13]
Clearly, from the foregoing, the prejudice to respondent by the retroactive
application of VAT Ruling No. 008-92 to its sales of gold to the CB from January 1, 1988 to July
31, 1989 is patently evident.
Verily, by reason of the denial of its claim for refund/credit, respondent has been
precluded from recovering its input VAT costs attributable to its sales of gold to the CB during
the period mentioned, for the following reasons:
First, because respondent could not pass on to the CB the 10% output VAT which
would be retroactively imposed on said transactions, not having passed the same at the time
the sales were made on the assumption that said sales are subject to 0%, and, hence, maybe
refunded or credited later. And second, because respondent could not claim the input VAT
costs as a refund/credit as it has been prevented such option, the sales in question having
been retroactively subjected to 10% VAT, ergo limiting recovery of said costs to the
application of the same against the output tax which will result therefrom.
Indeed, respondent stands to suffer substantial economic prejudice by the
retroactive application of the VAT Ruling in question.
But petitioner maintains otherwise, arguing that respondent will not be unduly
prejudiced since there are still other available remedies for it to recover its input VAT
costs.Said remedies, so petitioner points out, are for respondent to either (1) use said input
taxes in paying its output taxes in connection with its other sales transactions which are
subject to the 10% VAT or (2) if there are no other sales transactions subject to 10% VAT,
treat the input VAT as cost and deduct the same from income for income tax purposes.
We are not persuaded.
The first remedy cannot be applied in this case. As correctly found by the CA, respondent has
clearly shown that it has no other transactions subject to 10% VAT, and petitioner has failed
to prove the existence of such other transactions against which to set off respondents input
VAT.[14]
Anent the second remedy, prejudice will still, indubitably, result because treating the input
VAT as an income tax deductible expense will yield only a partial and not full financial benefit
of having the input VAT refunded or used as a tax credit. We quote with approval the CAs
observations in this respect, thus:

x x x even assuming that input VAT is still available for deduction,
[respondent] still suffers prejudice. As a zero-rated taxpayer (pursuant to
the 1988 to 1990 BIR issuances), [respondent] could have claimed a cash
refund or tax credit of the input VAT in the amount of P49,749,223.31. If
it had been allowed a cash refund or tax credit, it could have used the full
amount thereof to pay its other tax obligations (or, in the case of a cash
refund, to fund its operations). With VAT Ruling No. 059-92, [respondent]
is precluded from claiming the cash refund or tax credit and is limited to
the so-called remedy of deducting the input VAT from gross income. But
a cash refund or tax credit is not the same as a tax deduction. A tax
deduction has less benefits than a tax credit.Consider the following
differences;
2.42.1 A tax credit may be used to pay any national internal revenue tax
liability. Section 104(b) of the Tax Code states;
(b) Excess output or input tax. xxx Any input tax attributable to xxx zero-
rated sales by a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes, subject to the provisions
of Section 106.
On the other hand, a tax deduction may be used only against gross
income for purposes of income tax. A tax deduction is not allowed against
other internal revenue taxes such as excise taxes, documentary stamp
taxes, and output VAT.
2.42.2 In terms of income tax, a tax deduction is only an
expense item in computing income tax liabilities (Sections 27 to 29, Tax
Code) while a tax credit is a direct credit against final income tax due
(Section 106[b], Tax Code). This is illustrated in the example below:
Assume that in 1988, respondent had a gross income
of P1,000,000,000 and deductible expenses in general (such as salaries,
utilities, transportation, fuel and costs of sale) of P500,000,000. Assume
also that [respondent] had input VAT of P131,741,034.22, the amount
being claimed in the instant case. [Respondents] income tax liability,
depending on whether it utilized the input tax as tax credit or tax
deduction, would be as follows:
a. Tax credit
Gross Income (Section 28, Tax Code) P1,000,000,000.00
Deductions (Section 29, Tax Code) ( 500,000,000.00)
Taxable Income (Section 27, Tax Code) P 500,000.000.00
Tax rate (Section 24[a], Tax Code) x 35%
Tax Payable P 175,000,000.00
11
Tax Credit (131,741,034.22)
Tax due P 43,258,965.78
b. Tax deduction
Gross income (Section 28, Tax Code) P1,000,000,000.00
Deductions
General (Section 29, Tax Code) P500,000,000.00
Input VAT (VAT Ruling No. 059-92) P131,741,034.22P 631,741,034.22)
Taxable income (Section 27, Tax Code) P 368,258,966.78
Tax rate (Section 24[a], Tax Code) x 35%
Tax payable P 128,890,638.02
Tax Credit -
Tax due ______________
P 128,890,638.02
Thus, if the input VAT of P131,741,034.22 were to be credited against the
income tax due, the income tax payable is only P43,258,965.78. On the
other hand, if the input VAT were to be deducted from gross income
before arriving at the net income, the income tax payable
is P128,890,638.02. This is almost three (3) times the income tax payable
if the input VAT were to be deducted from the income tax payable.
As can be seen from above, there is a substantial difference between a
tax credit and a tax deduction. A tax credit reduces tax liability while a
tax deduction only reduces taxable income (emphasis supplied).
A tax credit of input VAT fully utilizes the entire amount
of P131,741,034.22, since tax liability is reduced by the said amount. A
tax deduction is not fully utilized because the savings is only 35%
or P46,109,361.98. In the above case, therefore, the use of input VAT as a
tax deduction results in a loss of 65% of the input VAT, or P85,631,672.24,
which [respondent] could have otherwise fully utilized as a tax credit.
xxxxxxxxx
x x x the deduction of an expense under Section 29 of the Tax Code is not
tantamount to a recovery of the expense. The deduction of a bad debt,
for instance, does not result in the recovery of the debt. On the other
hand, a tax credit, because it can be fully utilized to reduce tax liability, is
as good as cash and is thus effectively a full recovery of the input VAT
cost.[15] (Emphasis in the original; Words in brackets supplied).
 12
We may add that the prejudice which befell respondent is all the more highlighted
by the fact that it has been issued assessments for deficiency output VAT on the basis of the
same sales of gold to the CB.

On a final note, the Court is fully cognizant of the well-entrenched principle that
the Government is not estopped from collecting taxes because of mistakes or errors on the
part of its agents.[16] But, like other principles of law, this also admits of exceptions in the
interest of justice and fair play, as where injustice will result to the taxpayer.[17]

As this Court has said in ABS-CBN Broadcasting Corporation v. Court of Tax Appeals
and the Commissioner of Internal Revenue:[18]

The insertion of Sec. 338-A [now Sec. 246] into the National
Internal Revenue Code x x x is indicative of legislative intention to support
the principle of good faith. In fact, in the United States x x x it has been
held that the Commissioner or Collector is precluded from adopting a
position inconsistent with one previously taken where injustice would
result therefrom, or where there has been a misrepresentation to the
taxpayer. [Word in brackets supplied].

Here, when respondent sold gold to the CB, it relied on the formal assurances of
the BIR, i.e., VAT Ruling No. 378-88 dated August 28, 1988 and VAT Ruling RMC No. 59-88
dated December 14, 1988, that such sales are zero-rated. To retroact a later ruling VAT Ruling
No. 008-92 - revoking the grant of zero-rating status to the sales of gold to the CB and
applying a new and contrary position that such sales are now subject to 10%, is clearly
inconsistent with justice and the elementary requirements of fair play.

Accordingly, we find that the CA did not commit a reversible error in holding that
VAT Ruling No. 008-92 cannot be retroactively applied to respondents sales of gold to the CB
during the period January 1, 1988 to July 31, 1989, hence, it is entitled to tax credit in the
amount of P49,749,223.31 attributable to such sales.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed CA Resolutions
are AFFIRMED.

No costs.

SO ORDERED.
 13
[ GR No. 190102, Jul 11, 2012 ]
ACCENTURE v. CIR +
DECISION The monthly and quarterly VAT returns of Accenture show that, notwithstanding its
G.R. No. 190102 application of the input VAT credits earned from its zero-rated transactions against its
output VAT liabilities, it still had excess or unutilized input VAT credits. These VAT
credits are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38 for
SERENO, J.: the 2nd period, or a total of P37,038,269.18.[7]
This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying for Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input VAT
the reversal of the Decision of the Court of Tax Appeals En Banc (CTA En Banc) dated on Accenture's "domestic purchases of taxable goods which cannot be directly
22 September 2009 and its subsequent Resolution dated 23 October 2009.[1] attributed to its zero-rated sale of services."[8] This allocated input VAT was broken
down to P8,811,301.66 for the 1st period and P26,367,542.55 for the 2nd period.[9]
Accenture, Inc. (Accenture) is a corporation engaged in the business of providing
management consulting, business strategies development, and selling and/or The excess input VAT was not applied to any output VAT that Accenture was liable for
licensing of software.[2] It is duly registered with the Bureau of Internal Revenue (BIR) in the same quarter when the amount was earned or to any of the succeeding quarters.
as a Value Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of Instead, it was carried forward to petitioner's 2nd Quarterly VAT Return for 2003.[10]
the National Internal Revenue Code (Tax Code).[3]
Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an
On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July 2002 administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC).
to 31 August 2002 (1st period). Its Quarterly VAT Return for the fourth quarter of The DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter
2002, which covers the 1st period, was filed on 17 September 2002; and an Amended filed a Petition for Review with the First Division of the Court of Tax Appeals
Quarterly VAT Return, on 21 June 2004.[4] The following are reflected in Accenture's (Division), praying for the issuance of a TCC in its favor in the amount of
VAT Return for the fourth quarter of 2002:[5] P35,178,844.21.
Purchases Amount Input VAT The Commissioner of Internal Revenue (CIR), in its Answer,[11] argued thus:
Domestic Purchases- Capital Goods 12,312,722.00 P1,231,272.20
Domestic Purchases- Goods other than capital
64,789,507.90 6,478,950.79
Goods
Domestic Purchases- Services 1. The sale by Accenture of goods and services to its clients are not zero-rated
16,455,868.10 1,645,586.81 transactions.
Total Input Tax P9,355,809.80 2. Claims for refund are construed strictly against the claimant, and Accenture
Zero-rated Sales P316,113,513.34 has failed to prove that it is entitled to a refund, because its claim has not
Total Sales P335,640,544.74 been fully substantiated or documented.

In a 13 November 2008 Decision,[12] the Division denied the Petition of Accenture for
Accenture filed its Monthly VAT Return for the month of September 2002 on 24 failing to prove that the latter's sale of services to the alleged foreign clients qualified
October 2002; and that for October 2002, on 12 November 2002. These returns were for zero percent VAT.[13]
amended on 9 January 2003. Accenture's Quarterly VAT Return for the first quarter
of 2003, which included the period 1 September 2002 to 30 November 2002 In resolving the sole issue of whether or not Accenture was entitled to a refund or an
(2nd period), was filed on 17 December 2002; and the Amended Quarterly VAT issuance of a TCC in the amount of P35,178,844.21,[14] the Division ruled that
Return, on 18 June 2004. The latter contains the following information:[6] Accenture had failed to present evidence to prove that the foreign clients to which the
former rendered services did business outside the Philippines.[15] Ruling that
Purchases Amount Input VAT Accenture's services would qualify for zero-rating under the 1997 National Internal
Domestic Purchases- Capital Goods 80,765,294.10 P8,076,529.41 Revenue Code of the Philippines (Tax Code) only if the recipient of the services was
doing business outside of the Philippines,[16] the Division cited Commissioner of
Domestic Purchases- Goods other than capital
132,820,541.70 13,282,054.17 Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
Goods
(Burmeister)[17] as basis.
Domestic Purchases-Services 63,238,758.00 6,323,875.80
Total Input Tax P27,682,459.38
Accenture appealed the Division's Decision through a Motion for Reconsideration
Zero-rated Sales P545,686,639.18
(MR).[18] In its MR, it argued that the reliance of the Division on Burmeister was
Total Sales P572,880,982.68 misplaced[19] for the following reasons:

