1

1.EN BANC MARIAN SHEILA A. LEE doing business under the name and style of "NTE GASOLINE &
SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under the name and style of
G.R. No. 168056 September 1, 2005 "STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing business under the name and
style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name and
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. style of "LEONA’S GASOLINE STATION and SERVICE CENTER"; CARMELITA
ALCANTARA and ED VINCENT S. ALBANO, Petitioners, BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE CENTER";
vs. MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE CENTER"; RHEAMAR A. RAMOS doing business under the name and style of "RJRAM PTT GAS
SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and STATION"; MA. ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT
HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, SERVICE CENTER"; MOTORISTS’ HEART CORPORATION represented by its Vice-President
JR., Respondent. for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’
x-------------------------x HERITAGE CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President
G.R. No. 168207 for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doing business under the name
and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business
under the name and style of "TRUE SERVICE STATION", Petitioners,
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA,
vs.
PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and
OSMEÑA III, Petitioners,
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
vs.
Revenue, Respondent.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY
OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE, Respondent. x-------------------------x

x-------------------------x G.R. No. 168463

G.R. No. 168461 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.
VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G.
MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO
SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO,
ANTONIO; PETRON DEALERS’ ASSOCIATION represented by its President, RUTH E.
JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q.
BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF THE PHILIPPINES represented by its
AGBAYANI and TEODORO A. CASIÑO, Petitioners,
President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and
vs.
style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO,
under the name and style of "SHELL GATE – N. DOMINGO"; BETHZAIDA TAN doing business
JR., in his capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his
under the name and style of "ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing
capacity as Executive Secretary, Respondent.
business under the name and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN
SOTTO doing business under the name and style of "RED FIELD SHELL SERVICE STATION";
DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI x-------------------------x
doing business under the name and style of "R&R PETRON STATION"; PETER M. UNGSON
doing business under the name and style of "CLASSIC STAR GASOLINE SERVICE STATION"; G.R. No. 168730
 2
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner, House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib
vs. F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The
TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the President also certified it as urgent on February 8, 2005. The House of Representatives approved the
OIC Commissioner of the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his bill on second and third reading on February 28, 2005.
capacity as the OIC Commissioner of the Bureau of Customs, Respondent.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7,
DECISION 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill
Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos.
AUSTRIA-MARTINEZ, J.: 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.
Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate on
The expenses of government, having for their object the interest of all, should be borne by everyone, second and third reading on April 13, 2005.
and the more man enjoys the advantages of society, the more he ought to hold himself honored in
contributing to those expenses. On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for
a committee conference on the disagreeing provisions of the proposed bills.
-Anne Robert Jacques Turgot (1727-1781)
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555,
French statesman and economist House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and
conference," recommended the approval of its report, which the Senate did on May 10, 2005, and
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased with the House of Representatives agreeing thereto the next day, May 11, 2005.
emoluments for health workers, and wider coverage for full value-added tax benefits … these are the
reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to
the Court even with its extensive constitutional power of review, cannot probe. The petitioners in the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
these cases, however, question not only the wisdom of the law, but also perceived constitutional
infirmities in its passage. July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, respondents from enforcing and implementing the law.
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional. Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
LEGISLATIVE HISTORY restraining order on July 1, 2005, to wit:

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a
and Senate Bill No. 1950. little background. You know when the law took effect on July 1, 2005, the Court issued a TRO at
about 5 o’clock in the afternoon. But before that, there was a lot of complaints aired on television and
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on on radio. Some people in a gas station were complaining that the gas prices went up by 10%. Some
Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative people were complaining that their electric bill will go up by 10%. Other times people riding in
(Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, domestic air carrier were complaining that the prices that they’ll have to pay would have to go up by
2005 for immediate enactment. On January 27, 2005, the House of Representatives approved the bill 10%. While all that was being aired, per your presentation and per our own understanding of the law,
on second and third reading. that’s not true. It’s not true that the e-vat law necessarily increased prices by 10% uniformly isn’t it?
 3
ATTY. BANIQUED : No, Your Honor. of the E-vat. Our people were subjected to the mercy of that confusion of an across the board increase
of 10%, which you yourself now admit and I think even the Government will admit is incorrect. In
J. PANGANIBAN : It is not? some cases, it should be 3% only, in some cases it should be 6% depending on these mitigating
measures and the location and situation of each product, of each service, of each company, isn’t it?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : That’s correct . . . J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to clarify all these by means of a
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted more detailed implementing rules, in case the law is upheld by this Court. . . .6

J. PANGANIBAN : . . . mitigating measures . . . The Court also directed the parties to file their respective Memoranda.

ATTY. BANIQUED : Yes, Your Honor. G.R. No. 168056

J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
the Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No.
petroleum dealers increased prices by 10%. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10%
ATTY. BANIQUED : Yes, Your Honor. VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease
of properties. These questioned provisions contain a uniform proviso authorizing the President, upon
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006,
cover the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably after any of the following conditions have been satisfied, to wit:
be in the neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point
that different industries, different products, different services are hit differently. So it’s not correct to . . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January
say that all prices must go up by 10%. 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
ATTY. BANIQUED : You’re right, Your Honor.
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present exceeds two and four-fifth percent (2 4/5%); or
imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a
mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best 7%, (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-
correct? half percent (1 ½%).

ATTY. BANIQUED : I guess so, Your Honor, yes. Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
J. PANGANIBAN : There are other products that the people were complaining on that first day, were Constitution.
being increased arbitrarily by 10%. And that’s one reason among many others this Court had to issue
TRO because of the confusion in the implementation. That’s why we added as an issue in this case, G.R. No. 168207
even if it’s tangentially taken up by the pleadings of the parties, the confusion in the implementation
 4
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorarilikewise assailing Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337. property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be claimed.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated,
12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also appropriated, or limited without due process of law. Petitioners further contend that like any other
contend that the increase in the VAT rate to 12% contingent on any of the two conditions being property or property right, the input tax credit may be transferred or disposed of, and that by limiting
satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it the same, the government gets to tax a profit or value-added even if there is no profit or value-added.
imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the original 10% if the conditions are no Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of
longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if:
VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to be an (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several
incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, transactions with the government, is not based on real and substantial differences to meet a valid
should only be based on fiscal adequacy. classification.

Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output
bill laid down in Article VI, Section 26(2) of the Constitution. tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the
petitioners make.
G.R. No. 168461
G.R. No. 168463
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337: Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable following grounds:
goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT components,
exceeds One Million Pesos (₱1, 000,000.00); 1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in
violation of Article VI, Section 28(2) of the Constitution;
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input
tax to be credited against the output tax; and 2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass
on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final 3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
withholding tax on gross payments of goods and services, which are subject to 10% VAT under 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI,
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of properties) of Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall
the NIRC. originate exclusively in the House of Representatives

Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, G.R. No. 168730
excessive, and confiscatory.
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on
July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the
 5
creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes b. Article VI, Section 26(2)
they collect, thus violating the principle that tax collection and revenue should be solely allocated for
public purposes and expenditures. Petitioner Garcia further claims that allowing these establishments SUBSTANTIVE ISSUES
to pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the
Constitution. 1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
RESPONDENTS’ COMMENT
a. Article VI, Section 28(1), and
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners b. Article VI, Section 28(2)
failed to cast doubt on its validity.
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions
of the Constitution:
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate a. Article VI, Section 28(1), and
concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no b. Article III, Section 1
discretion to the President but to increase the rate to 12% once any of the two conditions provided
therein arise.
RULING OF THE COURT
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
on the creditable input tax, the 60-month amortization on the purchase or importation of capital goods (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
exceeding ₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation,
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of
among others.
goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods or services
may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a tax
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the consumers.
balance towards a sustainable macroeconomic environment necessary for economic growth.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
ISSUES engages in, without transferring the burden to someone else.11 Examples are individual and corporate
income taxes, transfer taxes, and residence taxes.12
The Court defined the issues, as follows:
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
PROCEDURAL ISSUE different mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction
method" and was payable only by the original sellers. The single-stage system was subsequently
Whether R.A. No. 9337 violates the following provisions of the Constitution: modified, and a mixture of the "cost deduction method" and "tax credit method" was used to
determine the value-added tax payable.13 Under the "tax credit method," an entity can credit against or
a. Article VI, Section 24, and
 6
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
imports.14 legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would
be utterly impracticable to transact the business of the nation, either at all, or at least with
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the decency, deliberation, and order."19 Thus, Article VI, Section 16 (3) of the Constitution provides
VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the that "each House may determine the rules of its proceedings." Pursuant to this inherent constitutional
"tax credit method."15 power to promulgate and implement its own rules of procedure, the respective rules of each house of
Congress provided for the creation of a Bicameral Conference Committee.
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the
Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18and finally, the presently Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the
The Court will now discuss the issues in logical sequence. amendment to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.
PROCEDURAL ISSUE
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and
I. support the House Bill. If the differences with the Senate are so substantial that they materially impair
the House Bill, the panel shall report such fact to the House for the latter’s appropriate action.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently
a. Article VI, Section 24, and explicit statement of the changes in or amendments to the subject measure.

b. Article VI, Section 26(2) ...

A. The Bicameral Conference Committee The Chairman of the House panel may be interpellated on the Conference Committee Report prior to
the voting thereon. The House shall vote on the Conference Committee Report in the same manner
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee and procedure as it votes on a bill on third and final reading.
exceeded its authority by:
Rule XII, Section 35 of the Rules of the Senate states:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills; provision of any bill or joint resolution, the differences shall be settled by a conference committee of
both Houses which shall meet within ten (10) days after their composition. The President shall
designate the members of the Senate Panel in the conference committee with the approval of the
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the
Senate.
output tax; and
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes
changes in, or amendments to the subject measure, and shall be signed by a majority of the members
in addition to the value-added tax.
of each House panel, voting separately.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
 7
A comparative presentation of the conflicting House and Senate provisions and a reconciled version provision or the rights of private individuals. In Osmeña v. Pendatun, it was held: "At any rate,
thereof with the explanatory statement of the conference committee shall be attached to the report. courts have declared that ‘the rules adopted by deliberative bodies are subject to revocation,
modification or waiver at the pleasure of the body adopting them.’ And it has been said that
... "Parliamentary rules are merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body." Consequently, "mere
The creation of such conference committee was apparently in response to a problem, not addressed by failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative
any constitutional provision, where the two houses of Congress find themselves in disagreement over body) when the requisite number of members have agreed to a particular measure."21(Emphasis
changes or amendments introduced by the other house in a legislative bill. Given that one of the most supplied)
basic powers of the legislative branch is to formulate and implement its own rules of proceedings and
to discipline its members, may the Court then delve into the details of how Congress complies with its The foregoing declaration is exactly in point with the present cases, where petitioners allege
internal rules or how it conducts its business of passing legislation? Note that in the present petitions, irregularities committed by the conference committee in introducing changes or deleting provisions in
the issue is not whether provisions of the rules of both houses creating the bicameral conference the House and Senate bills. Akin to the Fariñas case,22 the present petitions also raise an issue
committee are unconstitutional, but whether the bicameral conference committee has strictly regarding the actions taken by the conference committee on matters regarding Congress’ compliance
complied with the rules of both houses, thereby remaining within the jurisdiction conferred with its own internal rules. As stated earlier, one of the most basic and inherent power of the
upon it by Congress. legislature is the power to formulate rules for its proceedings and the discipline of its members.
Congress is the best judge of how it should conduct its own business expeditiously and in the most
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En orderly manner. It is also the sole
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus,
declining therein petitioners’ plea for the Court to go behind the enrolled copy of the bill. Assailed in concern of Congress to instill discipline among the members of its conference committee if it believes
said case was Congress’s creation of two sets of bicameral conference committees, the lack of records that said members violated any of its rules of proceedings. Even the expanded jurisdiction of this
of said committees’ proceedings, the alleged violation of said committees of the rules of both houses, Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court is
and the disappearance or deletion of one of the provisions in the compromise bill submitted by the wont to deny a review of the internal proceedings of a co-equal branch of government.
bicameral conference committee. It was argued that such irregularities in the passage of the law
nullified R.A. No. 9006, or the Fair Election Act. Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
Finance,23 the Court already made the pronouncement that "[i]f a change is desired in the practice
Striking down such argument, the Court held thus: [of the Bicameral Conference Committee] it must be sought in Congress since this question is
not covered by any constitutional provision but is only an internal rule of each house." 24 To
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate date, Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore,
President and the certification of the Secretaries of both Houses of Congress that it was passed are that Congress finds the practices of the bicameral conference committee to be very useful for
conclusive of its due enactment. A review of cases reveals the Court’s consistent adherence to the purposes of prompt and efficient legislative action.
rule. The Court finds no reason to deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the internal rules of Congress, e.g., Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court
proper forum for the enforcement of these internal rules of Congress, whether House or Senate. observes that there was a necessity for a conference committee because a comparison of the
Parliamentary rules are merely procedural and with their observance the courts have no provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other,
concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements were
resolved in its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.: as follows:

