TSC VS CIR

GR NO. 201225-26
April 18, 2018

Facts:
TSC filed with the BIR Revenue District Office No. 5-Alaminos, Pangasinan an
application for zero-rating arising from its sale of power generation services to NPC for
the taxable year 2001. TSC filed its VAT returns covering the four quarters of taxable
year 2001.
TSC filed with the BIR an administrative claim for refund in the aggregate
amount of P166,720,367.79 for its unutilized input VAT for taxable year 2001. Without
waiting for the resolution of its administrative claim for refund or tax credit, TSC filed
with the CTA Division a petition for review. It prayed for the refund or issuance of a tax
credit certificate for its alleged unutilized input VAT for the first quarter of taxable year
2001 in the amount of P37,985,009.25.
TSC filed another petition for review seeking the refund or issuance of a tax credit
certificate for its alleged unutilized input VAT for the second, third, and fourth quarters
of taxable year 2001 in the amount of P128,735,358.54. Both cases were consolidated on
August 7, 2003.
The CTA Division partially granted TSC's claim. It allowed the refund of
unutilized input VAT for the first, third, and fourth quarters of taxable year 2001, but
disallowed the refund for the second quarter. The CTA Division ruled that the claim for
the second quarter did not fall within the two-year prescriptive period.
The Commissioner of Internal Revenue (CIR) filed a Motion for Partial
Reconsideration on July 3, 2009, praying that the entire claim for refund be denied. The
CIR argued that TSC has not sufficiently proven its entitlement to refund and that the
CTA had no jurisdiction to act on the judicial claim for refund because the same was
prematurely filed.
TSC prayed that the CTA, in addition to the amount already granted, refund the
amounts of: (1) P29,298,556.12 representing input VAT for the second quarter of
taxable year 2001, and (2) P12,761,224.50 for input VAT on local purchases of goods
and services for the same year.
The CTA denied the claim for input VAT on local purchases of goods and services,
but allowed the refund for input VAT for the second quarter of taxable year 2001.
However, the grant was reduced from P29,298,556.12 to P27,233,561.57 for failure to
substantiate the difference.
TSC filed a Petition for Review before the CTA En Banc that the CTA Division
erred in disallowing the amount of P12,761,224.50 for input VAT on local purchases of
goods and services on the mere fact that the pertinent supporting documents were
issued under TSC's former name "Mirant Sual Corporation". TSC argues that a
corporation's change of name does not affect its identity or rights. Thus, it should still be
entitled to claim the said input VAT.
The CTA En Banc rendered a Consolidated Decision granting petitioner's claim
for refund of input VAT for the second, third, and fourth quarters of taxable year 2001
amounting to P123,110,001.68. Insofar as the refund of the input VAT for the first
quarter of taxable year 2001 is concerned, the CTA En Banc ruled that the CTA did not
acquire jurisdiction over it as it had been filed prematurely.
TSC filed a Motion for Partial Reconsideration of the CTA En Banc's decision. It
insists that the judicial claim for refund over the first quarter of 2001 was not
prematurely filed and that the CTA Division did in fact have jurisdiction to act on it.
Similarly, the CIR filed a motion for reconsideration, praying that TSC's claim be denied
altogether.
The CTA En Banc denied the motions of both TSC and the CIR.
Aggrieved, the CIR and TSC filed their respective Petitions for Review
on Certiorari under Rule 45 before the Court.

Issue:
Whether or not the CTA acquired jurisdiction over the case filed with and tried by
the First Division of the CTA due to the failure of respondent CIR to invoke the rule of
non-exhaustion of administrative remedies?

Ruling:
Yes. In order for the CTA to acquire jurisdiction over a judicial claim for refund or
tax credit arising from unutilized input VAT, the said claim must first comply with the
mandatory 120+30-day waiting period. Any judicial claim for refund or tax credit filed
in contravention of said period is rendered premature, depriving the CTA of jurisdiction
to act on it. Pursuant to Section 112, Subsections (A) and (C) of the National Internal
Revenue Code.
It is clear that any taxpayer seeking a refund or tax credit arising from unutilized
input VAT from zero-rated or effectively zero-rated sales should first file an initial
administrative claim with the BIR. This claim for refund or tax credit must be filed
within two years after the close of the taxable quarter when the sales were made.
The CIR is then given a period of 120-days from the submission of complete
documents in support of the application to either grant or deny the claim. If the claim is
denied by the CIR or the latter has not acted on it within the 120-day period, the
taxpayer-claimant is then given a period of 30 days to file a judicial claim via petition
for review with the CTA.
As such, the law provides for two scenarios before a judicial claim for refund may
be filed with the CTA: (1) the full or partial denial of the claim within the 120-day
period, or (2) the lapse of the 120-day period without the CIR having acted on the claim.
It is only from the happening of either one may a taxpayer-claimant file its judicial claim
for refund or tax credit for unutilized input VAT. Consequently, failure to observe the
said period renders the judicial claim premature, divesting the CTA of jurisdiction to act
on it.
Failure to comply with the 120-day waiting period violates a mandatory provision
of law. It violates the doctrine of exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action, with the effect that the CTA does
not acquire jurisdiction over the taxpayer's petition. Philippine jurisprudence is replete
with cases upholding and reiterating these doctrinal principles.
Given the fact that TSC's administrative claim was filed on March 20, 2003, the
CIR had 120 days or until July 18, 2003 to act on it. Thus, the first judicial claim was
premature because TSC filed it a mere 11 days after filing its administrative claim.
On the other hand, the second judicial claim filed by TSC was filed on time
because it was filed on July 23, 2003 or five days after the lapse of the 120-day period.
Accordingly, it is clear that the second judicial claim complied with the mandatory
waiting period of 120 days and was filed within the prescriptive period of 30 days from
the CIR's action or inaction. Therefore, the CTA division only acquired jurisdiction over
TSC's second judicial claim for refund covering its second, third, and fourth quarters of
taxable year 2001.
TSC submits that at the time of the filing of its claims for refund, prevailing
jurisprudence espoused that the 120-day waiting period was merely permissive instead
of mandatory. Otherwise stated, TSC argues that as long as a taxpayer-claimant filed
both its administrative and judicial claim within the two year prescriptive period under
Section 112(A) of the NIRC then there would be no need to comply with the 120-day
waiting period. This assertion has no basis.
Tax refunds or tax credits, just like tax exemptions, are strictly construed against
the taxpayer-claimant. A claim for tax refund is a statutory privilege and the mere
existence of unutilized input VAT does not entitle the taxpayer, as a matter of right, to it.
As such, the rules and procedure in claiming a tax refund should be faithfully complied
with. Non-compliance with the pertinent laws should render any judicial claim fatally
defective.