1. The issue involved in Burmeister was the entitlement of the applicant to a
refund, given that the recipient of its service was doing business in the
Philippines; it was not an issue of failure of the applicant to present evidence
to prove the fact that the recipient of its services was a foreign corporation
doing business outside the Philippines.[20]
2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the
services should be doing business outside the Philippines, and Accenture had
successfully established that.[21]
3. Having been promulgated on 22 January 2007 or after Accenture filed its
Petition with the Division, Burmeister cannot be made to apply to this
case.[22]
Accenture also cited Commissioner of Internal Revenue v. American Express
(Amex)[23] in support of its position. The MR was denied by the Division in its 12
March 2009 Resolution.[24]
Accenture appealed to the CTA En Banc. There it argued that prior to the amendment
introduced by Republic Act No. (R.A.) 9337,[25]there was no requirement that the
services must be rendered to a person engaged in business conducted outside the
Philippines to qualify for zero-rating. The CTA En Banc agreed that because the case
pertained to the third and the fourth quarters of taxable year 2002, the applicable law
was the 1997 Tax Code, and not R.A. 9337.[26] Still, it ruled that even though the
provision used in Burmeister was Section 102(b)(2) of the earlier 1977 Tax Code, the
pronouncement therein requiring recipients of services to be engaged in business
outside the Philippines to qualify for zero-rating was applicable to the case at bar,
because Section 108(B)(2) of the 1997 Tax Code was a mere reenactment of Section
102(b)(2) of the 1977 Tax Code.
The CTA En Banc concluded that Accenture failed to discharge the burden of proving
the latter's allegation that its clients were foreign-based.[27]
Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter
affirmed the Division's Decision and Resolution.[28] A subsequent MR was also denied
in a Resolution dated 23 October 2009.
Hence, the present Petition for Review[29] under Rule 45.
In a Joint Stipulation of Facts and Issues, the parties and the Division have agreed to
submit the following issues for resolution:
1. Whether or not Petitioner's sales of goods and services are zero-rated for
VAT purposes under Section 108(B)(2)(3) of the 1997 Tax Code.
14
2. Whether or not petitioner's claim for refund/tax credit in the amount of
P35,178,884.21 represents unutilized input VAT paid on its domestic
purchases of goods and services for the period commencing from 1 July 2002
until 30 November 2002.
3. Whether or not Petitioner has carried over to the succeeding taxable
quarter(s) or year(s) the alleged unutilized input VAT paid on its domestic
purchases of goods and services for the period commencing from 1 July 2002
until 30 November 2002, and applied the same fully to its output VAT
liability for the said period.
4. Whether or not Petitioner is entitled to the refund of the amount of
P35,178,884.21, representing the unutilized input VAT on domestic
purchases of goods and services for the period commencing from 1 July 2002
until 30 November 2002, from its sales of services to various foreign clients.
5. Whether or not Petitioner's claim for refund/tax credit in the amount of
P35,178,884.21, as alleged unutilized input VAT on domestic purchases of
goods and services for the period covering 1 July 2002 until 30 November
2002 are duly substantiated by proper documents.[30]
For consideration in the present Petition are the following issues:
1. Should the recipient of the services be "doing business outside the
Philippines" for the transaction to be zero-rated under Section 108(B)(2) of
the 1997 Tax Code?
2. Has Accenture successfully proven that its clients are entities doing business
outside the Philippines?
Recipient of services must be doing
business outside the Philippines for
the transactions to qualify as zero-
rated.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which
allows the refund of unutilized input VAT earned from zero rated or effectively zero-
rated sales. The provision reads:
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 of properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated proportionately on the basis of the
volume of sales.
Section 108(B) referred to in the foregoing provision was first seen when Presidential
Decree No. (P.D.) 1994[31] amended Title IV of P.D. 1158,[32] which is also known as
the National Internal Revenue Code of 1977. Several Decisions have referred to this as
the 1986 Tax Code, even though it merely amended Title IV of the 1977 Tax Code.
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 273[33] further
amended provisions of Title IV. E.O. 273 by transferring the old Title IV provisions to
Title VI and filling in the former title with new provisions that imposed a VAT.
The VAT system introduced in E.O. 273 was restructured through Republic Act No.
(R.A.) 7716.[34] This law, which was approved on 5 May 1994, widened the tax base.
Section 3 thereof reads:
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is
hereby further amended to read as follows:
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
xxx xxx xxx
"(b) Transactions subject to zero-rate. 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, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)."
Essentially, Section 102(b) of the 1977 Tax Code as amended by P.D. 1994, E.O. 273,
and R.A. 7716 provides that if the consideration for the services provided by a VAT-
registered person is in a foreign currency, then this transaction shall be subjected to
zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section
15
108(B), to wit:
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT- registered persons shall be subject to zero
percent (0%) rate.
Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the
(1) services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted
(2)
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP); x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing provision,
became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT- registered persons shall be subject to zero
percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng ilipinas (BSP);
"(2) Services other than those mentioned in the preceding paragraph rendered to
a person engaged in business conducted outside the Philippines or to a
nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for
in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP); x x x." (Emphasis supplied)
The meat of Accenture's argument is that nowhere does Section 108(B) of the 1997
Tax Code state that services, to be zero-rated, should be rendered to clients doing
business outside the Philippines, the requirement introduced by R.A.
9337.[35] Required by Section 108(B), prior to the amendment, is that the
consideration for the services rendered be in foreign currency and in accordance with
the rules of the Bangko Sentral ng Pilipinas (BSP). Since Accenture has complied
with all the conditions imposed in Section 108(B), it is entitled to the refund prayed
for.

In support of its claim, Accenture cites Amex, in which this Court supposedly ruled
that Section 108(B) reveals a clear intent on the part of the legislators not to impose
the condition of being "consumed abroad" in order for the services performed in the
Philippines to be zero-rated.[36]
The Division ruled that this Court, in Amex and Burmeister, did not declare that the
requirement that the client must be doing business outside the Philippines can be
disregarded, because this requirement is expressly provided in Article 108(2) of the
Tax Code.[37]
Accenture questions the Division's application to this case of the pronouncements
made in Burmeister. According to petitioner, the provision applied to the present case
was Section 102(b) of the 1977 Tax Code, and not Section 108(B) of the 1997 Tax
Code, which was the law effective when the subject transactions were entered into and
a refund was applied for.
In refuting Accenture's theory, the CTA En Banc ruled that since Section 108(B) of the
1997 Tax Code was a mere reproduction of Section 102(b) of the 1977 Tax Code, this
Court's interpretation of the latter may be used in interpreting the former, viz:
In the Burmeister case, the Supreme Court harmonized both Sections 102(b)(1) and
102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A
parallel approach should be accorded to the renumbered provisions of Sections
108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must be
read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as follows: a)
services other than processing, manufacturing or repacking rendered by VAT
registered persons in the Philippines; and b) the transaction paid for in acceptable
foreign currency duly accounted for in accordance with BSP rules and regulations.
The same provision made reference to Section 108(B)(1) further imposing the
requisite c) that the recipient of services must be performing business outside of
Philippines. Otherwise, if both the provider and recipient of service are doing business
in the Philippines, the sale transaction is subject to regular VAT as explained in
the Burmeister case x x x.
xxx xxx xxx
Clearly, the Supreme Court's pronouncements in the Burmeister case requiring that
the recipient of the services must be doing business outside the Philippines as
mandated by law govern the instant case.[38]
Assuming that the foregoing is true, Accenture still argues that the tax appeals courts
cannot be allowed to apply to Burmeister this Court's interpretation of Section 102(b)
of the 1977 Tax Code, because the Petition of Accenture had already been filed before
the case was even promulgated on 22 January 2007,[39] to wit:
x x x. While the Burmeister case forms part of the legal system and assumes the same
authority as the statute itself, however, the same cannot be applied retroactively
against the Petitioner because to do so will be prejudicial to the latter.[40]
16
The CTA en banc is of the opinion that Accenture cannot invoke the non-retroactivity
of the rulings of the Supreme Court, whose interpretation of the law is part of that law
as of the date of its enactment.[41]
We rule that the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B) of the
Tax Code.
This Court upholds the position of the CTA en banc that, because Section 108(B) of
the 1997 Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any
interpretation of the latter holds true for the former.
Moreover, even though Accenture's Petition was filed before Burmeister was
promulgated, the pronouncements made in that case may be applied to the present
one without violating the rule against retroactive application. When this Court decides
a case, it does not pass a new law, but merely interprets a preexisting one.[42] When
this Court interpreted Section 102(b) of the 1977 Tax Code in Burmeister, this
interpretation became part of the law from the moment it became effective. It is
elementary that the interpretation of a law by this Court constitutes part of that law
from the date it was originally passed, since this Court's construction merely
establishes the contemporaneous legislative intent that the interpreted law carried
into effect.[43]
Accenture questions the CTA's application of Burmeister, because the provision
interpreted therein was Section 102(b) of the 1977 Tax Code. In support of its position
that Section 108 of the 1997 Tax Code does not require that the services be rendered
to an entity doing business outside the Philippines, Accenture invokes this Court's
pronouncements in Amex. However, a reading of that case will readily reveal that the
provision applied was Section 102(b) of the 1977 Tax Code, and not Section 108 of the
1997 Tax Code. As previously mentioned, an interpretation of Section 102(b) of the
1977 Tax Code is an interpretation of Section 108 of the 1997 Tax Code, the latter
being a mere reproduction of the former.
This Court further finds that Accenture's reliance on Amex is misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the
services be consumed abroad to be zero-rated. However, nowhere in that case did this
Court discuss the necessary qualification of the recipient of the service, as this matter
was never put in question. In fact, the recipient of the service in Amex is a nonresident
foreign client.
The aforementioned case explains how the credit card system works. The issuance of a
credit card allows the holder thereof to obtain, on credit, goods and services from
certain establishments. As proof that this credit is extended by the establishment, a
credit card draft is issued. Thereafter, the company issuing the credit card will pay for
the purchases of the credit card holders by redeeming the drafts. The obligation to
collect from the card holders and to bear the loss in case they do not pay rests on the
issuer of the credit card.
The service provided by respondent in Amex consisted of gathering the bills and credit
card drafts from establishments located in the Philippines and forwarding them to its

parent company's regional operating centers outside the country. It facilitated in the
Philippines the collection and payment of receivables belonging to its Hong Kong-
based foreign client.
The Court explained how the services rendered in Amex were considered to have been
performed and consumed in the Philippines, to wit:
Consumption is "the use of a thing in a way that thereby exhausts it." Applied to
services, the term means the performance or "successful completion of a contractual
duty, usually resulting in the performer's release from any past or future liability x x
x." The services rendered by respondent are performed or successfully completed
upon its sending to its foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.[44]
The effect of the place of consumption on the zero-rating of the transaction was not
the issue in Burmeister. Instead, this Court addressed the squarely raised issue of
whether the recipient of services should be doing business outside the Philippines for
the transaction to qualify for zero-rating. We ruled that it should. Thus, another
essential condition for qualification for zero-rating under Section 102(b)(2) of the
1977 Tax Code is that the recipient of the business be doing that business outside the
Philippines. In clarifying that there is no conflict between this pronouncement and
that laid down in Amex, we ruled thus:
x x x. As the Court held in Commissioner of Internal Revenue v. American Express
International, Inc. (Philippine Branch), the place of payment is immaterial, much less
is the place where the output of the service is ultimately used. An essential condition
for entitlement to 0% VAT under Section 102 (b) (1) and (2) is that the recipient of the
services is a person doing business outside the Philippines. In this case, the
recipient of the services is the Consortium, which is doing business not
outside, but within the Philippines because it has a 15-year contract to
operate and maintain NAPOCOR's two 100-megawatt power barges in
Mindanao. (Emphasis in the original)[45]
In Amex we ruled that the place of performance and/or consumption of the service is
immaterial. In Burmeister, the Court found that, although the place of the
consumption of the service does not affect the entitlement of a transaction to zero-
rating, the place where the recipient conducts its business does.
Amex does not conflict with Burmeister. In fact, to fully understand how Section
102(b)(2) of the 1977 Tax Code and consequently Section 108(B)(2) of the 1997 Tax
Code was intended to operate, the two aforementioned cases should be taken
together. The zero-rating of the services performed by respondent in Amex was
affirmed by the Court, because although the services rendered were both performed
and consume in the Philippines, the recipient of the service was still an entity doing
business outside the Philippines as required in Burmeister.
That the recipient of the service should be doing business outside the Philippines to
qualify for zero-rating is the only logical interpretation of Section 102(b)(2) of the
1977 Tax Code, as we explained in Burmeister:
17
This can only be the logical interpretation of Section 102 (b) (2). If the provider and
recipient of the "other services" are both doing business in the Philippines, the
payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT
under Section 102 (a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To interpret Section
102 (b) (2) to apply to a payer-recipient of services doing business in the Philippines is
to make the payment of the regular VAT under Section 102 (a) dependent on the
generosity of the taxpayer. The provider of services can choose to pay the regular VAT
or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-
recipient. Such interpretation removes Section 102 (a) as a tax measure in the Tax
Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not
a voluntary contribution.
xxx xxx xxx
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102 (a)
governing domestic sale or exchange of services. Indeed, this is a purely local sale or
exchange of services subject to the regular VAT, unless of course the transaction falls
under the other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "[s]ervices other than those
mentioned in the preceding subparagraph," the legislative intent is that only
the services are different between subparagraphs 1 and 2. The requirements for zero-
rating, including the essential condition that the recipient of services is doing business
outside the Philippines, remain the same under both subparagraphs. (Emphasis in the
original)[46]
Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress
had already clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and
108(B)(2) of the 1997 Tax Code amending the earlier provision. R.A. 9337 added the
following phrase: "rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed."
Accenture has failed to establish that the recipients
of its services do business outside the Philippines.
Accenture argues that based on the documentary evidence it presented,[47] it was able
to establish the following circumstances:
1. The records of the Securities and Exchange Commission (SEC) show that
Accenture's clients have not established any branch office in which to do
business in the Philippines.
2. For these services, Accenture bills another corporation, Accenture
Participations B.V. (APB), which is likewise a foreign corporation with no