But the cases, both here and abroad, in varying forms of expression, all deny to the courts the House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
power to inquire into allegations that, in enacting a law, a House of Congress failed to comply
with its own rules, in the absence of showing that there was a violation of a constitutional With regard to "Stand-By Authority" in favor of President
 8
Provides for 12% VAT on Provides for 12% VAT in Provides for a single rate of depreciable life of such depreciable life of such
every sale of goods or general on sales of goods or 10% VAT on sale of goods or capital goods; the input tax capital goods; the input tax
properties (amending Sec. properties and reduced rates for properties (amending Sec. credit for goods and services credit for goods and services
106 of NIRC); 12% VAT on sale of certain locally 106 of NIRC), 10% VAT on other than capital goods shall other than capital goods shall
importation of goods manufactured goods and sale of services including sale not exceed 5% of the total not exceed 90% of the output
(amending Sec. 107 of petroleum products and raw of electricity by generation amount of such goods and VAT.
NIRC); and 12% VAT on materials to be used in the companies, transmission and services; and for persons
sale of services and use or manufacture thereof (amending distribution companies, and engaged in retail trading of
lease of properties Sec. 106 of NIRC); 12% VAT on use or lease of properties goods, the allowable input
(amending Sec. 108 of importation of goods and (amending Sec. 108 of NIRC) tax credit shall not exceed
NIRC) reduced rates for certain 11% of the total amount of
imported products including goods purchased.
petroleum products (amending With regard to amendments to be made to NIRC provisions regarding income and excise taxes
Sec. 107 of NIRC); and 12% No similar provision No similar provision Provided for amendments to
VAT on sale of services and use several NIRC provisions
or lease of properties and a regarding corporate income,
reduced rate for certain services percentage, franchise and
including power generation excise taxes
(amending Sec. 108 of NIRC)
With regard to the "no pass-on" provision The disagreements between the provisions in the House bills and the Senate bill were with regard to
No similar provision Provides that the VAT imposed Provides that the VAT (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
on power generation and on the imposed on sales of electricity transmission and distribution companies should not be passed on to consumers, as proposed in the
sale of petroleum products shall by generation companies and Senate bill, or both the VAT imposed on electricity generation, transmission and distribution
be absorbed by generation services of transmission companies and the VAT imposed on sale of petroleum products should not be passed on to
companies or sellers, companies and distribution consumers, as proposed in the House bill; (3) in what manner input tax credits should be limited; (4)
respectively, and shall not be companies, as well as those of and whether the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes
passed on to consumers franchise grantees of electric should be amended.
utilities shall not apply to
residential There being differences and/or disagreements on the foregoing provisions of the House and Senate
bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress to
end-users. VAT shall be act on the same by settling said differences and/or disagreements. The Bicameral Conference
absorbed by generation, Committee acted on the disagreeing provisions by making the following changes:
transmission, and distribution
companies. 1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
With regard to 70% limit on input tax credit Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in
Provides that the input tax No similar provision Provides that the input tax the difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as
credit for capital goods on credit for capital goods on the highest VAT rate proposed by the House, by striking a compromise whereby the present 10%
which a VAT has been paid which a VAT has been paid VAT rate would be retained until certain conditions arise, i.e., the value-added tax collection as a
shall be equally distributed shall be equally distributed percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National
over 5 years or the over 5 years or the Government deficit as a percentage of GDP of the previous year exceeds 1½%, when the President,
 9
upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
January 1, 2006. Bicameral Conference Committee is mandated to settle the differences between the disagreeing
provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, "harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference
transmission and distribution companies should not be passed on to consumers or whether both the Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
VAT imposed on electricity generation, transmission and distribution companies and the VAT decide that neither provisions in the House bill or the provisions in the Senate bill would
imposed on sale of petroleum products may be passed on to consumers, the Bicameral Conference
Committee chose to settle such disagreement by altogether deleting from its Report any no pass- be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the
on provision. disagreeing provisions.

3. With regard to the disagreement on whether input tax credits should be limited or not, the In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
Bicameral Conference Committee decided to adopt the position of the House by putting a limitation provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject
on the amount of input tax that may be credited against the output tax, although it crafted its own any idea or intent that is wholly foreign to the subject embraced by the original provisions.
language as to the amount of the limitation on input tax credits and the manner of computing the same
by providing thus: The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by
the Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the
(A) Creditable Input Tax. – . . . House shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT
proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the
... subject of what rate of VAT should be imposed on taxpayers.

Provided, The input tax on goods purchased or imported in a calendar month for use in trade or The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate
the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost Panel, explained the reason for deleting the no pass-on provision in this wise:
for such goods, excluding the VAT component thereof, exceeds one million Pesos (₱1,000,000.00):
PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years, . . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no
as used for depreciation purposes, then the input VAT shall be spread over such shorter period: . . . sector should be a beneficiary of legislative grace, neither should any sector be discriminated on. The
VAT is an indirect tax. It is a pass on-tax. And let’s keep it plain and simple. Let’s not confuse the
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input bill and put a no pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the of the globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of the Senate
excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax is basically simple, let’s keep the VAT simple.26(Emphasis supplied)
inclusive of input VAT carried over from the previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really
input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or enjoyed the support of either House."27
credited against other internal revenue taxes, . . .
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, Committee came to a compromise on the percentage rate of the limitation or cap on such input tax
percentage and excise taxes, the conference committee decided to include such amendments and credit, but again, the change introduced by the Bicameral Conference Committee was totally within
basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the intent of both houses to put a cap on input tax that may be
the tax to be imposed.
 10
credited against the output tax. From the inception of the subject revenue bill in the House of Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or
Representatives, one of the major objectives was to "plug a glaring loophole in the tax policy and delete provisions in the House bill and the Senate bill after these had passed three readings is in effect
administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to
introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed convince the Court to deviate from its ruling in the Tolentino case that:
our collection efforts at an apparent disadvantage."28
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate three readings in each of the two houses. If that be the case, there would be no end to negotiation
Bill No. 1950, since said provisions were among those referred to it, the conference committee had to since each house may seek modification of the compromise bill. . . .
act on the same and it basically adopted the version of the Senate.
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane time in either house of Congress, not to the conference committee report.32 (Emphasis supplied)
to subjects of the provisions referred
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion followed by each house of Congress with regard to bills initiated in each of said respective
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In houses, before said bill is transmitted to the other house for its concurrence or amendment.
the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Verily, to construe said provision in a way as to proscribe any further changes to a bill after one house
Finance,30 the Court recognized the long-standing legislative practice of giving said conference has voted on it would lead to absurdity as this would mean that the other house of Congress would be
committee ample latitude for compromising differences between the Senate and the House. Thus, in deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26
the Tolentino case, it was held that: (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have been acted
. . . it is within the power of a conference committee to include in its report an entirely new provision upon by both houses of Congress is prohibited.
that is not found either in the House bill or in the Senate bill. If the committee can propose an
amendment consisting of one or two provisions, there is no reason why it cannot propose several C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination
provisions, collectively considered as an "amendment in the nature of a substitute," so long as such of Revenue Bills
amendment is germane to the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become valid as an act of the legislative Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
department. The charge that in this case the Conference Committee acted as a third legislative corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to
chamber is thus without any basis.31 (Emphasis supplied) wit:

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No- Section 27 Rates of Income Tax on Domestic Corporation
Amendment Rule" 28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
Article VI, Sec. 26 (2) of the Constitution, states: 34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
No bill passed by either House shall become a law unless it has passed three readings on separate
117 Percentage Tax on domestic carriers and keepers of Garage
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate enactment to 119 Tax on franchises
meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be 121 Tax on banks and Non-Bank Financial Intermediaries
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in 148 Excise Tax on manufactured oils and other fuels
the Journal. 151 Excise Tax on mineral products
 11
236 Registration requirements "concur with amendments" but also to "propose amendments." It would be to violate the
237 Issuance of receipts or sales or commercial invoices coequality of legislative power of the two houses of Congress and in fact make the House superior to
288 Disposition of Incremental Revenue the Senate.

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from …
the House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106,
107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to …Given, then, the power of the Senate to propose amendments, the Senate can propose its own
Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the version even with respect to bills which are required by the Constitution to originate in the
Senate amended but which amendments were not found in the House bills are not intended to be House.
amended by the House of Representatives. Hence, they argue that since the proposed amendments did
not originate from the House, such amendments are a violation of Article VI, Section 24 of the ...
Constitution.
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills,
The argument does not hold water. bills authorizing an increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the districts, the
Article VI, Section 24 of the Constitution reads: members of the House can be expected to be more sensitive to the local needs and problems. On
the other hand, the senators, who are elected at large, are expected to approach the same
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of problems from the national perspective. Both views are thereby made to bear on the enactment
local application, and private bills shall originate exclusively in the House of Representatives but the of such laws.33 (Emphasis supplied)
Senate may propose or concur with amendments.
Since there is no question that the revenue bill exclusively originated in the House of Representatives,
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the Senate was acting within its
the move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon
transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing constitutional power to introduce amendments to the House bill when it included provisions in Senate
amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily,
provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent
with the value- added tax, which is the only kind of tax being amended in the House bills, still within of the amendments that may be introduced by the Senate to the House revenue bill.
the purview of the constitutional provision authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the House? Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the subject
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on
thus: the floor, which was later substituted by House Bill No. 3555, stated:

. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to One of the challenges faced by the present administration is the urgent and daunting task of solving
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a the country’s serious financial problems. To do this, government expenditures must be strictly
bill originating in the House may undergo such extensive changes in the Senate that the result may be monitored and controlled and revenues must be significantly increased. This may be easier said than
a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate done, but our fiscal authorities are still optimistic the government will be operating on a balanced
action, a distinct bill may be produced. To insist that a revenue statute – and not only the bill budget by the year 2009. In fact, several measures that will result to significant expenditure savings
which initiated the legislative process culminating in the enactment of the law – must have been identified by the administration. It is supported with a credible package of revenue
substantially be the same as the House bill would be to deny the Senate’s power not only to
 12
measures that include measures to improve tax administration and control the leakages in The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35
revenues from income taxes and the value-added tax (VAT). (Emphasis supplied) percent, but up to 2008 only. This will raise ₱10.5 billion a year. After that, the rate will slide back,
not to its old rate of 32 percent, but two notches lower, to 30 percent.
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal
on top of our agenda must be the restoration of the health of our fiscal system. medicine will have an expiry date.

In order to considerably lower the consolidated public sector deficit and eventually achieve a For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
balanced budget by the year 2009, we need to seize windows of opportunities which might seem sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel,
poignant in the beginning, but in the long run prove effective and beneficial to the overall status this government will keep on making the tunnel long.
of our economy. One such opportunity is a review of existing tax rates, evaluating the relevance
given our present conditions.34 (Emphasis supplied) The responsibility will not rest solely on the weary shoulders of the small man. Big business will be
there to share the burden.35
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills which is
to supplement our country’s serious financial problems, and improve tax administration and control of to raise revenues for the government.
the leakages in revenues from income taxes and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the measures from the point of national perspective, Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
can introduce amendments within the purposes of those bills. It can provide for ways that would reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
soften the impact of the VAT measure on the consumer, i.e., by distributing the burden across all Considering that certain goods and services which were subject to percentage tax and excise tax
sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of would no longer be VAT-exempt, the consumer would be burdened more as they would be paying the
Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact of
quoting: VAT. Again, in his sponsorship speech, Sen. Recto said:

All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker
additional revenues annually even while by mitigating prices of power, services and petroleum fuel, to lessen the effect of a VAT on this product.
products.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the
VAT on twelve goods and services. The rest of the tab – ₱10.5 billion- will be picked by And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the
corporations. VAT chain, we will however bring down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer.
Why should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the ...
consumer?
What do all these exercises point to? These are not contortions of giving to the left hand what was
taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that
the people can cushion the blow of higher prices they will have to pay as a result of VAT.36
 13
The other sections amended by the Senate pertained to matters of tax administration which are (ii) national government deficit as a percentage of GDP of the previous year exceeds one and
necessary for the implementation of the changes in the VAT system. one-half percent (1 ½%).