"presence in the Philippines."
3. Only those not doing business in the Philippines can be required under BSP
rules to pay in acceptable currency for their purchase of goods and services
from the Philippines. Thus, in a domestic transaction, where the provider
and recipient of services are both doing business in the Philippines, the BSP
cannot require any party to make payment in foreign currency.[48]
Accenture claims that these documentary pieces of evidence are supported by the
Report of Emmanuel Mendoza, the Court-commissioned Independent Certified Public
Accountant. He ascertained that Accenture's gross billings pertaining to zero-rated
sales were all supported by zero-rated Official Receipts and Billing Statements. These
documents show that these zero-rated sales were paid in foreign exchange currency
and duly accounted for in the rules and regulations of the BSP.[49]
In the CTA's opinion, however, the documents presented by Accenture merely
substantiate the existence of the sales, receipt of foreign currency payments, and
inward remittance of the proceeds of these sales duly accounted for in accordance
with BSP rules. Petitioner presented no evidence whatsoever that these clients were
doing business outside the Philippines.[50]
Accenture insists, however, that it was able to establish that it had rendered services
to foreign corporations doing business outside the Philippines, unlike in Burmeister,
which allegedly involved a foreign corporation doing business in the Philippines.[51]
We deny Accenture's Petition for a tax refund.
The evidence presented by Accenture may have established that its clients are foreign.
This fact does not automatically mean, however, that these clients were doing
business outside the Philippines. After all, the Tax Code itself has provisions for a
foreign corporation engaged in business within the Philippines and vice versa, to wit:
SEC. 22. Definitions - When used in this Title:
xxx xxx xxx
(H) The term "resident foreign corporation" applies to a foreign corporation engaged
in trade or business within the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not
engaged in trade or business within the Philippines. (Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that
the recipient of the service be proven to be a foreign corporation; rather, it must be
specifically proven to be a nonresident foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. We ruled thus in Commissioner of Internal Revenue v. British
18
Overseas Airways Corporation:[52]
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business
organization. "In order that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a
temporary character."[53]
A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly
against the taxpayer.[54]
Accenture failed to discharge this burden. It alleged and presented evidence to
prove only that its clients were foreign entities. However, as found by both the CTA
Division and the CTA En Banc, no evidence was presented by Accenture to prove the
fact that the foreign clients to whom petitioner rendered its services were clients doing
business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests,
Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and Bank
Statements presented by Accenture merely substantiated the existence of sales,
receipt of foreign currency payments, and inward remittance of the proceeds of such
sales duly accounted for in accordance with BSP rules, all of these were devoid of any
evidence that the clients were doing business outside of the Philippines.[55]
WHEREFORE, the instant Petition is DENIED. The 22 September 2009 Decision
and the 23 October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB
No. 477, dismissing the Petition for the refund of the excess or unutilized input VAT
credits of Accenture, Inc., are AFFIRMED.
SO ORDERED.

G.R. No. 153205 January 22, 2007
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
- versus -
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.,Respondent.
x----------------------------------------------------------------------------------------x
DECISION
CARPIO, J.:
The Case
This petition for review[1] seeks to set aside the 16 April 2002 Decision[2] of the Court of
Appeals in CA-G.R. SP No. 66341 affirming the 8 August 2001 Decision[3] of the Court of Tax
Appeals (CTA). The CTA ordered the Commissioner of Internal Revenue (petitioner) to issue a
tax credit certificate for P6,994,659.67 in favor of Burmeister and Wain Scandinavian
Contractor Mindanao, Inc. (respondent).
The Antecedents
The CTA summarized the facts, which the Court of Appeals adopted, as follows:
[Respondent] is a domestic corporation duly organized and existing under
and by virtue of the laws of the Philippines with principal address located
at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City.
It is represented that a foreign consortium
composed of Burmeister and Wain Scandinavian Contractor A/S (BWSC-
Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co.,
Ltd. entered into a contract with the National Power Corporation
(NAPOCOR) for the operation and maintenance of [NAPOCORs] two
power barges. The Consortium appointed BWSC-Denmark as its
coordination manager.
BWSC-Denmark established [respondent] which subcontracted the actual
operation and maintenance of NAPOCORs two power barges as well as
the performance of other duties and acts which necessarily have to be
done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture
of currencies (Mark, Yen, and Peso). The freely convertible non-Peso
component is deposited directly to the Consortiums bank accounts
in Denmark and Japan, while the Peso-denominated component is
deposited in a separate and special designated bank account in
the Philippines. On the other hand, the Consortium pays [respondent] in
19
foreign currency inwardly remitted to the Philippines through the banking
system.
In order to ascertain the tax implications of the above transactions,
[respondent] sought a ruling from the BIR which responded with BIR
Ruling No. 023-95 dated February 14, 1995, declaring therein that if
[respondent] chooses to register as a VAT person and the consideration
for its services is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to
VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the
Certificate of Registration bearing RDO Control No. 95-113-007556 was
issued in favor of [respondent] by the Revenue District Office No. 113
of Davao City.
For the year 1996, [respondent] seasonably filed its quarterly Value-
Added Tax Returns reflecting, among others, a total zero-rated sales
of P147,317,189.62 with VAT input taxes of P3,361,174.14, detailed as
follows:
Qtr. Exh. Date Filed Zero-Rated Sales VAT Input Tax
----------------------------------------------------------------------------------
1st E 04-18-96 P 33,019,651.07 P608,953.48
2nd F 07-16-96 37,108,863.33 756,802.66
3rd G 10-14-96 34,196,372.35 930,279.14
4th H 01-20-97 42,992,302.87 1,065,138.86
Totals P147,317,189.62 P3,361,174.14
On December 29, 1997, [respondent] availed of the Voluntary
Assessment Program (VAP) of the BIR. It allegedly misinterpreted
Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable
to its case. Revenue Regulations No. 5-96 provides in part thus:
SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of Revenue
Regulations No. 7-95 are hereby amended to read as
follows:
Section 4.102-2(b)(2) Services other than processing,
manufacturing or repacking for other persons doing
business outside the Philippines for goods which are
subsequently exported, as well as services by a
resident to a non-resident foreign client such as
project studies, information services, engineering and
architectural designs and other similar services, the
consideration for which is paid for in acceptable
foreign currency and accounted for in accordance
with the rules and regulations of the BSP.

x x x x x x x x x x.
In [conformity] with the aforecited Revenue Regulations, [respondent]
subjected its sale of services to the Consortium to the 10% VAT in the
total amount of P103,558,338.11 representing April to December 1996
sales since said Revenue Regulations No. 5-96 became effective only on
April 1996. The sum of P43,893,951.07, representing January to March
1996 sales was subjected to zero rate. Consequently, [respondent] filed
its 1996 amended VAT return consolidating therein the VAT output and
input taxes for the four calendar quarters of 1996. It paid the amount
of P6,994,659.67 through BIRs collecting agent, PCIBank, as its output tax
liability for the year 1996, computed as follows:
Amount subject to 10% VAT P103,558,338.11
Multiply by 10%
VAT Output Tax P 10,355,833.81
Less: 1996 Input VAT P 3,361,174.14
VAT Output Tax Payable P 6,994,659.67
On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-
99 from the VAT Review Committee which reconfirmed BIR Ruling No.
023-95 insofar as it held that the services being rendered by BWSCMI is
subject to VAT at zero percent (0%).
On the strength of the aforementioned rulings, [respondent]
on April 22,1999, filed a claim for the issuance of a tax credit certificate
with Revenue District No. 113 of the BIR. [Respondent] believed that it
erroneously paid the output VAT for 1996 due to its availment of the
Voluntary Assessment Program (VAP) of the BIR.[4]
On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the
running of the two-year prescriptive period under the Tax Code.
The Ruling of the Court of Tax Appeals
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate
for P6,994,659.67 in favor of respondent. The CTAs ruling stated:
[Respondents] sale of services to the Consortium [was] paid for in
acceptable foreign currency inwardly remitted to the Philippines and
accounted for in accordance with the rules and regulations
of Bangko Sentral ng Pilipinas. These were established by various BPI
Credit Memos showing remittances in Danish Kroner (DKK) and US dollars
(US$) as payments for the specific invoices billed by [respondent] to the
20
consortium. These remittances were further certified by the Branch
Manager x x x of BPI-Davao Lanang Branch to represent payments for
sub-contract fees that came from Den Danske Aktieselskab Bank-
Denmark for the account of [respondent]. Clearly, [respondents] sale of
services to the Consortium is subject to VAT at 0% pursuant to Section
108(B)(2) of the Tax Code.
xxxx
The zero-rating of [respondents] sale of services to the Consortium was
even confirmed by the [petitioner] in BIR Ruling No. 023-95 dated
February 15, 1995, and later by VAT Ruling No. 003-99 dated January
7,1999, x x x.
Since it is apparent that the payments for the services rendered by
[respondent] were indeed subject to VAT at zero percent, it follows that it
mistakenly availed of the Voluntary Assessment Program by paying
output tax for its sale of services. x x x
x x x Considering the principle of solutio indebiti which requires the return
of what has been delivered by mistake, the [petitioner] is obligated to
issue the tax credit certificate prayed for by [respondent]. x x x[5]
Petitioner filed a petition for review with the Court of Appeals, which dismissed the petition
for lack of merit and affirmed the CTA decision.[6]
Hence, this petition.
The Court of Appeals Ruling
In affirming the CTA, the Court of Appeals rejected petitioners view that since
respondents services are not destined for consumption abroad, they are not of the same
nature as project studies, information services, engineering and architectural designs, and
other similar services mentioned in Section 4.102-2(b)(2) of Revenue Regulations No. 5-
96[7] as subject to 0% VAT. Thus, according to petitioner, respondents services cannot legally
qualify for 0% VAT but are subject to the regular 10% VAT.[8]
The Court of Appeals found untenable petitioners contention that under VAT Ruling No. 040-
98, respondents services should be destined for consumption abroad to enjoy zero-
rating. Contrary to petitioners interpretation, there are two kinds of transactions or services
subject to zero percent VAT under VAT Ruling No. 040-98. These are (a) services other than
repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported; and (b) services by a resident to a non-resident foreign client, such as
project studies, information services, engineering and architectural designs and other similar
services, the consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).[9]

The Court of Appeals stated that only the first classification is required by the provision to be
consumed abroad in order to be taxed at zero rate. In x x x the absence of such express or
implied stipulation in the statute, the second classification need not be consumed abroad.[10]
The Court of Appeals further held that assuming petitioners interpretation of Section 4.102-
2(b)(2) of Revenue Regulations No. 5-96 is correct, such administrative provision is void being
an amendment to the Tax Code. Petitioner went beyond merely providing the implementing
details by adding another requirement to zero-rating. This is indicated by the additional
phrase as well as services by a resident to a non-resident foreign client, such
as project studies, information services and engineering and architectural designs and other
similar services. In effect, this phrase adds not just one but two requisites: (a) services must
be rendered by a resident to a non-resident; and (b) these must be in the nature of project
studies, information services, etc.[11]
The Court of Appeals explained that under Section 108(b)(2) of the Tax Code, [12] for services
which were performed in the Philippines to enjoy zero-rating, these must comply only with
two requisites, to wit: (1) payment in acceptable foreign currency and (2) accounted for in
accordance with the rules of the BSP. Section 108(b)(2) of the Tax Code does not provide that
services must be destined for consumption abroad in order to be VAT zero-rated.[13]
The Court of Appeals disagreed with petitioners argument that our VAT law generally follows
the destination principle (i.e., exports exempt, imports taxable).[14] The Court of Appeals
stated that if indeed the destination principle underlies and is the basis of the VAT laws, then
petitioners proper remedy would be to recommend an amendment of Section 108(b)(2) to
Congress. Without such amendment, however, petitioner should apply the terms of the basic
law. Petitioner could not resort to administrative legislation, as what [he] had done in this
case.[15]
The Issue
The lone issue for resolution is whether respondent is entitled to the refund
of P6,994,659.67 as erroneously paid output VAT for the year 1996.[16]
The Ruling of the Court
We deny the petition.
At the outset, the Court declares that the denial of the instant petition is not on the ground
that respondents services are subject to 0% VAT. Rather, it is based on the non-retroactivity
of the prejudicial revocation of BIR Ruling No. 023-95[17] and VAT Ruling No. 003-99,[18] which
held that respondents services are subject to 0% VAT and which respondent invoked in
applying for refund of the output VAT.
Section 102(b) of the Tax Code,[19] the applicable provision in 1996 when respondent
rendered the services and paid the VAT in question, enumerates which services are zero-
rated, thus:
21
(b) Transactions subject to zero-rate. ― 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, where the services are paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding sub-
paragraph, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero rate;
(4) Services rendered to vessels engaged exclusively in international
shipping; and
(5) Services performed by subcontractors and/or contractors in
processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production. (Emphasis supplied)
In insisting that its services should be zero-rated, respondent claims that it complied with the
requirements of the Tax Code for zero rating under the second paragraph of Section
102(b). Respondent asserts that (1) the payment of its service fees was in acceptable foreign
currency, (2) there was inward remittance of the foreign currency into the Philippines,
and (3) accounting of such remittance was in accordance with BSP rules. Moreover,
respondent contends that its services which constitute the actual operation and
management of two (2) power barges in Mindanao are not even remotely similar to project
studies, information services and engineering and architectural designs under Section 4.102-
2(b)(2) of Revenue Regulations No. 5-96. As such, respondents services need not be destined
to be consumed abroad in order to be VAT zero-rated.
Respondent is mistaken.
The Tax Code not only requires that the services be other than processing,
manufacturing or repacking of goods and that payment for such services be in acceptable
foreign currency accounted for in accordance with BSP rules. Another essential condition for
qualification to zero-rating under Section 102(b)(2) is that the recipient of such services is
doing business outside the Philippines. While this requirement is not expressly stated in the
second paragraph of Section 102(b), this is clearly provided in the first paragraph of Section
102(b) where the listed services must be for other persons doing business outside the
Philippines. The phrase for other persons doing business outside the Philippines not only