To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
the house bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate
acted within its power to propose those amendments. SEC. 107. Value-Added Tax on Importation of Goods. –

SUBSTANTIVE ISSUES (A) In General. – There shall be levied, assessed and collected on every importation of goods a value-
added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
I. determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from customs custody: Provided,
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, That where the customs duties are determined on the basis of the quantity or volume of the goods, the
violate the following provisions of the Constitution: value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that
the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
a. Article VI, Section 28(1), and 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following
conditions has been satisfied.
b. Article VI, Section 28(2)
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
A. No Undue Delegation of Legislative Power year exceeds two and four-fifth percent (2 4/5%) or

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in (ii) national government deficit as a percentage of GDP of the previous year exceeds one and
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, one-half percent (1 ½%).
respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10%
to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax. SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:

The assailed provisions read as follows: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows: (A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
SEC. 106. Value-Added Tax on Sale of Goods or Properties. – services: provided, that the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or any of the following conditions has been satisfied.
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
to be paid by the seller or transferor: provided, that the President, upon the recommendation of year exceeds two and four-fifth percent (2 4/5%) or
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied. (ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%). (Emphasis supplied)
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or
 14
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
virtual abdication by Congress of its exclusive power to tax because such delegation is not within the expressed in the Latin maxim: potestas delegata non delegari potest which means "what has been
purview of Section 28 (2), Article VI of the Constitution, which provides: delegated, cannot be delegated."38This doctrine is based on the ethical principle that such as delegated
power constitutes not only a right but a duty to be performed by the delegate through the
The Congress may, by law, authorize the President to fix within specified limits, and may impose, instrumentality of his own judgment and not through the intervening mind of another.39
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the government. With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as and a House of Representatives." The powers which Congress is prohibited from delegating are those
well as on the sale or exchange of services, which cannot be included within the purview of tariffs which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can
under the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon never be delegated, has been described as the authority to make a complete law – complete as to
merchandise to the government and usually imposed on goods or merchandise imported or exported. the time when it shall take effect and as to whom it shall be applicable – and to determine the
expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in holding a
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the statute unconstitutional as a delegation of legislative power, it must appear that the power involved is
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility purely legislative in nature – that is, one appertaining exclusively to the legislative department. It is
and transparency should dictate the actions of Congress and they should not pass to the President the the nature of the power, and not the liability of its use or the manner of its exercise, which determines
decision to impose taxes. They also argue that the law also effectively nullified the President’s power the validity of its delegation.
of control, which includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon the Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recommendation of the Secretary of Finance. recognized limitations or exceptions:

Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the (1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
conditions provided by the law to bring about either or both the conditions precedent.
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the Constitution;
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected
bureaucrat, contrary to the principle of no taxation without representation. They submit that the (3) Delegation to the people at large;
Secretary of Finance is not mandated to give a favorable recommendation and he may not even give
his recommendation. Moreover, they allege that no guiding standards are provided in the law on what (4) Delegation to local governments; and
basis and as to how he will make his recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by the President since the (5) Delegation to administrative bodies.
former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to
impose the increased tax rate or not. In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried
A brief discourse on the principle of non-delegation of powers is instructive. out, or implemented by the delegate;41 and (b) fixes a standard — the limits of which are sufficiently
determinate and determinable — to which the delegate must conform in the performance of his
The principle of separation of powers ordains that each of the three great branches of government has functions.42 A sufficient standard is one which defines legislative policy, marks its limits, maps out its
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated boundaries and specifies the public agency to apply it. It indicates the circumstances under which the
sphere.37 A logical legislative command is to be effected.43 Both tests are intended to prevent a total transference of
 15
legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and by which he is governed. The efficiency of an Act as a declaration of legislative will must, of
exercise a power essentially legislative.44 course, come from Congress, but the ascertainment of the contingency upon which the Act shall
take effect may be left to such agencies as it may designate. The legislature, then, may provide
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and that a law shall take effect upon the happening of future specified contingencies leaving to some
extent of delegation of power in this wise: other person or body the power to determine when the specified contingency has
arisen. (Emphasis supplied).46
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to
inquire whether the statute was complete in all its terms and provisions when it left the hands of the In Edu vs. Ericta,47 the Court reiterated:
legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature. What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal
them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands
... of the legislature. To determine whether or not there is an undue delegation of legislative power, the
inquiry must be directed to the scope and definiteness of the measure enacted. The legislative does
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, not abdicate its functions when it describes what job must be done, who is to do it, and what is
which necessarily involves a discretion as to what it shall be, and conferring an authority or the scope of his authority. For a complex economy, that may be the only way in which the
discretion as to its execution, to be exercised under and in pursuance of the law. The first legislative process can go forward. A distinction has rightfully been made between delegation of
cannot be done; to the latter no valid objection can be made.’ power to make the laws which necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or discretion as to its execution to
... be exercised under and in pursuance of the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility
It is contended, however, that a legislative act may be made to the effect as law after it leaves the and practicability. (Emphasis supplied).48
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In Wayman Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
vs. Southard, the Supreme Court of the United States ruled that the legislature may delegate a power facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its
not legislative which it may itself rightfully exercise. The power to ascertain facts is such a power terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations
which may be delegated. There is nothing essentially legislative in ascertaining the existence of on their authority.49 While the power to tax cannot be delegated to executive agencies, details as to the
facts or conditions as the basis of the taking into effect of a law. That is a mental process enforcement and administration of an exercise of such power may be left to them, including the
common to all branches of the government. Notwithstanding the apparent tendency, however, to power to determine the existence of facts on which its operation depends.50
relax the rule prohibiting delegation of legislative authority on account of the complexity arising from
social and economic forces at work in this modern industrial age, the orthodox pronouncement of The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
Judge Cooley in his work on Constitutional Limitations finds restatement in Prof. Willoughby's legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of
treatise on the Constitution of the United States in the following language — speaking of declaration correlating information and making recommendations is the kind of subsidiary activity which the
of legislative power to administrative agencies: The principle which permits the legislature to legislature may perform through its members, or which it may delegate to others to perform.
provide that the administrative agent may determine when the circumstances are such as Intelligent legislation on the complicated problems of modern society is impossible in the absence of
require the application of a law is defended upon the ground that at the time this authority is accurate information on the part of the legislators, and any reasonable method of securing such
granted, the rule of public policy, which is the essence of the legislative act, is determined by the information is proper.51 The Constitution as a continuously operative charter of government does not
legislature. In other words, the legislature, as it is its duty to do, determines that, under given require that Congress find for itself
circumstances, certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the administrative every fact upon which it desires to base legislative action or that it make for itself detailed
official is not the legislative determination of what public policy demands, but simply the determinations which it has declared to be prerequisite to application of legislative policy to particular
ascertainment of what the facts of the case require to be done according to the terms of the law facts and circumstances impossible for Congress itself properly to investigate.52
 16
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 of petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be
and 6 which reads as follows: brushed aside by the President since the former is a mere alter ego of the latter.

That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions head of the Department of Finance he is the assistant and agent of the Chief Executive. The
has been satisfied: multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, such as the
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year Department of Finance, performed and promulgated in the regular course of business, are, unless
exceeds two and four-fifth percent (2 4/5%); or disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity,
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one- and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the
half percent (1 ½%). language of Attorney-General Cushing, is "subject to the direction of the President."55

The case before the Court is not a delegation of legislative power. It is simply a delegation of In the present case, in making his recommendation to the President on the existence of either of the
ascertainment of facts upon which enforcement and administration of the increase rate under the law two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her
is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, subordinate. In such instance, he is not subject to the power of control and direction of the President.
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the He is acting as the agent of the legislative department, to determine and declare the event upon which
12% rate upon factual matters outside of the control of the executive. its expressed will is to take effect.56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all the facilities to
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact gather data and information and has a much broader perspective to properly evaluate them. His
that the word shall is used in the common proviso. The use of the word shall connotes a mandatory function is to gather and collate statistical data and other pertinent information and verify if any of the
order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of two conditions laid out by Congress is present. His personality in such instance is in reality but a
discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says, projection of that of Congress. Thus, being the agent of Congress and not of the President, the
and courts have no choice but to see to it that the mandate is obeyed.54 President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence
of any of the conditions specified by Congress. This is a duty which cannot be evaded by the Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross
President does not come into play. It is a clear directive to impose the 12% VAT rate when the Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the
specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the national government deficit as a percentage of GDP of the previous year exceeds one and one-half
happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions percent (1½%). If either of these two instances has occurred, the Secretary of Finance, by legislative
by a person or body other than the legislature itself. mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by
the President effective January 1, 2006. There is no undue delegation of legislative power but only
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the of the discretion as to the execution of a law. This is constitutionally permissible.57Congress does
law effectively nullified the President’s power of control over the Secretary of Finance by mandating not abdicate its functions or unduly delegate power when it describes what job must be done, who
the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The must do it, and what is the scope of his authority; in our complex economy that is frequently the only
Court cannot also subscribe to the position of petitioners way in which the legislative process can go forward.58

Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission the legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law.
 17
The intent and will to increase the VAT rate to 12% came from Congress and the task of the President Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
is to simply execute the legislative policy. That Congress chose to do so in such a manner is not President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based
within the province of the Court to inquire into, its task being to interpret the law.59 on fiscal adequacy.

The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence Petitioners obviously overlooked that increase in VAT collection is not the onlycondition. There is
or create the conditions to bring about either or both the conditions precedent does not deserve any another condition, i.e., the national government deficit as a percentage of GDP of the previous year
merit as this argument is highly speculative. The Court does not rule on allegations which are exceeds one and one-half percent (1 ½%).
manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on
realities, not appearances. When the Court acts on appearances instead of realities, justice and law Respondents explained the philosophy behind these alternative conditions:
will be short-lived.
1. VAT/GDP Ratio > 2.8%
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and less than 2.8%, it means that government has weak or no capability of implementing the VAT or that
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of VAT is not effective in the function of the tax collection. Therefore, there is no value to increase it to
the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the 12% because such action will also be ineffectual.
VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also
argue that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate 2. Nat’l Gov’t Deficit/GDP >1.5%
from year to year.
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set government has reached a relatively sound position or is towards the direction of a balanced budget
forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively
are clear. It does not provide for a return to the 10% rate nor does it empower the President to so healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase
revert if, after the rate is increased to 12%, the VAT collection goes below the 24/5 of the GDP of the the VAT rate.62
previous year or that the national government deficit as a percentage of GDP of the previous year
does not exceed 1½%. That the first condition amounts to an incentive to the President to increase the VAT collection does
not render it unconstitutional so long as there is a public purpose for which the law was passed, which
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in
be introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress revenue.
may tread upon.60
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Adam Smith in his Canons of Taxation (1776), as:
Court finds none, petitioners’ argument is, at best, purely speculative. There is no basis for
petitioners’ fear of a fluctuating VAT rate because the law itself does not provide that the rate should IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people
go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that as little as possible over and above what it brings into the public treasury of the state.63
where the provision of the law is clear and unambiguous, so that there is no occasion for the court's
seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or It simply means that sources of revenues must be adequate to meet government expenditures and their
subtraction.61 variations.64
 18
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the catastrophe. Whether the law is indeed sufficient to answer the state’s economic dilemma is not for
country’s gloomy state of economic affairs, thus: the Court to judge. In the Fariñas case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act),
First, let me explain the position that the Philippines finds itself in right now. We are in a position pronouncing that:
where 90 percent of our revenue is used for debt service. So, for every peso of revenue that we
currently raise, 90 goes to debt service. That’s interest plus amortization of our debt. So clearly, this is . . . policy matters are not the concern of the Court. Government policy is within the exclusive
not a sustainable situation. That’s the first fact. dominion of the political branches of the government. It is not for this Court to look into the wisdom
or propriety of legislative determination. Indeed, whether an enactment is wise or unwise, whether it
The second fact is that our debt to GDP level is way out of line compared to other peer countries that is based on sound economic theory, whether it is the best means to achieve the desired results,
borrow money from that international financial markets. Our debt to GDP is approximately equal to whether, in short, the legislative discretion within its prescribed limits should be exercised in a
our GDP. Again, that shows you that this is not a sustainable situation. particular manner are matters for the judgment of the legislature, and the serious conflict of opinions
does not suffice to bring them within the range of judicial cognizance.66
The third thing that I’d like to point out is the environment that we are presently operating in is not as
benign as what it used to be the past five years. In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency
What do I mean by that? of legislation."67