refers to the services enumerated in the first paragraph of Section 102(b), but also pertains
to the general term services appearing in the second paragraph of Section 102(b). In short,
services other than processing, manufacturing, or repacking of goods must likewise be
performed for persons doing business outside the Philippines.
This can only be the logical interpretation of Section 102(b)(2). If the provider and
recipient of the other services are both doing business in the Philippines, the payment of
foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section
102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly
remitted by the recipient of services. To interpret Section 102(b)(2) to apply to a payer-
recipient of services doing business in the Philippines is to make the payment of the regular
VAT under Section 102(a) dependent on the generosity of the taxpayer. The provider of
services can choose to pay the regular VAT or avoid it by stipulating payment in foreign
currency inwardly remitted by the payer-recipient. Such interpretation removes Section
102(a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is
a mandatory exaction, not a voluntary contribution.
When Section 102(b)(2) stipulates payment in acceptable foreign currency under
BSP rules, the law clearly envisions the payer-recipient of services to be doing business
outside the Philippines. Only those not doing business in the Philippines can be required
under BSP rules[20] to pay in acceptable foreign currency for their purchase of goods or
services from the Philippines. In a domestic transaction, where the provider and recipient of
services are both doing business in the Philippines, the BSP cannot require any party to make
payment in foreign currency.
Services covered by Section 102(b) (1) and (2) are in the nature of export sales since
the payer-recipient of services is doing business outside the Philippines. Under BSP
rules,[21] the proceeds of export sales must be reported to
the Bangko Sentral ng Pilipinas. Thus, there is reason to require the provider of services
under Section 102(b) (1) and (2) to account for the foreign currency proceeds to the BSP. The
same rationale does not apply if the provider and recipient of the services are both doing
business in the Philippines since their transaction is not in the nature of an export sale even if
payment is denominated in foreign currency.
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102(a) governing domesticsale or
exchange of services. Indeed, this is a purely local sale or exchange of services subject to the
regular VAT, unless of course the transaction falls under the other provisions of Section
102(b).
Thus, when Section 102(b)(2) speaks of [s]ervices other than those mentioned in
the preceding subparagraph, the legislative intent is that only the services are different
between subparagraphs 1 and 2. The requirements for zero-rating, including the essential
condition that the recipient of services is doing business outside the Philippines, remain the
same under both subparagraphs.
Significantly, the amended Section 108(b)[22] [previously Section 102(b)] of the present Tax
Code clarifies this legislative intent. Expressly included among the transactions subject to 0%
VAT are [s]ervices other than those mentioned in the [first] paragraph [of Section 108(b)]
rendered to a person engaged in business conducted outside the Philippines or to a
22
nonresident person not engaged in business who is outside the Philippines when the
services are performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP.
In this case, the payer-recipient of respondents services is the Consortium which is a joint-
venture doing business in the Philippines. While the Consortiums principal members are non-
resident foreign corporations, the Consortium itself is doing business in the Philippines. This
is shown clearly in BIR Ruling No. 023-95 which states that the contract between the
Consortium and NAPOCOR is for a 15-year term, thus:
This refers to your letter dated January 14, 1994 requesting for a clarification of the
tax implications of a contract between a consortium composed
of Burmeister & Wain Scandinavian Contractor A/S (BWSC), Mitsui Engineering
& Shipbuilding, Ltd. (MES), and Mitsui & Co., Ltd. (MITSUI), all referred to
hereinafter as the Consortium, and the National Power Corporation
(NAPOCOR) for the operation and maintenance of two 100-Megawatt power
barges (Power Barges) acquired by NAPOCOR for a 15-year
term.[23] (Emphasis supplied)
Considering this length of time, the Consortiums operation and
maintenance of NAPOCORs power barges cannot be classified as a single or isolated
transaction. The Consortium does not fall under Section 102(b)(2) which requires that the
recipient of the services must be a person doing business outside the Philippines. Therefore,
respondents services to the Consortium, not being supplied to a person doing business
outside the Philippines, cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCORs power
barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners,
partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also
in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This
payment scheme does not entitle respondent to 0% VAT. As the Court held in Commissioner
of Internal Revenue v. American Express International, Inc. (Philippine Branch),[24] the place of
payment is immaterial, much less is the place where the output of the service is ultimately
used. An essential condition for entitlement to 0% VAT under Section 102(b)(1) and (2) is that
the recipient of the services is a person doing business outside the Philippines. In this case,
the recipient of the services is the Consortium, which is doing business not outside, but
within the Philippines because it has a 15-year contract to operate and
maintain NAPOCORs two 100-megawatt power barges in Mindanao.
The Court recognizes the rule that the VAT system generally follows the destination
principle (exports are zero-rated whereas imports are taxed). However, as the Court stated
in American Express, there is an exception to this rule.[25] This exception refers to the 0% VAT
on services enumerated in Section 102 and performed in the Philippines. For services
covered by Section 102(b)(1) and (2), the recipient of the services must be a person doing
business outside the Philippines. Thus, to be exempt from the destination principle under
Section 102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a
person doing business outside the Philippines; and (c) paid in acceptable foreign currency
accounted for in accordance with BSP rules.
 23
Respondents reliance on the ruling in American Express[26] is misplaced. That case involved a
recipient of services, specifically American Express International, Inc. (HongkongBranch),
doing business outside the Philippines. There, the Court stated:

Respondent [American Express International, Inc. (Philippine Branch)] is a

VAT-registered person that facilitates the collection and payment of
receivables belonging to its non-resident foreign client [American
Express International, Inc. (Hongkong Branch)], for which it gets paid in
acceptable foreign currency inwardly remitted and accounted for in
accordance with BSP rules and regulations. x x x x[27] (Emphasis supplied)

In contrast, this case involves a recipient of services the Consortium which is doing business
in the Philippines. Hence, American Express services were subject to 0% VAT, while
respondents services should be subject to 10% VAT.

Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling
No. 003-99,[28] which reconfirmed BIR Ruling No. 023-95[29] insofar as it held that the services
being rendered by BWSCMI is subject to VAT at zero percent (0%). Respondents reliance on
these BIR rulings binds petitioner.

Petitioners filing of his Answer before the CTA challenging respondents claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
However, such revocation cannot be given retroactive effect since it will prejudice
respondent. Changing respondents status will deprive respondent of a refund of a substantial
amount representing excess output tax.[30] Section 246 of the Tax Code provides that any
revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive
application if the revocation will prejudice the taxpayer. Further, there is no showing of the
existence of any of the exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.
However, upon the filing of petitioners Answer dated 2 March 2000 before the CTA
contesting respondents claim for refund, respondents services shall be subject to the regular
10% VAT.[31] Such filing is deemed a revocation of VAT Ruling No. 003-99 and BIR Ruling No.
023-95.
WHEREFORE, the Court DENIES the petition.

SO ORDERED.

G.R. No. 209776, December 07, 2016
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. UNITED CADIZ
SUGAR FARMERS ASSOCIATION MULTI-PURPOSE
COOPERATIVE, Respondent.
DECISION
BRION, J.:
Before us is the petition for review on certiorari1 (under Rule 45 of the Rules of
Court) filed by the Commissioner of Internal Revenue (CIR) to assail the June
5, 2013 decision2 and the October 30, 2013 resolution3 of the Court of Tax
Appeals (CTA) en banc in CTA EB No. 846 (CTA Case No. 7995).
In the assailed decision and resolution, the CTA en banc affirmed the
decision4 and resolution5 of the CTA Second Division (CTA division).
The Facts
By law, the CIR is empowered, among others, to act on and approve claims for
tax refunds or credits.
The respondent United Cadiz Sugar Farmers Association Multi-purpose
Cooperative (UCSFA-MPC) is a multi-purpose cooperative with a Certificate of
Registration issued by the Cooperative Development Authority (CDA) dated
January 14, 2004.6
In accordance with Revenue Regulations (RR) No. 20-2001, the Bureau of
Internal Revenue (BIR) issued BIR Ruling No. RR12-08-2004,7 otherwise
known as the "Certificate of Tax Exemption" in favor of UCSFA-MPC.
In November 2007, BIR Regional Director Rodita B. Galanto of BIR Region 12 -
Bacolod City required UCSFA-MPC to pay in advance the value-added tax (VAT)
before her office could issue the Authorization Allowing Release of Refined
Sugar (AARRS) from the sugar refinery/mill. This was the first instance that the
Cooperative was required to do so. This prompted the cooperative to confirm
with the BIR8 whether it is exempt from the payment of VAT pursuant to
Section 109(1) of the National Internal Revenue Code (NIRC).9
The BIR responded favorably to UCSFA-MPC's query. In BIR Ruling No. ECCP-
015-08,10 the CIR11 ruled that the cooperative "is considered as the actual
producer of the members' sugarcane production, because it primarily provided
the various inputs (fertilizers), capital, technology transfer, and farm
management." (emphasis supplied) The CIR thus confirmed that UCSFA-MPC's
sale of produce to members and non-members is exempt from
the payment of VAT.
24
As a result, Regional Director Galanto no longer required the advance payment
of VAT from UCSFA-MPC and began issuing AARRS in its favor, thereby
allowing the cooperative to withdraw its refined sugar from the refinery. But, in
November 2008, the administrative legal opinion notwithstanding, Regional
Director Galanto, again demanded the payment of advance VAT from UCSFA-
MPC. Unable to withdraw its refined sugar from the refinery/mill for its
operations, UCSFA-MPC was forced to pay advance VAT under protest.
On November 11, 2009, UCSFA-MPC filed an administrative claim for refund
with the BIR, asserting that it had been granted tax exemption under Article 61
of Republic Act No. (RA) 6938, otherwise known as the Cooperative Code of
the Philippines (Cooperative Code),12 and Section 109(1) of the NIRC.13
On November 16, 2009, it likewise filed a judicial claim for refund before the
CTA division. During the trial, UCSFA-MPC presented, among other documents,
its Certificates of Registration14 and Good Standing15 issued by the CDA;
Certificate of Tax Exemption,16 and BIR Ruling No. ECCP-015-08 issued by the
BIR,17 as well as its Summary of VAT Payments Under Protest, Certificates of
Advance Payment, official receipts, and payment forms to substantiate its
claim.
The CTA division ruled in UCSFA-MPC's favor,18 thus upholding the
cooperative's exemption from the payment of VAT; the division held that the
amount of P3,469,734.00 representing advance VAT on 34,017 LKG bags of
refined sugar withdrawn from the refinery, was illegally or erroneously
collected by the BIR. The CIR moved but failed to obtain reconsideration of the
CTA division ruling.
The CIR then sought recourse before the CTA en banc. In its assailed
decision,19 the CTA en bancaffirmed the CTA division's ruling and ruled that
UCSFA-MPC successfully proved its entitlement to tax exemption through its
Certificate of Tax Exemption and BIR Ruling No. ECCP-015-08 (which
confirmed its status as a tax-exempt cooperative). The CTA en banc also held
that both its administrative and judicial claims for refund were timely filed,
having been filed within the two-year prescriptive period,20 in accordance with
the requirements of Sections 204(C) and 229 of the NIRC.
In denying the CIR's motion for reconsideration,21 the CTA en banc further
ruled that the payment of VAT on sales necessarily includes the exemption
from the payment of advance VAT. It also struck down the argument
questioning the validity of UCSFA-MPC's Certificate of Good Standing for having
been raised belatedly and thus considered waived.
Finally, it also held that as a tax-exempt cooperative, UCSFA-MPC is not
required to file monthly VAT declarations. The presentation of these documents
is therefore not essential in proving its claim for refund.
These developments gave rise to the present petition.