In the past five years, we’ve been lucky because we were operating in a period of basically global II.
growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world. And, therefore, our ability to Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions
access the financial markets. of the Constitution:

When the President made her speech in July last year, the environment was not as bad as it is now, at a. Article VI, Section 28(1), and
least based on the forecast of most financial institutions. So, we were assuming that raising 80 billion
would put us in a position where we can then convince them to improve our ability to borrow at lower b. Article III, Section 1
rates. But conditions have changed on us because the interest rates have gone up. In fact, just within
this room, we tried to access the market for a billion dollars because for this year alone, the A. Due Process and Equal Protection Clauses
Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We
issued last January a 25-year bond at 9.7 percent cost. We were trying to access last week and the Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
market was not as favorable and up to now we have not accessed and we might pull back because the amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C)
conditions are not very good. of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as
So given this situation, we at the Department of Finance believe that we really need to front-end our embodied in Article III, Section 1 of the Constitution.
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we
call a debt spiral. The more debt you have, the more deficit you have because interest and debt service Petitioners also contend that these provisions violate the constitutional guarantee of equal protection
eats and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, of the law.
we can get out of this debt spiral is really have a front-end adjustment in our revenue base.65
 19
The doctrine is that where the due process and equal protection clauses are invoked, considering that On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
they are not fixed rules but rather broad standards, there is a need for proof of such persuasive limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect
character as would lead to such a conclusion. Absent such a showing, the presumption of validity allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
must prevail.68 principle that tax collection and revenue should be for public purposes and expenditures

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he
amount of input tax that may be credited against the output tax. It states, in part: "[P]rovided, that the buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the
input tax inclusive of the input VAT carried over from the previous quarter that may be credited in VAT payable, three possible scenarios may arise:
every quarter shall not exceed seventy percent (70%) of the output VAT: …"
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax taxes that he paid and passed on by the suppliers, then no payment is required;
due from or paid by a VAT-registered person on the importation of goods or local purchase of good
and services, including lease or use of property, in the course of trade or business, from a VAT- Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which
registered person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or has to be paid to the Bureau of Internal Revenue (BIR);69and
properties or services by any person registered or required to register under the law.
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated
claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited
the output tax. against other internal revenue taxes, at the taxpayer’s option.70

Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax credit his input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added
is less than 70% of the output tax, then 100% of such input tax is still creditable. taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of
the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and collection because the person/taxpayer has already previously paid the input tax to a seller, and the
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of
provides that "if the input tax exceeds the output tax, the excess shall be carried over to the the tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit these
succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person to apply input taxes, as evidenced by receipts, against his output taxes.
for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused input tax may be used in Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the
payment of his other internal revenue taxes. nature of a property that may not be confiscated, appropriated, or limited without due process of law.

The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners The input tax is not a property or a property right within the constitutional purview of the due process
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does
not proceed further to the fact that such unapplied/unutilized input tax may be credited in the The distinction between statutory privileges and vested rights must be borne in mind for persons have
subsequent periods as allowed by the carry-over provision of Section 110(B) or that it may later on be no vested rights in statutory privileges. The state may change or take away rights, which were created
refunded through a tax credit certificate under Section 112(B). by the law of the state, although it may not take away property, which was vested by virtue of such
rights.72
Therefore, petitioners’ argument must be rejected.
 20
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not With regard to the 5% creditable withholding tax imposed on payments made by the government for
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it
was then that the crediting of the input tax paid on purchase or importation of goods and services by SEC. 114. Return and Payment of Value-added Tax. –
VAT-registered persons against the output tax was introduced.73This was adopted by the Expanded
VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right to credit (C) Withholding of Value-added Tax. – The Government or any of its political subdivisions,
input tax as against the output tax is clearly a privilege created by law, a privilege that also the law instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall,
can remove, or in this case, limit. before making payment on account of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment
9337, amending Section 110(A) of the NIRC, which provides: for lease or use of properties or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in
SEC. 110. Tax Credits. – control of the payment shall be considered as the withholding agent.

(A) Creditable Input Tax. – … The value-added tax withheld under this Section shall be remitted within ten (10) days following the
end of the month the withholding was made.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified
the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost VAT withholding system. The government in this case is constituted as a withholding agent with
for such goods, excluding the VAT component thereof, exceeds One million pesos respect to their payments for goods and services.
(₱1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less than
five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be
shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties, withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services
the input tax shall be creditable to the purchaser, lessee or license upon payment of the compensation, supplied by contractors other than by public works contractors; 8.5% on gross payments for services
rental, royalty or fee. supplied by public work contractors; or 10% on payment for the lease or use of properties or property
rights to nonresident owners. Under the present Section 114(C), these different rates, except for the
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on 10% on lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is
purchase or importation of capital goods with acquisition cost of ₱1 Million pesos, exclusive of the applied.
VAT component. Such spread out only poses a delay in the crediting of the input tax. Petitioners’
argument is without basis because the taxpayer is not permanently deprived of his privilege to credit The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
the input tax. creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this
case amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
justified its move by saying that the provision was designed to raise an annual revenue of 22.6 concept of final withholding tax on income was explained, to wit:
billion.77 The legislature also dispelled the fear that the provision will fend off foreign investments,
saying that foreign investors have other tax incentives provided by law, and citing the case of China, SECTION 2.57. Withholding of Tax at Source
where despite a 17.5% non-creditable VAT, foreign investments were not deterred.78 Again, for
whatever is the purpose of the 60-month amortization, this involves executive economic policy and (A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax
legislative wisdom in which the Court cannot intervene. withheld by the withholding agent is constituted as full and final payment of the income tax due
 21
from the payee on the said income. The liability for payment of the tax rests primarily on the payor as class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to
a withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
the deficiency tax shall be collected from the payor/withholding agent. … final withholding tax. It applies to all those who deal with the government.

(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
certain income payments are intended to equal or at least approximate the tax due of the payee on said Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
income. … Taxes withheld on income payments covered by the expanded withholding tax (referred to provides that should the actual input tax exceed 5% of gross payments, the excess may form part of
in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income.81
regulations) are creditable in nature.
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to
As applied to value-added tax, this means that taxable transactions with the government are subject to tax a profit or value-added even if there is no profit or value-added.
a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the
net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not
input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction.79 engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full
The Court need not explore the rationale behind the provision. It is clear that Congress intended to of sound and fury, signifying nothing."
treat differently taxable transactions with the government.80 This is supported by the fact that under
the old provision, the 5% tax withheld by the government remains creditable against the tax liability What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It
of the seller or contractor, to wit: need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
SEC. 114. Return and Payment of Value-added Tax. – precisely for profit.

(C) Withholding of Creditable Value-added Tax. – The Government or any of its political The equal protection clause under the Constitution means that "no person or class of persons shall be
subdivisions, instrumentalities or agencies, including government-owned or controlled corporations deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
(GOCCs) shall, before making payment on account of each purchase of goods from sellers and place and in like circumstances."83
services rendered by contractors which are subject to the value-added tax imposed in Sections 106
and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of The power of the State to make reasonable and natural classifications for the purposes of taxation has
the gross payment for the purchase of goods and six percent (6%) on gross receipts for services long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
rendered by contractors on every sale or installment payment which shall be creditable against the levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s
value-added tax liability of the seller or contractor: Provided, however, That in the case of power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power
government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): absent a clear showing of unreasonableness, discrimination, or arbitrariness.84
Provided, further, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
the payor or person in control of the payment shall be considered as the withholding agent. tax, or invests in capital equipment, or has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the
end of the month the withholding was made. (Emphasis supplied) The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s methods of assessment, valuation and collection. Petitioners’ alleged distinctions are based on
intention to treat transactions with the government differently. Since it has not been shown that the variables that bear different consequences. While the implementation of the law may yield varying
 22
end results depending on one’s profit margin and value-added, the Court cannot go beyond what the R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or
legislature has laid down and interfere with the affairs of business. 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceeding ₱1,500,000.00.88 Also, basic marine and agricultural food products in their original state
The equal protection clause does not require the universal application of the laws on all persons or are still not subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible.
things without distinction. This might in fact sometimes result in unequal protection. What the clause As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
requires is equality among equals as determined according to a valid classification. By classification
is meant the grouping of persons or things similar to each other in certain particulars and different The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
from all others in these same particulars.85 engaged in business with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-
sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. farm and marine products, so that the costs of basic food and other necessities, spared as they are
Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by from the incidence of the VAT, are expected to be relatively lower and within the reach of the general
Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the public.
same to 90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary
and confiscatory. On this score, suffice it to say that these are still proposed legislations. Until It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
Congress amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the
limitation stays. weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-
exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not
B. Uniformity and Equitability of Taxation exceeding ₱1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Article VI, Section 28(1) of the Constitution reads:
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system on those previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced.
of taxation. Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying
franchise tax.94
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is Aside from these, Congress also increased the income tax rates of corporations, in order to distribute
uniform on the same class everywhere with all people at all times.86 the burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%.95Intercorporate dividends of non-resident foreign corporations
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods are still subject to 15% final withholding tax but the tax credit allowed on the corporation’s domicile
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, was increased to 20%.96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not
respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, exempt from income taxes anymore.97 Even the sale by an artist of his works or services performed
importation of goods, and sale of services and use or lease of properties. These same sections also for the production of such works was not spared.
provide for a 0% rate on certain sales and transaction.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital
goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform C. Progressivity of Taxation
taxation does not deprive Congress of the power to classify subjects of taxation, and only demands
uniformity within the particular class.87 Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It
is the smaller business with higher input tax-output tax ratio that will suffer the consequences.
 23
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also CONCLUSION
lifted from Adam Smith’s Canons of Taxation, and it states:
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-
I. The subjects of every state ought to contribute towards the support of the government, as nearly as aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf
possible, in proportion to their respective abilities; that is, in proportion to the revenue which they ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to
respectively enjoy under the protection of the state. remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of
its yokes.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer not correct, for instance, those involving political questions. . . .
or business for every goods bought or services enjoyed is the same regardless of income. In
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity all political or social ills; We should not forget that the Constitution has judiciously allocated the
lies in the income earned by a person or profit margin marked by a business, such that the higher the powers of government to three distinct and separate compartments; and that judicial interpretation has
income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A tended to the preservation of the independence of the three, and a zealous regard of the prerogatives
converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the of each, knowing full well that one is not the guardian of the others and that, for official wrong-doing,
end of the day, it is really the lower income group or businesses with low-profit margins that is each may be brought to account, either by impeachment, trial or by the ballot box.100
always hardest hit.
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. considered, there is no raison d'être for the unconstitutionality of R.A. No. 9337.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court
stated in the Tolentino case, thus: WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ There being no constitutional impediment to the full enforcement and implementation of R.A. No.
The constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to be 9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of
preferred [and] as much as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE herein decision.
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are SO ORDERED.
the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17
(1) of the 1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also
regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
2. COMMISSIONER OF
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero INTERNAL REVENUE
rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)99 Petitioner,
Present:
 24
QUISUMBING,
- versus - Chairperson, The facts are culled primarily from the ruling of the CTA.
CARPIO,
CARPIO MORALES, Pursuant to a government program of privatization, NDC decided to sell to private enterprise
all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC
TINGA, and decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-
MAGSAYSAY LINES, INC., VELASCO, JR., JJ. Decker, Kloeckner type vessels.[1] The vessels were constructed for the NDC between 1981 and 1984,
then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently,
BALIWAG NAVIGATION, INC., the vessels were transferred and leased, on a bareboat basis, to the NMC.[2]
FIM LIMITED OF THE MARDEN
GROUP (HK) and NATIONAL The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and
conditions for the public auction was that the winning bidder was to pay a value added tax of 10% on
DEVELOPMENT COMPANY,
the value of the vessels.[3] On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay
Respondents. Promulgated: Lines) offered to buy the shares and the vessels for P168,000,000.00. The bid was made by
Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag
Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private
July 28, 2006G.R. No. 146984 respondents).[4] The bid was approved by the Committee on Privatization, and a Notice of Award
dated 1 July 1988 was issued to Magsaysay Lines.

x---------------------------------------------------------------------------------x
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand,
and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the
contract stipulated that [v]alue-added tax, if any, shall be for the account of the PURCHASER.[5] Per
arrangement, an irrevocable confirmed Letter of Credit previously filed as bidders bond was accepted
DECISION by NDC as security for the payment of VAT, if any. By this time, a formal request for a ruling on
whether or not the sale of the vessels was subject to VAT had already been filed with the Bureau of
Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in
behalf of private respondents. Thus, the parties agreed that should no favorable ruling be received
TINGA, J.: from the BIR, NDC was authorized to draw on the Letter of Credit upon written demand the amount
needed for the payment of the VAT on the stipulated due date, 20 December 1988.[6]

The issue in this present petition is whether the sale by the National Development Company (NDC) of
five (5) of its vessels to the private respondents is subject to value-added tax (VAT) under the In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14
National Internal Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The
of Tax Appeals (CTA) and the Court of Appeals commonly ruled that the sale is not subject to VAT. ruling cited the fact that NDC was a VAT-registered enterprise, and thus its transactions incident to
We affirm, though on a more unequivocal rationale than that utilized by the rulings under review. The its normal VAT registered activity of leasing out personal property including sale of its own assets
fact that the sale was not in the course of the trade or business of NDC is sufficient in itself to declare
the sale as outside the coverage of VAT.
 25
that are movable, tangible objects which are appropriable or transferable are subject to the 10%
[VAT].[7]

The CIR appealed the CTA Decision to the Court of Appeals,[10]which on 11 March 1997,
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT rendered a Decision reversing the CTA.[11]While the appellate court agreed that the sale was an
Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling on the sale of the same isolated transaction, not made in the course of NDCs regular trade or business, it nonetheless found
vessels in response to an inquiry from the Chairman of the Senate Blue Ribbon Committee. Their that the transaction fell within the classification of those deemed sale under R.R. No. 5-87, since the
motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated 24 February 1989, sale of the vessels together with the NMC shares brought about a change of ownership in NMC. The
reiterating the earlier VAT rulings. At this point, NDC drew on the Letter of Credit to pay for the Court of Appeals also applied the principle governing tax exemptions that such should be strictly
VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989. construed against the taxpayer, and liberally in favor of the government.[12]

On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution
followed by a Supplemental Petition for Review on 14 July 1989. They prayed for the reversal of dated 5 February 2001.[13] This time, the appellate court ruled that the change of ownership of
VAT Rulings No. 395-88, 568-88 and 007-89, as well as the refund of the VAT payment made business as contemplated in R.R. No. 5-87 must be a consequence of the retirement from or cessation
amounting to P15,120,000.00.[8] The Commissioner of Internal Revenue (CIR) opposed the petition, of business by the owner of the goods, as provided for in Section 100 of the Tax Code. The Court of
first arguing that private respondents were not the real parties in interest as they were not the Appeals also agreed with the CTA that the classification of transactions deemed sale was a
transferors or sellers as contemplated in Sections 99 and 100 of the then Tax Code. The CIR also classification statute, and not an exemption statute, thus warranting the resolution of any doubt in
squarely defended the VAT rulings holding the sale of the vessels liable for VAT, especially citing favor of the taxpayer.[14]
Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that [VAT] is imposed on
any sale or transactions deemed sale of taxable goods (including capital goods, irrespective of the date
of acquisition). The CIR argued that the sale of the vessels were among those transactions deemed To the mind of the Court, the arguments raised in the present petition have already been adequately
sale, as enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized discussed and refuted in the rulings assailed before us. Evidently, the petition should be denied. Yet
Section 4(E)(i) of the Regulation, which classified change of ownership of business as a circumstance the Court finds that Section 99 of the Tax Code is sufficient reason for upholding the refund of VAT
that gave rise to a transaction deemed sale. payments, and the subsequent disquisitions by the lower courts on the applicability of Section 100 of
the Tax Code and Section 4 of R.R. No. 5-87 are ultimately irrelevant.

In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted the
petition.[9] The CTA ruled that the sale of a vessel was an isolated transaction, not done in the A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on
ordinary course of NDCs business, and was thus not subject to VAT, which under Section 99 of the consumption, even though it is assessed on many levels of transactions on the basis of a fixed
Tax Code, was applied only to sales in the course of trade or business. The CTA further held that the percentage.[15] It is the end user of consumer goods or services which ultimately shoulders the tax, as
sale of the vessels could not be deemed sale, and thus subject to VAT, as the transaction did not fall the liability therefrom is passed on to the end users by the providers of these goods or services[16] who
under the enumeration of transactions deemed sale as listed either in Section 100(b) of the Tax Code, in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive from
or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should be resolved in the final consumer (or output VAT).[17]The final purchase by the end consumer represents the final
favor of private respondents since Section 99 of the Tax Code which implemented VAT is not an link in a production chain that itself involves several transactions and several acts of consumption.
exemption provision, but a classification provision which warranted the resolution of doubts in favor The VAT system assures fiscal adequacy through the collection of taxes on every level of
of the taxpayer. consumption,[18]yet assuages the manufacturers or providers of goods and services by enabling them
to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer
shoulders the entire tax liability.
 26
This finding is confirmed by the Revised Charter[22] of the NDC which bears no indication
that the NDC was created for the primary purpose of selling real property.[23]
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct
relevance to the taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of
the Tax Code and its subsequent incarnations,[19] the tax is levied only on the sale, barter or exchange
of goods or services by persons who engage in such activities, in the course of trade or business. The conclusion that the sale was not in the course of trade or business, which the CIR does
These transactions outside the course of trade or business may invariably contribute to the production not dispute before this Court,[24]should have definitively settled the matter. Any sale, barter or
chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not exchange of goods or services not in the course of trade or business is not subject to VAT.
occur within the course of trade or business, the providers of such goods or services would hardly, if
at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated
VAT collections since the accumulation of output VAT arises in the first place only through the Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied
ordinary course of trade or business. upon by the CIR, is captioned Value-added tax on sale of goods, and it expressly states that [t]here
shall be levied, assessed and collected on every sale, barter or exchange of goods, a value added tax x
x x. Section 100 should be read in light of Section 99, which lays down the general rule on which
persons are liable for VAT in the first place and on what transaction if at all. It may even be noted that
Section 99 is the very first provision in Title IV of the Tax Code, the Title that covers VAT in the
That the sale of the vessels was not in the ordinary course of trade or business of NDC was law. Before any portion of Section 100, or the rest of the law for that matter, may be applied in order
appreciated by both the CTA and the Court of Appeals, the latter doing so even in its first decision to subject a transaction to VAT, it must first be satisfied that the taxpayer and transaction involved is
which it eventually reconsidered.[20] We cite with approval the CTAs explanation on this point: liable for VAT in the first place under Section 99.

In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September It would have been a different matter if Section 100 purported to define the phrase in the course of
30, 1955 (97 Phil. 992), the term carrying on business does not mean the trade or business as expressed in Section 99. If that were so, reference to Section 100 would have
performance of a single disconnected act, but means conducting, prosecuting and been necessary as a means of ascertaining whether the sale of the vessels was in the course of trade or
continuing business by performing progressively all the acts normally incident business, and thus subject to
thereof; while doing business conveys the idea of business being done, not from time
to time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is
CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. Course of business is what is not the meaning of in the course of trade or business, but instead the identification of the transactions
usually done in the management of trade or business. [Idmi v. Weeks & Russel, 99 which may be deemed as sale. It would become necessary to ascertain whether under those two
So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)]. provisions the transaction may be deemed a sale, only if it is settled that the transaction occurred in
the course of trade or business in the first place. If the transaction transpired outside the course of
trade or business, it would be irrelevant for the purpose of determining VAT liability whether the
transaction may be deemed sale, since it anyway is not subject to VAT.
What is clear therefore, based on the aforecited jurisprudence, is that course of
business or doing business connotes regularity of activity. In the instant case, the sale
was an isolated transaction. The sale which was involuntary and made pursuant to the
declared policy of Government for privatization could no longer be repeated or carried Accordingly, the Court rules that given the undisputed finding that the transaction in question was not
on with regularity. It should be emphasized that the normal VAT-registered activity of made in the course of trade or business of the seller, NDC that is, the sale is not subject to VAT
NDC is leasing personal property.[21] pursuant to Section 99 of the Tax Code, no matter how the said sale may hew to those transactions
deemed sale as defined under Section 100.
 27
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the May
27, 2002 Decision of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case,
Decision reads as follows:
the Court finds the discussions offered on this point by the CTA and the Court of Appeals (in its
subsequent Resolution) essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit.
the transactions deemed sale those involving change of ownership of business. However, Section 4(E)
of R.R. No. 5-87, reflecting Section 100 of the Tax Code, clarifies that such change of ownership is The Facts
only an attending circumstance to retirement from or cessation of business[, ] with respect to all
goods on hand [as] of the date of such retirement or cessation.[25] Indeed, Section 4(E) of R.R. No. 5- The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
87 expressly characterizes the change of ownership of business as only a circumstance that attends As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:
those transactions deemed sale, which are otherwise stated in the same section.[26]
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange
Commission to do business in the Philippines, with principal office address at the new Cebu
Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform
the duties of his office, including, among others, the duty to act and approve claims for refund or tax
WHEREFORE, the petition is DENIED. No costs.
credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued
SO ORDERED. PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the
manufacture of recording components primarily used in computers for export. Such registration was
made on 6 June 1997;
3. [G.R. No. 153866. February 11, 2005]
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY Certification No. 97-083-000600-V issued on 2 April 1997;
(PHILIPPINES), respondent.
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
Business companies registered in and operating from the Special Economic Zone in Naga, Cebu --
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
like herein respondent -- are entities exempt from all internal revenue taxes and the implementing
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for
rules relevant thereto, including the value-added taxes or VAT. Although export sales are not deemed
Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu;
exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction
between exempt entities and exempt transactions has little significance, because the net result is that 7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for
the taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with VAT refund.
all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it
purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the
entitled to such refund or credit. [petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of
Petition for Review in order to toll the running of the two-year prescriptive period.
The Case
For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
 28
1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary Respondent was, therefore, considered exempt only from the payment of income tax when it opted for
investigation/examination by [petitioners] Bureau; the income tax holiday in lieu of the 5 percent preferential tax on gross income earned. As a VAT-
registered entity, though, it was still subject to the payment of other national internal revenue taxes,
2. Since taxes are presumed to have been collected in accordance with laws and regulations, the
like the VAT.
[respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally
collected x x x; Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of
RR 7-95 were applicable. Having paid the input VAT on the capital goods it purchased, respondent
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
correctly filed the administrative and judicial claims for its refund within the two-year prescriptive
A claimant has the burden of proof to establish the factual basis of his or her claim for tax period. Such payments were -- to the extent of the refundable value -- duly supported by VAT
credit/refund. invoices or official receipts, and were not yet offset against any output VAT liability.

4. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is due Hence this Petition.
to the fact that claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is
Sole Issue
incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit sought. Failure
on the part of the [respondent] to prove the same is fatal to its claim for tax credit. He who claims Petitioner submits this sole issue for our consideration:
exemption must be able to justify his claim by the clearest grant of organic or statutory law. An
Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount
exemption from the common burden cannot be permitted to exist upon vague implications;
of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the
5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) period April 1, 1998 to June 30, 1999.
registered Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of
The Courts Ruling
Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As
[respondents] business is not subject to VAT, the capital goods and services it alleged to have The Petition is unmeritorious.
purchased are considered not used in VAT taxable business. As such, [respondent] is not entitled to
refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. Sole Issue:
([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations. Entitlement of a VAT-Registered PEZA Enterprise to a Refund of or Credit for Input VAT
6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 No doubt, as a PEZA-registered enterprise within a special economic zone, respondent is entitled to
Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax. the fiscal incentives and benefits provided for in either PD 66 or EO 226. It shall, moreover, enjoy all
On July 19, 2001, the Tax Court rendered a decision granting the claim for refund. privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844.