The Court's Ruling
We find the petition unmeritorious.
We have consistently ruled that claims for tax refunds, when based on statutes
granting tax exemption, partake of the nature of an exemption.22 Tax refunds
and exemptions are exceptions rather than the rule and for this reason are
highly disfavored.23 Hence, in evaluating a claim for refund, the rule of strict
interpretation applies.
This rule requires the claimant to prove not only his entitlement to a refund,
but also his due observance of the reglementary periods within which he must
file his administrative and judicial claims for refund.24Non-compliance with
these substantive and procedural due process requirements results in the
denial of the claim.25 It is then essential for us to discuss each requirement
cra lawred
and evaluate whether these have been duly complied with in the present case.
Procedural requirements: Present
claim for refund was timely filed.
UCSFA-MPC s claim for refund - grounded as it is on payments of advance VAT
alleged to have beenillegally and erroneously collected from November 15,
2007 to February 13, 2009 - is governed by Sections 204(C)26 and 22927 of the
NIRC. These provisions are clear: within two years from the date of payment of
tax, the claimant must first file an administrative claim with the CIR28 before
filing itsjudicial claim with the courts of law.29 Both claims must be filed
within a two-year reglementary period.30 Timeliness of the filing of the claim is
mandatory and jurisdictional. The court31 cannot take cognizance of a judicial
claim for refund filed either prematurely or out of time.
In the present case, the court a quo found that while the judicial claim was
filed merely five days after filing the administrative claim, both claims were
filed within the two-year reglementary period. Thus, the CTA correctly
exercised jurisdiction over the judicial claim filed by UCSFA-MPC.
Substantive requirements: UCSFA
MPC proved its entitlement to refund
As mentioned, the rule on strict interpretation requires the claimant to
sufficiently establish his entitlement to a tax refund. If the claimant asserts
that he should be refunded the amount of tax he has previously paid because
he is exempted from paying the tax,32 he must point to the specific legal
provision of law granting him the exemption. His right cannot be based on
mere implication.33
In this case, the cooperative claims that it is exempted — based on Section 61
of R.A. 6938 and Section 109(1) of the NIRC — from paying advance VAT when
it withdraws refined sugar from the refinery/mill as required by RR. No. 6-
25
2007. UCSFA-MPC thus alleges that the amounts of advance VAT it paid under
protest from November 15, 2007 to February 13, 2009, were illegally arid
erroneously collected.
UCSFA-MPC 's sale of refined sugar
is VAT-exempt.
As a general rule under the NIRC, a seller shall be liable for VAT34 on the sale
of goods or properties based on the gross selling price or gross value in money
of the thing sold.35 However, certain transactions are exempted from the
imposition of VAT.36 One exempted transaction is the sale of agricultural food
products in their original state.37 Agricultural food products that have
undergone simple processes of preparation or preservation for the market are
nevertheless considered to be in their original state.38
Sugar is an agricultural food product. Notably, tax regulations differentiate
between raw sugar andrefined sugar.39
For internal revenue purposes, the sale of raw cane sugar is exempt from
VAT40 because it is considered to be in its original state.41 On the other
hand, refined sugar is an agricultural product that can no longer be considered
to be in its original state because it has undergone the refining process; its sale
is thus subject to VAT.
Although the sale of refined sugar is generally subject to VAT, such transaction
may nevertheless qualify as a VAT-exempt transaction if the sale is made by a
cooperative. Under Section 109(1) of the NIRC,42sales by agricultural
cooperatives are exempt from VAT provided the following conditions
concur, viz:
First, the seller must be an agricultural cooperative duly registered with the
CDA.43 An agricultural cooperative is "duly registered" when it has been issued
a certificate of registration by the CDA. This certificate is conclusive
evidence of its registration.44
Second, the cooperative must sell either:
1) exclusively to its members; or
2) to both members and non-members, its produce, whether in its original
state or processed form.45
The second requisite differentiates cooperatives according to its customers. If
the cooperative transacts only with members, all its sales are VAT-exempt,
regardless of what it sells. On the other hand, if it transacts with both
members and non-members, the product sold must be the cooperative's own
produce in order to be VAT-exempt. Stated differently, if the cooperative only

sells its produce or goods that it manufactures on its own, its entire sales is
VAT-exempt.46
A cooperative is the producer of the sugar if it owns or leases the land tilled,
incurs the cost of agricultural production of the sugar, and produces the sugar
cane to be refined.47 It should not have merely purchased the sugar cane from
its planters-members.48
UCSFA-MPC satisfies these requisites in the present case.
First, UCSFA-MPC presented its Certificate of Registration issued by the CDA. It
does not appear in the records that the CIR ever objected to the authenticity or
validity of this certificate. Thus, the certificate is conclusive proof that the
cooperative is duly registered with the CDA.49
While its certificate of registration is sufficient to establish the cooperative's
due registration, we note that it also presented the Certificate of Good
Standing that the CDA issued. This further corroborates its claim that it is duly
registered with the CDA.
Second, the cooperative also presented BIR Ruling No. ECCP-015-08, which
states that UCSFA-MPC "is considered as the actual producer of the
members' sugar cane production because it primarily provided the various
productions inputs (fertilizers), capital, technology transfer, and farm
management." It concluded that the cooperative "has direct participation in
the sugar cane production of its farmers-members."
Thus, the BIR itself acknowledged and confirmed that UCSFA-MPC is the
producer of the refined sugar it sells. Under the principle of equitable
estoppel,50 the petitioner is now precluded from unilaterally revoking its own
pronouncement and unduly depriving the cooperative of an exemption clearly
granted by law.
With the UCSFA-MPC established as a duly registered cooperative and
the producer of sugar cane, its sale of refined sugar is exempt from VAT,
whether the sale is made to members or to non-members.
The VAT-exempt nature of the sales made by agricultural cooperatives under
the NIRC is consistent with the tax exemptions granted to qualified
cooperatives under the Cooperative Code which grants cooperatives exemption
from sales tax51 on transactions with members and non-members.52
These conclusions reduce the issue in the case to whether the granted
exemption also covers the payment of advance VAT upon withdrawal of refined
sugar from the refinery or mill.
Exemption from VAT on sale of
refined sugar by an agricultural
26
cooperative includes the exemption
from the requirement of advance
payment thereof.
The CTA en banc ruled that the cooperative is exempted from the payment of
advance VAT.53 It also ruled that the exemption from the payment of VAT on
sales necessarily includes the exemption from the payment of advance VAT.54
The CIR argues that the exemption granted by the Cooperative Code and NIRC,
on which the Certificate of Tax Exemption and BIR Ruling No. ECC-015-08
issued in favor of UCSFA-MPC were based, only covers VAT on the sale of
produced sugar. It does not include the exemption from the payment of
advance VAT in the withdrawal of refined sugar from the sugar mill.55
The CIR's argument fails to persuade us.
As we discussed above, the sale of refined sugar by an agricultural cooperative
is exempt from VAT. To fully understand the difference between VAT on the
sale of refined sugar and the advance VAT upon withdrawal of refined sugar,
we distinguish between the tax liability that arises from the imposition of
VAT and the obligation of the taxpayer to pay the same.
Persons liable for VAT on the sale of goods shall pay the VAT due, in general,
on a monthly basis. VAT accruing from the sale of goods in the current month
shall be payable the following month.56 However, there are instances where
VAT is required to be paid in advance,57 such as in the sale of refined sugar.58
To specifically address the policies and procedures governing the advance
payment of VAT on the sale of refined sugar, RR Nos. 6-2007 and 13-2008
were issued.
Under these regulations, VAT on the sale of refined sugar that, under regular
circumstances, is payable within the month following the actual sale of refined
sugar, shall nonetheless be paid in advance before the refined sugar can even
be withdrawn from the sugar refinery/mill by the sugar owner. Any advance
VAT paid by sellers of refined sugar shall be allowed as credit against their
output tax on the actual gross selling price of refined sugar.59
Recall in this regard that VAT is a transaction tax imposed at every stage of the
distribution process: on the sale, barter, exchange, or lease of goods or
services.60 Simply stated, VAT generally arises because an actual sale, barter,
or exchange has been consummated.
In the sugar industry, raw sugar is processed in a refinery/mill which thereafter
transforms the raw sugar into refined sugar. The refined sugar is then
withdrawn or taken out of the refinery/mill and sold to customers.61 Under this
flow, the withdrawal of refined sugar evidently takes place prior to its sale.

The VAT implications of the withdrawal of refined sugar from the sugar
refinery/mill and the actual sale of refined sugar are different. While the sale is
the actual transaction upon which VAT is imposed, the withdrawal gives rise to
the obligation to pay the VAT due, albeit in advance. Therefore, the
requirement for the advance payment of VAT for refined sugar creates a special
situation: While the transaction giving rise to the imposition of VAT — the
actual sale of refined sugar — has not yet taken place, the VAT that would be
due from the subsequent sale is, nonetheless, already required to be paid
earlier, which is before the withdrawal of the goods from the sugar
refinery/mill.
To be clear, the transaction subject to VAT is still the sale of refined sugar. The
withdrawal of sugar is not a separate transaction subject to VAT. It is only the
payment thereof that is required to be made in advance.
While the payment of advance VAT on the sale of refined sugar is, in general,
required before these goods may be withdrawn from the refinery/mill,
cooperatives are exempt from this requirement because they are cooperatives.
Revenue regulations specifically provide that such withdrawal shall not be
subject to the payment of advance VAT if the following requisites are
present, viz:
First, the withdrawal is made by a duly accredited and registered
agricultural cooperative in good standing.62 It was later clarified that a
cooperative is in good standing if it is a holder of a certificate of good
standing issued by the CDA.63
Second, the cooperative should also the producer of the sugar being
withdrawn.64
Third, the cooperative withdrawing the refined sugar should subsequently sell
the same to either its members or another agricultural cooperative.65
In sum, the sale of refined sugar by an agricultural cooperative duly registered
with the CDA is exempt from VAT. A qualified cooperative also enjoys
exemption from the requirement of advance payment of VAT upon withdrawal
from the refinery/mill. The agricultural cooperative's exemption from the
requirement of advance payment is a logical consequence of the exemption
from VAT of its sales of refined sugar. We elaborate on this point as follows:
First, the VAT required to be paid in advance (upon withdrawal) is the same
VAT to be imposed on the subsequent sale of refined sugar. If the very
transaction (sale of refined sugar) is VAT-exempt, there is no VAT to be paid in
advance because, simply, there is no transaction upon which VAT is to be
imposed.
27
Second, any advance VAT paid upon withdrawal shall be allowed as credit
against its output tax arising from its sales of refined sugar. If all sales by a
cooperative are VAT-exempt, no output tax shall materialize. It is simply
absurd to require a cooperative to make advance VAT payments if it will not
have any output tax against which it can use/credit its advance payments.
Thus, we sustain the CTA en banc's ruling that if the taxpayer is exempt from
VAT on the sale of refined sugar, necessarily, it is also exempt from the
advance payment of such tax.
Tax regulations cannot impose
additional requirements other than
what is required under the law as a
condition for tax exemption.
Insisting that UCSFA-MPC does not enjoy exemption from the payment of
advance VAT, the CIR questions the cooperative's compliance with tax
regulations that require cooperatives to make additional documentary
submissions to the BIR prior to the issuance of a certificate of tax exemption.
According to the CIR, RR No. 13-2008 requires an agricultural producer
cooperative duly registered with the CDA to be in good standing before it can
avail of the exemption from the advance payment of VAT. It claims that the
cooperative failed to present any certificate of good standing. While it did
present a certificate of good standing, the cooperative only acquired this
certificate on August 25, 2009. Hence, it was not exempt from advance
payment of VAT during the period subject of its refund, or between November
15, 2007 to February 15, 2009.66
We disagree with this CIR submission.
First, the CTA observed that the petitioner questioned the cooperative's
certificate of good standing for the first time in its motion for reconsideration
filed before the CTA en banc. Thus, the CTA en banc was correct in ruling that
under the Rules of Court the argument is deemed waived, having been
belatedly raised. No new issue in a case can be raised in a pleading, which
issue, by due diligence, could have been raised in previous pleadings.67
Second, the certificate of good standing is one of the requirements for the
issuance of a certificate of tax exemption under RR No. 20-2001.
Article 2(d) of the Cooperative Code defines a certificate of tax exemption as
"the ruling granting exemption to the cooperative" issued by the BIR. In turn,
under RR No. 20-2001, the cooperative shall file a letter-application for the
issuance of certificate of tax exemption, attaching thereto its certificates of
registration and good standing duly issued by the CDA.68 The certificate of tax
exemption shall remain valid so long as the cooperative is "in good standing"
as ascertained by the CDA.69