Ruling of the Court of Appeals Preferential Tax Treatment

The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit Under Special Laws
certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66. This sum If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent
represented the unutilized but substantiated input VAT paid on capital goods purchased for the period shall not be subject to internal revenue laws and regulations for raw materials, supplies, articles,
covering April 1, 1998 to June 30, 1999. equipment, machineries, spare parts and wares, except those prohibited by law, brought into the zone
The appellate court reasoned that respondent had availed itself only of the fiscal incentives under to be stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise
Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of processed, manipulated, manufactured, mixed or used directly or indirectly in such activities. Even so,
those under both Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916. respondent would enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange
and financial assistance; and exemption from export taxes, local taxes and licenses.
 29
Comparatively, the same exemption from internal revenue laws and regulations applies if EO 226 is The law that originally imposed the VAT in the country, as well as the subsequent amendments of
chosen. Under this law, respondent shall further be entitled to an income tax holiday; additional that law, has been drawn from the tax credit method. Such method adopted the mechanics and self-
deduction for labor expense; simplification of customs procedure; unrestricted use of consigned enforcement features of the VAT as first implemented and practiced in Europe and subsequently
equipment; access to a bonded manufacturing warehouse system; privileges for foreign nationals adopted in New Zealand and Canada. Under the present method that relies on invoices, an entity can
employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw materials; credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
and exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment inputs and imports.
and spare parts, export taxes, duties, imposts and fees, local taxes and licenses, and real property
If at the end of a taxable quarter the output taxes charged by a sellerare equal to the input taxes passed
taxes.
on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the
A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation excess has to be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried
of raw materials, capital and equipment -- is, ipso facto, also accorded to the zone[19] under RA over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
7916. Furthermore, the latter law -- notwithstanding other existing laws, rules and regulations to the zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall
contrary -- extends to that zone the provision stating that no local or national taxes shall be imposed instead be refunded to the taxpayer or credited against other internal revenue taxes.
therein. No exchange control policy shall be applied; and free markets for foreign exchange, gold,
Zero-Rated and Effectively
securities and future shall be allowed and maintained. Banking and finance shall also be liberalized
under minimum Bangko Sentral regulation with the establishment of foreign currency depository Zero-Rated Transactions
units of local commercial banks and offshore banking units of foreign banks.
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-
In the same vein, respondent benefits under RA 7844 from negotiable tax credits for locally-produced rated transactions as to their source.
materials used as inputs. Aside from the other incentives possibly already granted to it by the Board
of Investments, it also enjoys preferential credit facilities and exemption from PD 1853. Zero-rated transactions generally refer to the export sale of goods and supply of services.The tax rate
is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment. It the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax
is not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on credit certificate for the VAT previously charged by suppliers.
capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a VAT-registered person, however, is Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to
entitled to their credits. persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such transactions to a zero rate. Again, as applied to the
Nature of the VAT and the Tax Credit Method tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges
zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on
previously charged by suppliers.
every importation of goods, whether or not in the course of trade or business, or imposed on each
sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of Zero Rating and Exemption
trade or business as they pass along the production and distribution chain, the tax being limited only
to the value added to such goods, properties or services by the seller, transferor or lessor. It is an In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that
indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties results from either one of them is not.
or services. As such, it should be understood not in the context of the person or entity that is Applying the destination principle to the exportation of goods, automatic zero rating is primarily
primarily, directly and legally liable for its payment, but in terms of its nature as a tax on intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller
consumption. In either case, though, the same conclusion is arrived at. internationally competitive by allowing the refund or credit of input taxes that are attributable to
export sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being
 30
directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax purchaser for use or consumption in the Philippines, then these shall be subject to 10 percent, unless
shifted by the suppliers. the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero-rated.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax. But in Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its
an exemption there is only partial relief, because the purchaser is not allowed any tax refund of or exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate,
credit for input taxes paid. because the ecozone within which it is registered is managed and operated by the PEZA as a separate
customs territory. This means that in such zone is created the legal fiction of foreign territory. Under
Exempt Transaction and Exempt Party
the cross-border principle of the VAT system being enforced by the Bureau of Internal Revenue
The object of exemption from the VAT may either be the transaction itself or any of the parties to the (BIR), no VAT shall be imposed to form part of the cost of goods destined for consumption outside of
transaction. the territorial border of the taxing authority. If exports of goods and services from the Philippines to a
foreign country are free of the VAT, then the same rule holds for such exports from the national
An exempt transaction, on the one hand, involves goods or services which, by their nature, are territory -- except specifically declared areas -- to an ecozone.
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the
tax status -- VAT-exempt or not -- of the party to the transaction. Indeed, such transaction is not Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are
subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid. considered exports to a foreign country; conversely, sales by a PEZA-registered entity to a VAT-
registered person in the customs territory are deemed imports from a foreign country. An ecozone --
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax indubitably a geographical territory of the Philippines -- is, however, regarded in law as foreign soil.
Code, a special law or an international agreement to which the Philippines is a signatory, and by This legal fiction is necessary to give meaningful effect to the policies of the special law creating the
virtue of which its taxable transactions become exempt from the VAT. Such party is also not subject zone. If respondent is located in an export processing zone within that ecozone, sales to the export
to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on its processing zone, even without being actually exported, shall in fact be viewed as constructively
registration as a VAT or non-VAT taxpayer. exported under EO 226. Considered as export sales, such purchase transactions by respondent would
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or indeed be subject to a zero rate.
passed on by the seller to the purchaser of the goods, properties or services. While the liability is Tax Exemptions
imposed on one person, the burden may be passed on to another. Therefore, if a special law merely
exempts a party as a seller from its direct liability for payment of the VAT, but does not relieve the Broad and Express
same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal
suppliers, the purchase transaction is not exempt. Applying this principle to the case at bar, the
revenue laws and regulations.
purchase transactions entered into by respondent are not VAT-exempt.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a
Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that
tax on consumption, for which the direct liability is imposed on one person but the indirect burden is
those falling under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which
passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on
respondent was registered. The purchase transactions it entered into are, therefore, not VAT-exempt.
its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases.
These are subject to the VAT; respondent is required to register.
Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought
Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent, not to distinguish.
depending again on the application of the destination principle.
Moreover, the exemption is both express and pervasive for the following reasons:
If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for
First, RA 7916 states that no taxes, local and national, shall be imposed on business establishments
use or consumption outside the Philippines, these shall be subject to 0 percent. If entered into with a
operating within the ecozone. Since this law does not exclude the VAT from the prohibition, it is
deemed included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in
 31
cases not excepted; that is, a thing not being excepted must be regarded as coming within the purview Sixth, the exemption from local and national taxes granted under RA 7227 are ipso facto accorded to
of the general rule. ecozones. In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in
favor of the ecozone.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be
passed on and, therefore, indirectly imposed on the same entity -- a patent circumvention of the law. And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the
That no VAT shall be imposed directly upon business establishments operating within the ecozone production of export goods, and for locally produced raw materials, capital equipment and spare parts
under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid used by exporters of non-traditional products -- shall also be continuously enjoyed by similar
prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly, it is also exporters within the ecozone. Indeed, the latter exporters are likewise entitled to such tax exemptions
prohibited indirectly. and credits.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real Tax Refund as Tax Exemption
property taxes that presently are imposed on land owned by developers. This similar and repeated
To be sure, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and
prohibition is an unambiguous ratification of the laws intent in not imposing local or national taxes on
liberally in favor of the taxing authority.
business enterprises within the ecozone.
Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear
Third, foreign and domestic merchandise, raw materials, equipment and the like shall not be subject
the burden of proving the factual basis of their claims; and of showing, by words too plain to be
to x x x internal revenue laws and regulations under PD 66 -- the original charter of PEZA (then
mistaken, that the legislature intended to exempt them. In the present case, all the cited legal
EPZA) that was later amended by RA 7916. No provisions in the latter law modify such exemption.
provisions are teeming with life with respect to the grant of tax exemptions too vivid to pass
Although this exemption puts the government at an initial disadvantage, the reduced tax collection unnoticed. In addition, respondent easily meets the challenge.
ultimately redounds to the benefit of the national economy by enticing more business investments and
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The
creating more employment opportunities.
end result, however, is that it is not subject to the VAT. The non-taxability of transactions that are
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an
prohibited by law -- shall not be subject to x x x internal revenue laws and regulations x x x if brought entity, not upon the transactions themselves. Nonetheless, its exemption as an entity and the non-
to the ecozones restricted area for manufacturing by registered export enterprises, of which exemption of its transactions lead to the same result for the following considerations:
respondent is one. These rules also apply to all enterprises registered with the EPZA prior to the
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to
effectivity of such rules.
execute or administer such laws will have to be adopted. Their prior tax issuances have held
Fifth, export processing zone enterprises registered with the Board of Investments (BOI) under EO inconsistent positions brought about by their probable failure to comprehend and fully appreciate the
226 patently enjoy exemption from national internal revenue taxes on imported capital equipment nature of the VAT as a tax on consumption and the application of the destination principle. Revenue
reasonably needed and exclusively used for the manufacture of their products; on required supplies Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any
and spare part for consigned equipment; and on foreign and domestic merchandise, raw materials, VAT-registered suppliers sale of goods, property or services from the customs territory to any
equipment and the like -- except those prohibited by law -- brought into the zone for manufacturing. registered enterprise operating in the ecozone -- regardless of the class or type of the latters PEZA
In addition, they are given credits for the value of the national internal revenue taxes imposed on registration -- is legally entitled to a zero rate.
domestic capital equipment also reasonably needed and exclusively used for the manufacture of their
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very
products, as well as for the value of such taxes imposed on domestic raw materials and supplies that
soul.
are used in the manufacture of their export products and that form part thereof.
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of
export processing zones, seeks to encourage and promote foreign commerce as a means of x x x
 32
strengthening our export trade and foreign exchange position, of hastening industrialization, of Registration is an indispensable requirement under our VAT law. Petitioner alleges that respondent
reducing domestic unemployment, and of accelerating the development of the country. did register for VAT purposes with the appropriate Revenue District Office. However, it is now too
late in the day for petitioner to challenge the VAT-registered status of respondent, given the latters
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special
prior representation before the lower courts and the mode of appeal taken by petitioner before this
economic zones, the government shall actively encourage, promote, induce and accelerate a sound
Court.
and balanced industrial, economic and social development of the country x x x through the
establishment, among others, of special economic zones x x x that shall effectively attract legitimate The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from
and productive foreign investments. internal revenue laws and regulations the equipment -- including capital goods -- that registered
enterprises will use, directly or indirectly, in manufacturing. EO 226 even reiterates this privilege
Under EO 226, the State shall encourage x x x foreign investments in industry x x x which shall x x x
among the incentives it gives to such enterprises. Petitioner merely asserts that by virtue of the PEZA
meet the tests of international competitiveness[,] accelerate development of less developed regions of
registration alone of respondent, the latter is not subject to the VAT. Consequently, the capital goods
the country[,] and result in increased volume and value of exports for the economy. Fiscal incentives
and services respondent has purchased are not considered used in the VAT business, and no VAT
that are cost-efficient and simple to administer shall be devised and extended to significant projects to
refund or credit is due.[134] This is a non sequitur. By the VATs very nature as a tax on consumption,
compensate for market imperfections, to reward performance contributing to economic development,
the capital goods and services respondent has purchased are subject to the VAT, although at zero rate.
and to stimulate the establishment and assist initial operations of the enterprise.
Registration does not determine taxability under the VAT law.
Wisely accorded to ecozones created under RA 7916 was the governments policy -- spelled out
Moreover, the facts have already been determined by the lower courts. Having failed to present
earlier in RA 7227 -- of converting into alternative productive uses the former military reservations
evidence to support its contentions against the income tax holiday privilege of respondent, petitioner
and their extensions, as well as of providing them incentives to enhance the benefits that would be
is deemed to have conceded. It is a cardinal rule that issues and arguments not adequately and
derived from them in promoting economic and social development.
seriously brought below cannot be raised for the first time on appeal. This is a matter of procedureand
Finally, under RA 7844, the State declares the need to evolve export development into a national a question of fairness. Failure to assert within a reasonable time warrants a presumption that the party
effort in order to win international markets. By providing many export and tax incentives, the State is entitled to assert it either has abandoned or declined to assert it.
able to drive home the point that exporting is indeed the key to national survival and the means
The BIR regulations additionally requiring an approved prior application for effective zero rating
through which the economic goals of increased employment and enhanced incomes can most
cannot prevail over the clear VAT nature of respondents transactions. The scope of such regulations is
expeditiously be achieved.
not within the statutory authority x x x granted by the legislature.
The Tax Code itself seeks to promote sustainable economic growth x x x; x x x increase economic
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot
activity; and x x x create a robust environment for business to enable firms to compete better in the
purport to do any more than interpret the latter. The courts will not countenance one that overrides the
regional as well as the global market. After all, international competitiveness requires economic and
statute it seeks to apply and implement.
tax incentives to lower the cost of goods produced for export. State actions that affect global
competition need to be specific and selective in the pricing of particular goods or services. Other than the general registration of a taxpayer the VAT status of which is aptly determined, no
provision under our VAT law requires an additional application to be made for such taxpayers
All these statutory policies are congruent to the constitutional mandates of providing incentives to
transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and
needed investments, as well as of promoting the preferential use of domestic materials and locally
cannot become exempt simply because an application therefor was not made or, if made, was denied.
produced goods and adopting measures to help make these competitive. Tax credits for domestic
To allow the additional requirement is to give unfettered discretion to those officials or agents who,
inputs strengthen backward linkages. Rightly so, the rule of law and the existence of credible and
without fluid consideration, are bent on denying a valid application. Moreover, the State can never be
efficient public institutions are essential prerequisites for sustainable economic development.
estopped by the omissions, mistakes or errors of its officials or agents.
VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
Second, grantia argumenti that such an application is required by law, there is still the presumption of
regularity in the performance of official duty. Respondents registration carries with it the presumption
 33
that, in the absence of contradictory evidence, an application for effective zero rating was also filed into are not necessarily so. The VAT payments made in excess of the zero rate that is imposable may
and approval thereof given. Besides, it is also presumed that the law has been obeyed by both the certainly be refunded or credited.
administrative officials and the applicant.
Compliance with All Requisitesfor VAT Refund or Credit
Third, even though such an application was not made, all the special laws we have tackled exempt
As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a
respondent not only from internal revenue laws but also from the regulations issued pursuant thereto.
VAT refund or credit.
Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic
growth in the country and attain global competitiveness as envisioned in those laws. First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from
Contex, in which this Court held that the petitioner therein was registered as a non-VAT taxpayer.
A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the
Hence, for being merely VAT-exempt, the petitioner in that case cannot claim any VAT refund or
effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can
credit.
easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied
documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices
for their effective zero rating. Otherwise, their VAT exemption would be determined, not by their and have not been offset against any output taxes. Although enterprises registered with the BOI after
nature, but by the taxpayers negligence -- a result not at all contemplated. Administrative convenience December 31, 1994 would no longer enjoy the tax credit incentives on domestic capital equipment --
cannot thwart legislative mandate. as provided for under Article 39(d), Title III, Book I of EO 226[152] -- starting January 1, 1996,
respondent would still have the same benefit under a general and express exemption contained in both
Tax Refund or Credit in Order
Article 77(1), Book VI of EO 226; and Section 12, paragraph 2 (c) of RA 7227, extended to the
Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax ecozones by RA 7916.
refund or credit is in order.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in from national and local taxes, but also to grant them tax credits. This fact was revealed by the
EO 226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 sponsorship speeches in Congress during the second reading of House Bill No. 14295, which later
percent preferential tax regime. became RA 7916, as shown below:
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, for EO MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and
226 also has provisions to contend with. These two regimes are in fact incompatible and cannot be local taxes; x x x tax credit for locally-sourced inputs x x x.
availed of simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the
xxxxxxxxx
PEZA law exempts it from all taxes.
MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of
conducive for investors, the bill offers incentives such as the exemption from local and national taxes,
income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer
x x x tax credits for locally sourced inputs x x x.
enterprise. Besides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local
and national taxes imposable upon business establishments within the ecozone cannot outrightly And third, no question as to either the filing of such claims within the prescriptive period or the
determine a VAT exemption. Being subject to VAT, payments erroneously collected thereon may validity of the VAT returns has been raised. Even if such a question were raised, the tax exemption
then be refunded or credited. under all the special laws cited above is broad enough to cover even the enforcement of internal
revenue laws, including prescription.
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916,
Section 24 thereof does not preclude the VAT. One can, therefore, counterargue that such provision Summary
merely exempts respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on
consumption, not on business. Although respondent as an entity is exempt, the transactions it enters
 34
To summarize, special laws expressly grant preferential tax treatment to business establishments quarters of taxable year 2003 for being filed out of time (CTA Case Nos. 7227 and 7287). The CTA
registered and operating within an ecozone, which by law is considered as a separate customs First Division, however, ordered theCommissioner of Internal Revenue (CIR) to refund or credit to
territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and Mindanao II unutilized input value-added tax (VAT) for the third and fourth quarters of taxable year
regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent 2003 (CTA Case No. 7317).
preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax
G.R. No. 194637 is a petition for review assailing the Decision promulgated on 31 May 2010 as well
holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but
as the Amended Decision promulgated on 24 November 2010 by the CTA En Banc in CTA EB Nos.
like its purchase transactions, they are zero-rated. No prior application for the effective zero rating of
476 and 483. In its Amended Decision, the CTA En Banc reversed its 31 May 2010 Decision and
its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the
granted the CIR’s petition for review in CTA Case No. 476. The CTA En Banc denied Mindanao I
requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased,
Geothermal Partnership’s (Mindanao I) claims for refund or tax credit for the first (CTA Case No.
respondent is entitled to such VAT refund or credit.
7228), second (CTA Case No. 7286), third, and fourth quarters (CTA Case No. 7318) of 2003.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to
Both Mindanao I and II are partnerships registered with the Securities and Exchange Commission,
costs.
value added taxpayers registered with the Bureau of Internal Revenue (BIR), and Block Power
SO ORDERED. Production Facilities accredited by the Department of Energy. Republic Act No. 9136, or the Electric
Power Industry Reform Act of 2000 (EPIRA), effectively amended Republic Act No. 8424, or the
Tax Reform Act of 1997 (1997 Tax Code), when it decreed that sales of power by generation
companies shall be subjected to a zero rate of VAT.10 Pursuant to EPIRA, Mindanao I and II filed
with the CIR claims for refund or tax credit of accumulated unutilized and/or excess input taxes due
to VAT zero-rated sales in 2003. Mindanao I and II filed their claims in 2005.
4. .R. No. 193301 March 11, 2013 G.R. No. 193301
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner, v.COMMISSIONER OF Mindanao II v. CIR
INTERNAL REVENUE, Respondent.
The Facts
x-----------------------x
G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287, and 7317,
G.R. No. 194637 which were consolidated as CTA EB No. 513. CTA Case Nos. 7227, 7287, and 7317 claim a tax
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner, v.COMMISSIONER OF refund or credit of Mindanao II’s alleged excess or unutilized input taxes due to VAT zero-rated
INTERNAL REVENUE, Respondent. sales. In CTA Case No. 7227, Mindanao II claims a tax refund or credit of ₱3,160,984.69 for the first
quarter of 2003. In CTA Case No. 7287, Mindanao II claims a tax refund or credit of ₱1,562,085.33
DECISION for the second quarter of 2003. In CTA Case No. 7317, Mindanao II claims a tax refund or credit of
₱3,521,129.50 for the third and fourth quarters of 2003.
CARPIO, J.:
The CTA First Division’s narration of the pertinent facts is as follows:
G.R. No. 193301 is a petition for review assailing the Decision promulgated on 10 March 2010 as
well as the Resolution promulgated on 28 July 2010 by the Court of Tax Appeals En Banc (CTA En xxxx
Banc) in CTA EB No. 513. The CTA En Banc affirmed the 22 September 2008 Decision as well as
the 26 June 2009 Amended Decision of the First Division of the Court of Tax Appeals (CTA First On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer (BOT)
Division) in CTA Case Nos. 7227, 7287, and 7317. The CTA First Division denied Mindanao II contract with the Philippine National Oil Corporation – Energy Development Company (PNOC-
Geothermal Partnership’s (Mindanao II) claims for refund or tax credit for the first and second EDC) for finance, engineering, supply, installation, testing, commissioning, operation, and
 35
maintenance of a 48.25 megawatt geothermal power plant, provided that PNOC-EDC shall supply To date (September 22, 2008), the application for refund by Mindanao II remains unacted upon by the
and deliver steam to Mindanao II at no cost. In turn, Mindanao II shall convert the steam into electric CIR. Hence, these three petitions filed on April 22, 2005 covering the 1st quarter of 2003; July 7,
capacity and energy for PNOC-EDC and shall deliver the same to the National Power Corporation 2005 for the 2nd quarter of 2003; and September 9, 2005 for the 3rd and 4th quarters of 2003. At the
(NPC) for and in behalf of PNOC-EDC. Mindanao II alleges that its sale of generated power and instance of Mindanao II, these petitions were consolidated on March 15, 2006 as they involve the
delivery of electric capacity and energy of Mindanao II to NPC for and in behalf of PNOC-EDC is its same parties and the same subject matter. The only difference lies with the taxable periods involved
only revenue-generating activity which is in the ambit of VAT zero-rated sales under the EPIRA Law, in each petition.
x x x.
The Court of Tax Appeals’ Ruling: Division
xxxx
In its 22 September 2008 Decision, the CTA First Division found that Mindanao II satisfied the twin
Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated requirements for VAT zero rating under EPIRA: (1) it is a generation company, and (2) it derived
power by generation companies from ten (10%) percent to zero (0%) percent. sales from power generation. The CTA First Division also stated that Mindanao II complied with five
requirements to be entitled to a refund:
In the course of its operation, Mindanao II makes domestic purchases of goods and services and
accumulates therefrom creditable input taxes. Pursuant to the provisions of the National Internal 1. There must be zero-rated or effectively zero-rated sales;
Revenue Code (NIRC), Mindanao II alleges that it can use its accumulated input tax credits to offset
2. That input taxes were incurred or paid;
its output tax liability. Considering, however that its only revenue-generating activity is VAT zero-
rated under RA No. 9136, Mindanao II’s input tax credits remain unutilized. 3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated
sales;
Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-
rating of the EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns on the 4. That the input VAT payments were not applied against any output VAT liability; and
following dates:
5. That the claim for refund was filed within the two-year prescriptive period.
CTA Case No. Period Covered
With respect to the fifth requirement, the CTA First Division tabulated the dates of filing of
(2003) Date of Filing Mindanao II’s return as well as its administrative and judicial claims, and concluded that Mindanao
II’s administrative and judicial claims were timely filed in compliance with this Court’s ruling in
Original Return Amended Return
Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
7227 1st Quarter April 23, 2003 July 3, 2002 (sic), (Atlas). The CTA First Division declared that the two-year prescriptive period for filing a VAT
refund claim should not be counted from the close of the quarter but from the date of the filing of the
April 1, 2004 &
VAT return. As ruled in Atlas, VAT liability or entitlement to a refund can only be determined upon
October 22, 2004 the filing of the quarterly VAT return.