In line with the presumption of regularity in the performance of duties of public
officers, the issuance of the certificate of tax exemption in favor of UCSFA-MPC
presupposes that the cooperative submitted to the BIR the complete
documentary requirements for application, including its certificate of good
standing. Simply stated, when the cooperative's certificate of tax exemption
was issued in 2004, it had already obtained its certificate of good standing
from the CDA.
The fact that its certificate of good standing was dated August 25, 2009, should
not be detrimental to UCSFA-MPC's case. As it correctly points out, a certificate
of good standing is renewed and issued annually by the CDA. Its renewal
simply shows that it has remained to be in good standing with the CDA since
its original registration. More importantly, no evidence was presented to show
that either the certificate of registration or certificate of good standing had
been previously revoked.
Third, as discussed earlier, the exemption from VAT on the sale of refined
sugar carries with it the exemption from the payment of advance VAT before
the withdrawal of refined sugar from the refinery/mill.
Section 109(1) of the NIRC clearly sets forth only two requisites for the
exemption of the sale of refined sugar from VAT. Tax regulations implementing
Sections 61 and 62 of the Cooperative Code as well as Section 109(1) of the
NIRC must be read together, and read as well to be consistent with the laws
from which they have been derived. Thus, RR 20-2001 must be understood to
implement the same principle as the Cooperative Code and the NIRC and not
add to the existing requirements provided by these laws.
We must remember that regulations may not enlarge, alter, or restrict the
provisions of the law it administers; it cannot engraft additional requirements
not contemplated by the legislature.70 A taxpayer-claimant should not be
required to submit additional documents beyond what is required by the law;
the taxpayer-claimant should enjoy the exemption it has, by law, always been
entitled to.
Hence, once the cooperative has sufficiently shown that it has satisfied the
requirements under Section 109(1) of the NIRC for the exemption from VAT on
its sale of refined sugar (i.e., that it is duly registered with the CDA and it is
the producer of the sugar cane from which refined sugar is derived), its
exemption from the advance payment of VAT should automatically be granted
and recognized.
On these bases, we reject the CIR's insistence that RR No. 13-2008 requires
the submission of a certificate of good standing as a condition to a
cooperative's exemption from the requirement of advance payment of VAT. In
the same vein, the petitioner's argument that the submission of monthly VAT
declarations and quarterly VAT returns is essential to a claim for tax refund
must also fail.
28
The Certificate of Tax Exemption and
BIR Ruling No. ECCP-015-2008 have
not been revoked.
Finally, the CIR questions the validity of the certificate of exemption and BIR
Ruling No. ECCP-015-08 used by UCSFA-MPC to prove its exemption from tax.
Citing Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian
Contractor Mindanao, Inc.,71 the CIR insists that the BIR rulings on which the
cooperative anchors its exemption were, in the first place, deemed revoked
when it filed an Answer to the cooperative's judicial claim for refund before the
CTA Division.72
On the other hand, UCSFA-MPC points out that, while the case cited held that
the filing of an answer by the CIR is a revocation of prior rulings issued in favor
of the taxpayer-claimant, it has a recognized exception: the principle of non-
retroactivity of rulings under Section 246 of the NIRC.73
We agree with UCSFA-MPC.
The basic rule is that if any BIR ruling or issuance promulgated by the CIR is
subsequently revoked or nullified by the CIR herself or by the court, the
revocation/nullification cannot be applied retroactively to the prejudice of the
taxpayers. Hence, even if we consider that the CIR had revoked the rulings
previously issued in favor of UCSFA-MPC upon the filing of her answer, it
cannot effectively deprive UCSFA-MPC of its rights under the rulings prior to
their revocation.
We note that, as pointed out by UCSFA-MPC, this principle was recognized as
an exception in the very case the CIR cited, although the CIR opted to omit
this portion of the cited case.
Being exempt from VAT on the sale of refined sugar and the requirement of
advance payment of VAT, the amounts that UCSFA-MPC had paid from
November 15, 2007 to February 13, 2009, were illegally and erroneously
collected. Accordingly, a refund is in order.
WHEREFORE, we DENY the petition and accordingly AFFIRM the June 5,
2013 decision and the October 30, 2013 resolution of the CTA en banc in CTA
EB No. 846.
SO ORDERED.

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 Decision of the Court of Appeals (CA) in CA-G.R. SP No. 61436, the
1
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 (₱
359,652,009.47), is hereby AFFIRMED.
SO ORDERED. 2 In opposing the claim for refund, respondents interposed the following special and
Factual Antecedents
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered
domestic corporation engaged in the development and sale of real property. The 3
Bases Conversion Development Authority (BCDA), a wholly owned government
corporation created under Republic Act (RA) No. 7227, owns 45% of petitioner’s
4 estate dealers, is the improvements, such as buildings, roads, drainage systems, and
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, dated 6
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 improvements showing the quantity, description, and amount should be filed with the
On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT) system by
8
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
29
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 ₱ 71,227,503,200. Based on this value,
10
petitioner claimed that it is entitled to a transitional input tax credit of ₱
5,698,200,256, pursuant to Section 105 of the old NIRC.
11 12
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 ₱
3,685,356,539.50 from its sales and lease of lots, on which the output VAT payable
was ₱ 368,535,653.95. Petitioner paid the output VAT by making cash payments to
14
the BIR totalling ₱ 359,652,009.47 and crediting its unutilized input tax credit on
purchases of goods and services of ₱ 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 ₱ 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
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
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
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." In this case, since petitioner acquired the Global
19
City property under a VAT-free sale transaction, it cannot avail of the transitional input
tax credit. The CTA likewise pointed out that under Revenue Regulations No. (RR) 7-
20

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. Thus, the CTA disposed of the case in
21
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 Review under Rule 43 of the Rules of Court
23
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. The CA opined that transitional
24
input tax credit is allowed only when business taxes have been paid and passed-on
as part of the purchase price. In arriving at this conclusion, the CA relied heavily on
25
the historical background of transitional input tax credit. As to the validity of RR 7-95,
26
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
245 of the old NIRC.
27 28
Issues
Hence, the instant petition with the principal issue of whether petitioner is entitled to a
refund of ₱ 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.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of
Internal Revenue, and declaration of validity of said Regulations by the Court of Tax
Appeals and Court of Appeals, were in violation of the fundamental principle of
separation of powers.
30
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 ₱ 359,652,009.47
erroneously paid as output VAT for the first quarter of 1997 since its transitional input
tax credit of ₱ 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. Petitioner contends that there is nothing
31
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 100 of the
33
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. Respondents assert that prior payment of taxes is inherent in the
35
nature of a transitional input tax. Regarding RR 7-95, respondents insist that it is
36
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.
The issues before us are no longer new or novel as these have been resolved in the
related case of Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue. 38

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. Tax credit, on the other hand, is
40
an amount subtracted directly from one’s total tax liability. It is any amount given to a
41
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., we 42
31
declared that prior payment of taxes is not required in order to avail of a tax
credit. Pertinent portions of the Decision read:
43
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
32
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. Thus, contrary to the view of Justice Carpio, the granting of a transitional
45
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 acquired from a person in the course of trade or business, the transaction would
not be subject to VAT under Section 105. The sale would be subject to capital gains
taxes under 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.
If the goods or properties are acquired through donation, the acquisition would not be
subject to VAT but to donor’s tax under Section 98 instead. It is the donor who would
be 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 ₱ 100,000.00.
If the goods or properties are acquired through testate or intestate succession, the
transfer would not be subject to VAT but liable instead for estate tax under Title III of
the New NIRC. If the net estate does not exceed ₱ 200,000.00, no estate tax would
be assessed.
The interpretation proffered by the CTA would exclude goods and properties which
are acquired through sale not in the ordinary course of trade or business, donation or
through succession, from the beginning inventory on which the transitional input tax
credit is based. This prospect all but highlights the ultimate absurdity of the
respondents’ position. Again, nothing in the Old NIRC (or even the New NIRC)
speaks of such a possibility or qualifies the previous payment of VAT or any other
taxes on the goods, materials and supplies as a pre-requisite for inclusion in the
beginning inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-
registered persons, whether or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and supplies. During that period of
transition from non-VAT to VAT status, the transitional input tax credit serves to
alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-
registered taxpayer is obliged to remit a significant portion of the income it derived
from its sales as output VAT. The transitional input tax credit mitigates this initial
diminution of the taxpayer's income by affording the opportunity to offset the losses
incurred through the remittance of the output VAT at a stage when the person is yet
unable to credit input VAT payments.
There is another point that weighs against the CTA’s interpretation. Under Section
105 of the Old NIRC, the rate of the transitional input tax credit is "8% of the value of
such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher." If indeed the transitional input tax credit is premised on
the previous payment of VAT, then it does not make sense to afford the taxpayer the
benefit of such credit based on "8% of the value of such inventory" should the same
prove higher than the actual VAT paid. This intent that the CTA alluded to could have
been implemented with ease had the legislature shared such intent by providing the
actual VAT paid as the sole basis for the rate of the transitional input tax credit.
46
In view of the foregoing, we find petitioner entitled to the 8% transitional input tax
credit provided in Section 105 of the old NIRC. The fact that it acquired the Global
33
City property under a tax-free transaction makes no difference as prior payment of
taxes is not a pre-requisite.
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the old
NIRC
As regards Section 4.105-1 of RR 7-95 which limited the 8% transitional input tax
47
credit to the value of the improvements on the land, the same contravenes the
provision of Section 105 of the old NIRC, in relation to Section 100 of the same Code,
as amended by RA 7716, which defines "goods or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax.
– There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to 10% of the gross selling price or
gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor.
(1) The term "goods or properties" shall mean all tangible and intangible objects
which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business; x x x
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio,
we ruled that Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax
credit to the value of the improvement of the real properties, is a nullity. Pertinent
48
portions of the Resolution read:
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot
contravene the law on which it is based. RR 7-95 is inconsistent with Section 105
insofar as the definition of the term "goods" is concerned. This is a legislative act
beyond the authority of the CIR and the Secretary of Finance. The rules and
regulations that administrative agencies promulgate, which are the product of a
delegated legislative power to create new and additional legal provisions that have
the effect of law, should be within the scope of the statutory authority granted by the
legislature to the objects and purposes of the law, and should not be in contradiction
to, but in conformity with, the standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the
provisions of the enabling law. An implementing rule or regulation cannot modify,
1âwphi1
expand, or subtract from the law it is intended to implement. Any rule that is not
consistent with the statute itself is null and void.
While administrative agencies, such as the Bureau of Internal Revenue, may issue
regulations to implement statutes, they are without authority to limit the scope of the
statute to less than what it provides, or extend or expand the statute beyond its terms,
or in any way modify explicit provisions of the law. Indeed, a quasi-judicial body or an
 34
administrative agency for that matter cannot amend an act of Congress. Hence, in
case of a discrepancy between the basic law and an interpretative or administrative
ruling, the basic law prevails.

To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of

transitional input tax credit under Section 105 is a nullity.
49

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.

In this case, since petitioner is entitled to a transitional input tax credit of ₱

5,698,200,256, which is more than sufficient to cover its output VAT liability for the
first quarter of 1997, a refund of the amount of ₱ 359,652,009.47 erroneously paid as
output VAT for the said quarter is in order.

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 Commissioner of Internal Revenue is ordered to refund to
petitioner Fort Bonifacio Development Corporation the amount of ₱ 359,652,009.47
paid as output VAT for the first quarter of 1997 in light of the transitional input tax
credit available to petitioner for the said quarter, or in the alternative, to issue a tax
credit certificate corresponding to such amount.

SO ORDERED.

G.R. No. 191498 January 15, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.
DECISION
SERENO, CJ:
This Rule 45 Petition requires this Court to address the question of timeliness with
1
respect to petitioner's administrative and judicial claims for refund and credit of
accumulated unutilized input Value Added Tax (VAT) under Section 112(A) and
Section 112(D) of the 1997 Tax Code. Petitioner Mindanao II Geothermal Partnership
(Mindanao II) assails the Decision and Resolution of the Court of Tax Appeals En
2 3
Banc (CTA En Banc) in CTA En Banc Case No. 448, affirming the Decision in CTA
Case No. 7507 of the CTA Second Division. The latter ordered the refund or
4
issuance of a tax credit certificate in the amount of ₱6,791,845.24 representing
unutilized input VAT incurred for the second, third, and fourth quarters of taxable year
2004 in favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange
Commission. It is engaged in the business of power generation and sale of electricity
5
to the National Power Corporation (NAPOCOR) and is accredited by the Department
6
of Energy.7
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of
taxable year 2004 on the following dates: 8
On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an
application for the refund or credit of accumulated unutilized creditable input taxes. In9
support of the administrative claim for refund or credit, Mindanao II alleged, among
others, that it is registered with the BIR as a value-added taxpayer and all its sales
10
are zero-rated under the EPIRA law. It further stated that for the second, third, and
11
fourth quarters of taxable year 2004, it paid input VAT in the aggregate amount of
₱7,167,005.84, which were directly attributable to the zero-rated sales. The input
taxes had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal
Revenue (CIR) had a period of 120 days, or until 3 February 2006, to act on the
claim. The administrative claim, however, remained unresolved on 3 February 2006.
35
Under the same provision, Mindanao II could treat the inaction of the CIR as a denial
of its claim, in which case, the former would have 30 days to file an appeal to the
CTA, that is, on 5 March 2006. Mindanao II, however, did not file an appeal within the
30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within the two-year
prescriptive period provided under Section 112(A) and that such time frame was to be
reckoned from the filing of its Quarterly VAT Returns for the second, third, and fourth
quarters of taxable year 2004, that is, from 26 July 2004, 22 October 2004, and 25
January 2005, respectively. Thus, on 21 July 2006, Mindanao II, claiming inaction on
the part of the CIR and that the two-year prescriptive period was about to expire, filed
a Petition for Review with the CTA docketed as CTA Case No. 6133. 12
On 8 June 2007, while the application for refund or credit of unutilized input VAT of
Mindanao II was pending before the CTA Second Division, this Court promulgated
Atlas Consolidated Mining and Development Corporation v. CIR (Atlas). Atlas held
13
that the two-year prescriptive period for the filing of a claim for an input VAT refund or
credit is to be reckoned from the date of filing of the corresponding quarterly VAT
return and payment of the tax.
On 12 August 2008, the CTA Second Division rendered a Decision ordering the CIR
14
to grant a refund or a tax credit certificate, but only in the reduced amount of
₱6,791,845.24, representing unutilized input VAT incurred for the second, third and
fourth quarters of taxable year 2004. 15
In support of its ruling, the CTA Second Division held that Mindanao II complied with
the twin requisites for VAT zero-rating under the EPIRA law: first, it is a generation
company, and second, it derived sales from power generation. It also ruled that
Mindanao II satisfied the requirements for the grant of a refund/credit under Section
112 of the Tax Code: (1) there must be zero-rated or effectively zero-rated sales; (2)
input taxes must have been incurred or paid; (3) the creditable input tax due or paid
Date filed
Quarter Taxable Year
Original Amended
26 July 2004 12 July 2005 2nd 2004
22 October 2004 12 July 2005 3rd 2004
25 January 2005 12 July 2005 4th 2004
must be attributable to zero-rated sales or effectively zero-rated sales; (4) the input
VAT payments must not have been applied against any output liability; and (5) the
claim must be filed within the two-year prescriptive period. 16
As to the second requisite, however, the input tax claim to the extent of ₱375,160.60
corresponding to purchases of services from Mitsubishi Corporation was disallowed,
since it was not substantiated by official receipts.
17
 36
As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in
Atlas, counted from 26 July 2004, 22 October 2004, and 25 January 2005 – the dates support of its appeal:
when Mindanao II filed its Quarterly VAT Returns for the second, third, and fourth
quarters of taxable year 2004, respectively – and determined that both the I.
administrative claim filed on 6 October 2005 and the judicial claim filed on 21 July
2006 fell within the two-year prescriptive period.18

THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF

THE CASE.
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, pointing
19

out that prescription had already set in, since the appeal to the CTA was filed only on
21 July 2006, which was way beyond the last day to appeal – 5 March 2006. As legal 20 II.
basis for this argument, the CIR relied on Section 112(D) of the 1997 Tax Code. 21

THE COURT A QUO’S RELIANCE ON THE RULING IN ATLAS IS MISPLACED. 36

Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao

Corporation (Mirant). Mirant fixed the reckoning date of the two-year prescriptive
22
ISSUES
period for the application for refund or credit of unutilized input VAT at the close of the
taxable quarter when the relevant sales were made , as stated in Section 112(A). 23
The resolution of this case hinges on the question of compliance with the following
time requirements for the grant of a claim for refund or credit of unutilized input VAT:
On 3 December 2008, the CTA Second Division denied the CIR’s Motion for Partial (1) the two-year prescriptive period for filing an application for refund or credit of
Reconsideration. The tax court stood by its reliance on Atlas and on its finding that
24 25
unutilized input VAT; and (2) the 120+30 day period for filing an appeal with the CTA.
both the administrative and judicial claims of Mindanao II were timely filed. 26

THE COURT’S RULING

On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for
Review. Apart from the contention that the judicial claim of Mindanao II was filed
27
We deny Mindanao II’s claim for refund or credit of unutilized input VAT on the ground
beyond the 30-day period fixed by Section 112(D) of the 1997 Tax Code, the CIR
28
that its judicial claims were filed out of time, even as we hold that its application for
argued that Mindanao II erroneously fixed 26 July 2004, the date when the return for refund was filed on time.
the second quarter was filed, as the date from which to reckon the two-year
prescriptive period for filing an application for refund or credit of unutilized input VAT
under Section 112(A). As the two-year prescriptive period ended on 30 June 2006, I.
the Petition for Review of Mindanao II was filed out of time on 21 July 2006. The CIR 29

invoked the recently promulgated Mirant to support this theory. MINDANAO II’S APPLICATION FOR
REFUND WAS FILED ON TIME
On 11 November 2009, the CTA En Banc rendered its Decision denying the CIR’s
Petition for Review. On the question whether the application for refund was timely
30
We find no error in the conclusion of the tax courts that the application for refund or
filed, it held that the CTA Second Division correctly applied the Atlas ruling. It 31
credit of unutilized input VAT was timely filed. The problem lies with their bases for
reasoned that Atlas remained to be the controlling doctrine. Mirant was a new the conclusion as to: (1) what should be filed within the prescriptive period; and (2)
doctrine and, as such, the latter should not apply retroactively to Mindanao II who had the date from which to reckon the prescriptive period.
relied on the old doctrine of Atlas and had acted on the faith thereof. 32

We thus take a different route to reach the same conclusion, initially focusing our
As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA discussion on what should be filed within the two-year prescriptive period.
En Banc held that this was a requirement only when the CIR actually denies the
taxpayer’s claim. But in cases of CIR inaction, the 30-day period is not a mandatory
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period
requirement; the judicial claim is seasonably filed as long as it is filed after the lapse
of the 120-day waiting period but within two years from the date of filing of the return. 33

Section 112(A) provides:

The CIR filed a Motion for Partial Reconsideration of the Decision, but it was denied
34

for lack of merit.

35 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.
Both the CTA Second Division and CTA En Banc decisions held that the phrase
"apply for the issuance of a tax credit certificate or refund" in Section 112(A) is
construed to refer to both the administrative claim filed with the CIR and the judicial
claim filed with the CTA. This view, however, has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi),
we dispelled the misconception that both the administrative and judicial claims must
be filed within the two-year prescriptive period:37
There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection
(A) of the said provision states that "any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales." The phrase
"within two (2) years x x x apply for the issuance of a tax credit certificate or refund"
refers to applications for refund/credit filed with the CIR and not to appeals made to
the CTA. This is apparent in the first paragraph of subsection (D) of the same
provision, which states that the CIR has "120 days from the submission of complete
documents in support of the application filed in accordance with Subsections (A) and
(B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section
112 (D) of the NIRC, which already provides for a specific period within which a
taxpayer should appeal the decision or inaction of the CIR. The second paragraph of
Section 112 (D) of the NIRC envisions two scenarios: (1) when a decision is issued by
the CIR before the lapse of the 120-day period; and (2) when no decision is made
after the 120-day period. In both instances, the taxpayer has 30 days within which to
file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must be filed
within the two-year prescriptive period; the judicial claim need not fall within the two-
year prescriptive period.
37
Having disposed of this question, we proceed to the date for reckoning the
prescriptive period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales
Were Made.
The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling,
which fixed the reckoning point to the date of filing the return and payment of the tax.
The CIR’s Stand
The CIR’s stand is that Atlas is not applicable to the case at hand as it involves
Section 230 of the 1977 Tax Code, which contemplates recovery of tax payments
erroneously or illegally collected. On the other hand, this case deals with claims for
tax refund or credit of unutilized input VAT for the second, third, and fourth quarters of
2004, which are covered by Section 112 of the 1977 Tax Code. 38
The CIR further contends that Mindanao II cannot claim good faith reliance on the
Atlas doctrine since the case was decided only on 8 June 2007, two years after
Mindanao II filed its claim for refund or credit with the CIR and one year after it filed a
Petition for Review with the CTA on 21 July 2006. 39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should
apply to this case despite the fact that the latter was promulgated on 12 September
2008, after Mindanao II had filed its administrative claim in 2005. It argues that Mirant
40
can be applied retroactively to this case, since the decision merely interprets Section
112, a provision that was already effective when Mindanao II filed its claims for tax
refund or credit.
The Taxpayer’s Defense
On the other hand, Mindanao II counters that Atlas, decided by the Third Division of
this Court, could not have been superseded by Mirant, a Second Division Decision of
this Court. A doctrine laid down by the Supreme Court in a Division may be modified
or reversed only through a decision of the Court sitting en banc. 41
Mindanao II further contends that when it filed its Petition for Review, the prevailing
rule in the CTA reckons the two-year prescriptive period from the date of the filing of
the VAT return. Finally, after building its case on Atlas, Mindanao II assails the CIR’s
42
reliance on the Mirant doctrine stating that it cannot be applied retroactively to this
case, lest it violate the rock-solid rule that a judicial ruling cannot be given retroactive
effect if it will impair vested rights.
43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal Revenue
v. San Roque Power Corporation (San Roque), this Court resolved the threshold
44

question of when to reckon the two-year prescriptive period for filing an administrative
claim for refund or credit of unutilized input VAT under the 1997 Tax Code in view of
our pronouncements in Atlas and Mirant. In that case, we delineated the scope and
effectivity of the Atlas and Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or credit of input VAT must
comply with the two-year prescriptive period under Section 229, should be effective
only from its promulgation on 8 June 2007 until its abandonment on 12 September
2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas
doctrine, the two-year prescriptive period for claiming refund or credit of input VAT
should be governed by Section 112(A) following the verba legis rule. The Mirant
ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two-year prescriptive period in claiming
refund or credit of input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section 229 of the
1997 Tax Code:
The input VAT is not "excessively" collected as understood under Section 229
because at the time the input VAT is collected the amount paid is correct and proper.
The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of
goods, properties or services used as input by another VAT-registered person in the
sale of his own goods, properties, or services. This tax liability is true even if the seller
passes on the input VAT to the buyer as part of the purchase price. The second VAT-
registered person, who is not legally liable for the input VAT, is the one who applies
the input VAT as credit for his own output VAT. If the input VAT is in fact "excessively"
collected as understood under Section 229, then it is the first VAT-registered person
— the taxpayer who is legally liable and who is deemed to have legally paid for the
input VAT — who can ask for a tax refund or credit under Section 229 as an ordinary
refund or credit outside of the VAT System. In such event, the second VAT-registered
taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section
112(A), the input VAT is not "excessively" collected as understood under Section 229.
At the time of payment of the input VAT the amount paid is the correct and proper
amount. Under the VAT System, there is no claim or issue that the input VAT is
"excessively" collected, that is, that the input VAT paid is more than what is legally
due. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input
VAT simply means that the input VAT available as credit exceeds the output VAT, not
that the input VAT is excessively collected because it is more than what is legally due.
Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of
the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two
years from the date of payment of the tax "erroneously, . . . illegally, . . . excessively
or in any manner wrongfully collected." The prescriptive period is reckoned from the
date the person liable for the tax pays the tax. Thus, if the input VAT is in fact
38
"excessively" collected, that is, the person liable for the tax actually pays more than
what is legally due, the taxpayer must file a judicial claim for refund within two years
from his date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part of the
purchase price has no personality to file the judicial claim under Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial
claim for "excess" input VAT is two years from the close of the taxable quarter when
the sale was made by the person legally liable to pay the output VAT. This
prescriptive period has no relation to the date of payment of the "excess" input VAT.
The "excess" input VAT may have been paid for more than two years but this does
not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has
a different reckoning period from Section 229. Moreover, the person claiming the
refund or credit of the input VAT is not the person who legally paid the input VAT.
Such person seeking the VAT refund or credit does not claim that the input VAT was
"excessively" collected from him, or that he paid an input VAT that is more than what
is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the
taxpayer in the chain of transactions. For simplicity and efficiency in tax collection, the
VAT is imposed not just on the value added by the taxpayer, but on the entire selling
price of his goods, properties or services. However, the taxpayer is allowed a refund
or credit on the VAT previously paid by those who sold him the inputs for his goods,
properties, or services. The net effect is that the taxpayer pays the VAT only on the
value that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output
VAT. The only exception is when the taxpayer is expressly "zero-rated or effectively
zero-rated" under the law, like companies generating power through renewable
sources of energy. Thus, a non zero-rated VAT-registered taxpayer who has no
output VAT because he has no sales cannot claim a tax refund or credit of his unused
input VAT under the VAT System. Even if the taxpayer has sales but his input VAT
exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input
VAT under the VAT System. He can only carry-over and apply his "excess" input VAT
against his future output VAT. If such "excess" input VAT is an "excessively" collected
tax, the taxpayer should be able to seek a refund or credit for such "excess" input
VAT whether or not he has output VAT. The VAT System does not allow such refund
or credit. Such "excess" input VAT is not an "excessively" collected tax under Section
229. The "excess" input VAT is a correctly and properly collected tax. However, such
"excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact
"excessively" collected under Section 229, then it is the person legally liable to pay
the input VAT, not the person to whom the tax was passed on as part of the purchase
price and claiming credit for the input VAT under the VAT System, who can file the
judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an
"excessively" collected tax under Section 229 may lead taxpayers to file a claim for
refund or credit for such "excess" input VAT under Section 229 as an ordinary tax
refund or credit outside of the VAT System. Under Section 229, mere payment of a

tax beyond what is legally due can be claimed as a refund or credit. There is no
requirement under Section 229 for an output VAT or subsequent sale of goods,
properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is
a tax that is "erroneously . . . illegally, . . . excessively or in any manner wrongfully
collected." In short, there must be a wrongful payment because what is paid, or part
of it, is not legally due. As the Court held in Mirant, Section 229 should "apply only to
instances of erroneous payment or illegal collection of internal revenue taxes."
Erroneous or wrongful payment includes excessive payment because they all refer to
payment of taxes not legally due. Under the VAT System, there is no claim or issue
that the "excess" input VAT is "excessively or in any manner wrongfully collected." In
fact, if the "excess" input VAT is an "excessively" collected tax under Section 229,
then the taxpayer claiming to apply such "excessively" collected input VAT to offset
his output VAT may have no legal basis to make such offsetting. The person legally
liable to pay the input VAT can claim a refund or credit for such "excessively"
collected tax, and thus there will no longer be any "excess" input VAT. This will upend
the present VAT System as we know it. 45
Two things are clear from the above quoted San Roque disquisitions. First, when it
comes to recovery of unutilized input VAT, Section 112, and not Section 229 of the
1997 Tax Code, is the governing law. Second, prior to 8 June 2007, the applicable
rule is neither Atlas nor Mirant, but Section 112(A).
We present the rules laid down by San Roque in determining the proper reckoning
date of the two-year prescriptive period through the following timeline:
Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit for the
second, third and fourth quarters of 2004 on 6 October 2005. The case thus falls
within the first period as indicated in the above timeline. In other words, it is covered
by the rule prior to the advent of either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of
the 1997 Tax Code, is the close of the taxable quarter when the relevant sales were
made.
C. The Administrative Claims Were Timely Filed
39
We sum up our conclusions so far: (1) it is only the administrative claim that must be
filed within the two-year prescriptive period; and (2) the two-year prescriptive period
begins to run from the close of the taxable quarter when the relevant sales were
made.
Bearing these in mind, we now proceed to determine whether Mindanao II's
administrative claims for the second, third, and fourth quarters of 2004 were timely
filed.
Second Quarter
Since the zero-rated sales were made in the second quarter of 2004, the date of
reckoning the two-year prescriptive period is the close of the second quarter, which is
on 30 June 2004. Applying Section 112(A), Mindanao II had two years from 30 June
2004, or until 30 June 2006 to file an administrative claim with the CIR. Mindanao II
filed its administrative claim on 6 October 2005, which is within the two-year
prescriptive period. The administrative claim for the second quarter of 2004 was thus
timely filed. For clarity, we present the rules laid down by San Roque in determining
the proper reckoning date of the two-year prescriptive period through the following
timeline:
Third Quarter
As regards the claim for the third quarter of 2004, the two-year prescriptive period
started to run on 30 September 2004, the close of the taxable quarter. It ended on 30
September 2006, pursuant to Section 112(A) of the 1997 Tax Code. Mindanao II filed
its administrative claim on 6 October 2005. Thus, since the administrative claim was
filed well within the two-year prescriptive period, the administrative claim for the third
quarter of 2004 was timely filed. (See timeline below)

Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of the fourth
quarter which is on 31 December 2004. The last day of the prescriptive period for
filing an application for tax refund/credit with the CIR was on 31 December 2006.
Mindanao II filed its administrative claim with the CIR on 6 October 2005. Hence, the
claims were filed on time, pursuant to Section 112(A) of the 1997 Tax Code. (See
timeline below)
II.
MINDANAO II’S JUDICIAL CLAIMS WERE FILED OUT OF TIME
Notwithstanding the timely filing of the administrative claims, we find that the CTA En
Banc erred in holding that Mindanao II’s judicial claims were timely filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial
claim for refund or tax credit of input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit certificate
for creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in accordance
with Subsection (A) and (B) hereof. In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the Commissioner to act on the
40
application within the period prescribed above, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim or after the expiration of
the one hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphases supplied)
Section 112(D) speaks of two periods: the period of 120 days, which serves as a
waiting period to give time for the CIR to act on the administrative claim for refund or
credit, and the period of 30 days, which refers to the period for interposing an appeal
with the CTA. It is with the 30-day period that there is an issue in this case.
The CTA En Banc’s holding is that, since the word "or" – a disjunctive term that
signifies dissociation and independence of one thing from another – is used in Section
112(D), the taxpayer is given two options: 1) file an appeal within 30 days from the
CIR’s denial of the administrative claim; or 2) file an appeal with the CTA after
expiration of the 120-day period, in which case the 30-day appeal period does not
apply. The judicial claim is seasonably filed so long as it is filed after the lapse of the
120-day waiting period but before the lapse of the two-year prescriptive period under
Section 112(A). 46
We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR of the
claim for refund or tax credit, but to cases of inaction by the CIR as well. This is the
correct interpretation of the law, as held in San Roque: 47
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the
48
CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals.
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of
the Commissioner to the CTA within 30 days from receipt of the Commissioner's
decision, or if the Commissioner does not act on the taxpayer's claim within the 120-
day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of
two ways: (1) file the judicial claim within thirty days after the Commissioner denies
the claim within the 120-day period, or (2) file the judicial claim within thirty days from
the expiration of the 120-day period if the Commissioner does not act within the 120-
day period.
B. The Judicial Claim Was Belatedly Filed

In this case, the facts are not up for debate. Mindanao II filed its administrative claim
for refund or credit for the second, third, and fourth quarters of 2004 on 6 October
2005. The CIR, therefore, had a period of 120 days, or until 3 February 2006, to act
on the claim. The CIR, however, failed to do so. Mindanao II then could treat the
inaction as a denial and appeal it to the CTA within 30 days from 3 February 2006, or
until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after
the lapse of the 30-day period on 5 March 2006. The judicial claim was therefore filed
late. (See timeline below.)
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional
However, what is up for debate is the nature of the 30-day time requirement. The CIR
posits that it is mandatory. Mindanao II contends that the requirement of judicial
recourse within 30 days is only directory and permissive, as indicated by the use of
the word "may" in Section 112(D). 49
The answer is found in San Roque. There, we declared that the 30-day period to
appeal is both mandatory and jurisdictional:
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of
the Commissioner to the CTA within 30 days from receipt of the Commissioner's
decision, or if the Commissioner does not act on the taxpayer's claim within the 120-
day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.
xxxx
41
Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or
credit at anytime within the two-year prescriptive period. If he files his claim on the last
day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day,
the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the
plain meaning but also the only logical interpretation of Section 112(A) and (C).
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days
from receipt of the decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the unacted claim with the Court of
Tax Appeals," the law does not make the 120+30 day periods optional just because
the law uses the word " may." The word "may" simply means that the taxpayer may or
may not appeal the decision of the Commissioner within 30 days from receipt of the
decision, or within 30 days from the expiration of the 120-day period. x x x. 50
D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not
applicable
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional
nature of the 120+30 day period ─ BIR Ruling No. DA-489-03 dated 10 December
2003. The BIR ruling declares that the "taxpayer-claimant need not wait for the lapse
of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review."
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as
necessary to dwell on this issue to determine whether this case falls under the
exception.
For this question, we come back to San Roque, which provides that BIR Ruling No.
DA-489-03 is a general interpretative rule; thus, taxpayers can rely on it from the time
of its issuance on 10 December 2003 until its reversal by this Court in Aichi on 6
October 2010, when the 120+30 day periods were held to be mandatory and
jurisdictional. The Court reasoned as follows:
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment of the
Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have
received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court
of a general interpretative rule issued by the Commissioner, like the reversal of a
specific BIR ruling under Section 246, should also apply prospectively. x x x.

xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative
rule applicable to all taxpayers or a specific ruling applicable only to a particular
taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response
to a query made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax
Credit and Drawback Center of the Department of Finance . This government agency
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact
asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day
period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers
can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held
that the 120+30 day periods are mandatory and jurisdictional. 51
Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation
(Taganito), one of the taxpayers in San Roque. Taganito filed its judicial claim on 14
February 2007, after the BIR ruling took effect on 10 December 2003 and before the
promulgation of Mirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can
claim that in filing its judicial claim prematurely without waiting for the 120-day period
to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the
benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from
the vice of prematurity.52
San Roque was also careful to point out that the BIR ruling does not retroactively
apply to premature judicial claims filed before the issuance of the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four
reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to
its issuance, the BIR held that the 120-day period was mandatory and jurisdictional,
which is the correct interpretation of the law; third, prior to its issuance, no taxpayer
can claim that it was misled by the BIR into filing a judicial claim prematurely; and
fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer. 53
Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek
refuge in the BIR ruling as it jumped the gun when it filed its judicial claim on 10 April
42
2003, prior to the issuance of the BIR ruling on 10 December 2003. The Court 1âwphi 1
stated:
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed
its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was
misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-
489-03 was issued only after San Roque filed its judicial claim. At the time San Roque
filed its judicial claim, the law as applied and administered by the BIR was that the
Commissioner had 120 days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San
Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03,
whether in this Court, the CTA, or before the Commissioner. 54
San Roque likewise ruled out the application of the BIR ruling to cases of late filing.
The Court held that the BIR ruling, as an exception to the mandatory and jurisdictional
nature of the 120+30 day periods, is limited to premature filing and does not extend to
late filing of a judicial claim. Thus, the Court found that since Philex Mining
Corporation, the other party in the consolidated case San Roque, filed its claim 426
days after the lapse of the 30-day period, it could not avail itself of the benefit of the
BIR ruling:
Philex’s situation is not a case of premature filing of its judicial claim but of late filing,
indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim,
which means non-exhaustion of the 120-day period for the Commissioner to act on an
administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03
because Philex did not file its judicial claim prematurely but filed it long after the lapse
of the 30-day period following the expiration of the 120-day period. In fact, Philex filed
its judicial claim 426 days after the lapse of the 30-day period. 55
We sum up the rules established by San Roque on the mandatory and jurisdictional
nature of the 30-day period to appeal through the following timeline:
Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or
credit of unutilized input VAT, we rule on the present case of Mindanao II as follows:
We find that Mindanao II’s situation is similar to that of Philex in San Roque.

As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006.
This was after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, but
before its reversal on 5 October 2010. However, while the BIR ruling was in effect
when Mindanao II filed its judicial claim, the rule cannot be properly invoked. The BIR
ruling, as discussed earlier, contemplates premature filing. The situation of Mindanao
II is one of late filing. To repeat, its judicial claim was filed on 21 July 2006 – long after
5 March 2006, the last day of the 30-day period for appeal. In fact, it filed its judicial
claim 138 days after the lapse of the 30-day period. (See timeline below)
E. Undersigned dissented in San Roque to the retroactive application of the
mandatory and jurisdictional nature of the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent to the
retroactive application of the mandatory and jurisdictional nature of the 120+30 day
period provided under Section 112(D) of the Tax Code which, in her view, is unfair to
taxpayers. It has been the view of this ponente that the mandatory nature of 120+30
day period must be completely applied prospectively or, at the earliest, only upon the
finality of Aichi in order to create stability and consistency in our tax laws.
Nevertheless, this ponente is mindful of the fact that judicial precedents cannot be
ignored. Hence, the majority view expressed in San Roque must be applied.
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND
OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year
prescriptive period. (Aichi) 2. The proper reckoning date for the two-year
prescriptive period is the close of the taxable quarter when the relevant sales
were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June
2007 to 12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT
43
payments should be counted from the date of filing of the VAT return and
payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial
claim within thirty days after the Commissioner denies the claim within the
120-day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within the
120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on
the part of the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and
jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed
between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-
489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque)
SUMMARY AND CONCLUSION
In sum, our finding is that the three administrative claims for the refund or credit of
unutilized input VAT were all timely filed, while the corresponding judicial claims were
belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Il’s claims for
refund or credit. The CTA EB erred in granting these claims.
1âwphi1
WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc
Decision dated 11 November 2009 and Resolution dated 3 March 2010 of the in CTA
EB Case No. 448 (CTA Case No. 7507) are hereby REVERSED and SET ASIDE. A
new ruling is entered DENYING respondent s claim for a tax refund or credit of
₱6,791,845.24.
SO ORDERED.
44