7287 2nd Quarter July 22, 2003 April 1, 2004 CTA

7317 3rd Quarter Oct. 27, 2003 April 1, 2004 Case No. Period

7317 4th Quarter Jan. 26, 2004 April 1, 2204 Covered

Considering that it has accumulated unutilized creditable input taxes from its only income-generating (2003) Date Filing
activity, Mindanao II filed an application for refund and/or issuance of tax credit certificate with the
Original
BIR’s Revenue District Office at Kidapawan City on April 13, 2005 for the four quarters of 2003.
 36
Return Amended cases not covered by Section 112(A). The CIR countered the CTA First Division’s 22 September
2008 decision by citing this Court’s ruling in Commisioner of Internal Revenue v. Mirant Pagbilao
Return Administrative
Corporation (Mirant), which stated that unutilized input VAT payments must be claimed within two
Return Judicial Claim years reckoned from the close of the taxable quarter when the relevant sales were made regardless of
whether said tax was paid.
7227 1st Quarter 23 April 2003 1 April 2004 13 April 2005 22 April 2005
The CTA First Division denied Mindanao II’s motion for partial reconsideration, found the CIR’s
7287 2nd Quarter 22 July 2003 1 April 2004 13 April 2005 7 July 2005 motion for partial reconsideration partly meritorious, and rendered an Amended Decision on 26 June
7317 3rd Quarter 25 Oct. 2003 1 April 2004 13 April 2005 9 Sept. 2005 2009. The CTA First Division stated that the claim for refund or credit with the BIR and the
subsequent appeal to the CTA must be filed within the two-year period prescribed under Section 229.
7317 4th Quarter 26 Jan. 2004 1 April 2004 13 April 2005 9 Sept. 200515 The two-year prescriptive period in Section 229 was denominated as a mandatory statute of
limitations. Therefore, Mindanao II’s claims for refund for the first and second quarters of 2003 had
Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January 2004, when
already prescribed.
Mindanao II filed its VAT returns, its administrative claim filed on 13 April 2005 and judicial claims
filed on 22 April 2005, 7 July 2005, and 9 September 2005 were timely filed in accordance with The CTA First Division found that the records of Mindanao II’s case are bereft of evidence that the
Atlas. sale of the Nissan Patrol is not incidental to Mindanao II’s VAT zero-rated operations. Moreover,
Mindanao II’s submitted documents failed to substantiate the requisites for the refund or credit
The CTA First Division found that Mindanao II is entitled to a refund in the modified amount of
claims.
₱7,703,957.79, after disallowing ₱522,059.91 from input VAT16 and deducting ₱18,181.82 from
Mindanao II’s sale of a fully depreciated ₱200,000.00 Nissan Patrol. The input taxes amounting to The CTA First Division modified its 22 September 2008 Decision to read as follows:
₱522,059.91 were disallowed for failure to meet invoicing requirements, while the input VAT on the
sale of the Nissan Patrol was reduced by ₱18,181.82 because the output VAT for the sale was not WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is
included in the VAT declarations. hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE to Mindanao II
Geothermal Partnership in the modified amount of TWO MILLION NINE HUNDRED EIGHTY
The dispositive portion of the CTA First Division’s 22 September 2008 Decision reads: THOUSAND EIGHT HUNDRED EIGHTY SEVEN AND 77/100 PESOS (₱2,980,887.77)
representing its unutilized input VAT for the third and fourth quarters of the taxable year 2003.
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is
hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the modified SO ORDERED.
amount of SEVEN MILLION SEVEN HUNDRED THREE THOUSAND NINE HUNDRED FIFTY
SEVEN AND 79/100 PESOS (₱7,703,957.79) representing its unutilized input VAT for the four (4) Mindanao II filed a Petition for Review, docketed as CTA EB No. 513, before the CTA En Banc.
quarters of the taxable year 2003. The Court of Tax Appeals’ Ruling: En Banc
SO ORDERED. On 10 March 2010, the CTA En Banc rendered its Decision in CTA EB No. 513 and denied
Mindanao II filed a motion for partial reconsideration. It stated that the sale of the fully depreciated Mindanao II’s petition. The CTA En Banc ruled that (1) Section 112(A) clearly provides that the
Nissan Patrol is a one-time transaction and is not incidental to its VAT zero-rated operations. reckoning of the two-year prescriptive period for filing the application for refund or credit of input
Moreover, the disallowed input taxes substantially complied with the requirements for refund or tax VAT attributable to zero-rated sales or effectively zero-rated sales shall be counted from the close of
credit. the taxable quarter when the sales were made; (2) the Atlas and Mirant cases applied different tax
codes: Atlas applied the 1977 Tax Code while Mirant applied the 1997 Tax Code; (3) the sale of the
The CIR also filed a motion for partial reconsideration. It argued that the judicial claims for the first fully-depreciated Nissan Patrol is incidental to Mindanao II’s VAT zero-rated transactions pursuant to
and second quarters of 2003 were filed beyond the period allowed by law, as stated in Section 112(A) Section 105; (4) Mindanao II failed to comply with the substantiation requirements provided under
of the 1997 Tax Code. The CIR further stated that Section 229 is a general provision, and governs Section 113(A) in relation to Section 237 of the 1997 Tax Code as implemented by Section 4.104-1,
 37
4.104-5, and 4.108-1 of Revenue Regulation No. 7-95; and (5) the doctrine of strictissimi juris on tax In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer (BOT) with the
exemptions cannot be relaxed in the present case. Philippine National Oil Corporation – Energy Development Corporation (PNOC-EDC) for the
finance, design, construction, testing, commissioning, operation, maintenance and repair of a 47-
The dispositive portion of the CTA En Banc’s 10 March 2010 Decision reads:
megawatt geothermal power plant. Under the said BOT contract, PNOC-EDC shall supply and
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review en banc is deliver steam to Mindanao I at no cost. In turn, Mindanao I will convert the steam into electric
DISMISSED for lack of merit. Accordingly, the Decision dated September 22, 2008 and the capacity and energy for PNOC-EDC and shall subsequently supply and deliver the same to the
Amended Decision dated June 26, 2009 issued by the First Division are AFFIRMED. National Power Corporation (NPC), for and in behalf of PNOC-EDC.

SO ORDERED. Mindanao I’s 47-megawatt geothermal power plant project has been accredited by the Department of
Energy (DOE) as a Private Sector Generation Facility, pursuant to the provision of Executive Order
The CTA En Banc issued a Resolution on 28 July 2010 denying for lack of merit Mindanao II’s No. 215, wherein Certificate of Accreditation No. 95-037 was issued.
Motion for Reconsideration. The CTA En Banc highlighted the following bases of their previous
ruling: On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant provisions of the
National Internal Revenue Code (NIRC) of 1997 were deemed modified. R.A. No. 9136, also known
1. The Supreme Court has long decided that the claim for refund of unutilized input VAT must be as the "Electric Power Industry Reform Act of 2001 (EPIRA), was enacted by Congress to ordain
filed within two (2) years after the close of the taxable quarter when such sales were made. reforms in the electric power industry, highlighting, among others, the importance of ensuring the
2. The Supreme Court is the ultimate arbiter whose decisions all other courts should take bearings. reliability, security and affordability of the supply of electric power to end users. Under the provisions
of this Republic Act and its implementing rules and regulations, the delivery and supply of electric
3. The words of the law are clear, plain, and free from ambiguity; hence, it must be given its literal energy by generation companies became VAT zero-rated, which previously were subject to ten
meaning and applied without any interpretation. percent (10%) VAT.
G.R. No. 194637 x x xx
Mindanao I v. CIR The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power
by generation companies from ten (10%) percent to zero percent (0%). Thus, Mindanao I adopted the
The Facts
VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its VAT Returns, on
G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos. 476 and 483. the belief that its sales qualify for VAT zero-rating.
Both CTA EB cases consolidate three cases from the CTA Second Division: CTA Case Nos. 7228,
Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly VAT Returns for
7286, and 7318. CTA Case Nos. 7228, 7286, and 7318 claim a tax refund or credit of Mindanao I’s
the first, second, third, and fourth quarters of taxable year 2003, which were subsequently amended
accumulated unutilized and/or excess input taxes due to VAT zero-rated sales. In CTA Case No.
and filed with the BIR.
7228, Mindanao I claims a tax refund or credit of ₱3,893,566.14 for the first quarter of 2003. In CTA
Case No. 7286, Mindanao I claims a tax refund or credit of ₱2,351,000.83 for the second quarter of On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for the issuance of tax
2003. In CTA Case No. 7318, Mindanao I claims a tax refund or credit of ₱7,940,727.83 for the third credit certificate on its alleged unutilized or excess input taxes for taxable year 2003, in the
and fourth quarters of 2003. accumulated amount of ₱14,185, 294.80.
Mindanao I is similarly situated as Mindanao II. The CTA Second Division’s narration of the Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court on April 22,
pertinent facts is as follows: 2005, July 7, 2005, and September 9, 2005 docketed as CTA Case Nos. 7228, 7286, and 7318,
respectively. However, on October 10, 2005, Mindanao I received a copy of the letter dated
xxxx
September 30, 2003 (sic) of the BIR denying its application for tax credit/refund.
The Court of Tax Appeals’ Ruling: Division
 38
On 24 October 2008, the CTA Second Division rendered its Decision in CTA Case Nos. 7228, 7286, The dispositive portion of the CTA Second Division’s 10 March 2009 Resolution reads:
and 7318. The CTA Second Division found that (1) pursuant to Section 112(A), Mindanao I can only
WHEREFORE, premises considered, the CIR’s Motion for Partial Reconsideration and Mindanao I’s
claim 90.27% of the amount of substantiated excess input VAT because a portion was not reported in
Motion for Partial Reconsideration with Motion for Clarification are hereby DENIED for lack of
its quarterly VAT returns; (2) out of the ₱14,185,294.80 excess input VAT applied for refund, only
merit.
₱11,657,447.14 can be considered substantiated excess input VAT due to disallowances by the
Independent Certified Public Accountant, adjustment on the disallowances per the CTA Second SO ORDERED.
Division’s further verification, and additional disallowances per the CTA Second Division’s further
verification; The Ruling of the Court of Tax Appeals: En Banc

(3) Mindanao I’s accumulated excess input VAT for the second quarter of 2003 that was carried over On 31 May 2010, the CTA En Banc rendered its Decision in CTA EB Case Nos. 476 and 483 and
to the third quarter of 2003 is net of the claimed input VAT for the first quarter of 2003, and the same denied the petitions filed by the CIR and Mindanao I. The CTA En Banc found no new matters which
procedure was done for the second, third, and fourth quarters of 2003; and (4) Mindanao I’s have not yet been considered and passed upon by the CTA Second Division in its assailed decision
administrative claims were filed within the two-year prescriptive period reckoned from the respective and resolution.
dates of filing of the quarterly VAT returns. The dispositive portion of the CTA En Banc’s 31 May 2010 Decision reads:
The dispositive portion of the CTA Second Division’s 24 October 2008 Decision reads: WHEREFORE, premises considered, the Petitions for Review are hereby DISMISSED for lack of
WHEREFORE, premises considered, the consolidated Petitions for Review are hereby PARTIALLY merit. Accordingly, the October 24, 2008 Decision and March 10, 2009 Resolution of the CTA
GRANTED. Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX CREDIT Former Second Division in CTA Case Nos. 7228, 7286, and 7318, entitled "Mindanao I Geothermal
CERTIFICATE in favor of Mindanao I in the reduced amount of TEN MILLION FIVE HUNDRED Partnership vs. Commissioner of Internal Revenue" are hereby AFFIRMED in toto.
TWENTY THREE THOUSAND ONE HUNDRED SEVENTY SEVEN PESOS AND 53/100 SO ORDERED.
(₱10,523,177.53) representing Mindanao I’s unutilized input VAT for the four quarters of the taxable
year 2003. Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Banc’s 31 May 2010
Decision. In an Amended Decision promulgated on 24 November 2010, the CTA En Banc agreed
SO ORDERED. with the CIR’s claim that Section 229 of the NIRC of 1997 is inapplicable in light of this Court’s
Mindanao I filed a motion for partial reconsideration with motion for Clarification on 11 November ruling in Mirant. The CTA En Banc also ruled that the procedure prescribed under Section 112(D)
2008. It claimed that the CTA Second Division should not have allocated proportionately Mindanao now 112(C) of the 1997 Tax Code should be followed first before the CTA En Banc can act on
I’s unutilized creditable input taxes for the taxable year 2003, because the proportionate allocation of Mindanao I’s claim. The CTA En Banc reconsidered its 31 May 2010 Decision in light of this Court’s
the amount of creditable taxes in Section 112(A) applies only when the creditable input taxes due ruling in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi).
cannot be directly and entirely attributed to any of the zero-rated or effectively zero-rated sales. The pertinent portions of the CTA En Banc’s 24 November 2010 Amended Decision read:
Mindanao I claims that its unreported collection is directly attributable to its VAT zero-rated sales.
The CTA Second Division denied Mindanao I’s motion and maintained the proportionate allocation C.T.A. Case No. 7228:
because there was a portion of the gross receipts that was undeclared in Mindanao I’s gross receipts.
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the First
The CIR also filed a motion for partial reconsideration on 11 November 2008. It claimed that Quarter of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two
Mindanao I failed to exhaust administrative remedies before it filed its petition for review. The CTA years from March 31, 2003 or until March 31, 2005 within which to file its administrative claim for
Second Division denied the CIR’s motion, and cited Atlas as the basis for ruling that it is more refund;
practical and reasonable to count the two-year prescriptive period for filing a claim for refund or
credit of input VAT on zero-rated sales from the date of filing of the return and payment of the tax
due.
 39
(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of unutilized input (3) From April 4, 2005, which is also presumably the date Mindanao I submitted supporting
VAT for the first quarter of taxable year 2003 with the BIR, which is beyond the two-year documents, together with the aforesaid application for refund, the CIR has 120 days or until August 2,
prescriptive period mentioned above. 2005, to decide the claim;
C.T.A. Case No. 7286: (4) Within thirty (30) days from the lapse of the 120-day period or from August 3, 2005 until
September 1, 2005 Mindanao I should have elevated its claim for refund to the CTA;
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the second
quarter of 2003. Pursuant to (5) However, Mindanao I filed its Petition for Review with the CTA in Division only on September 9,
2005, which is 8 days beyond the 30-day period to appeal to the CTA.
Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from June 30, 2003,
within which to file its administrative claim for refund for the second quarter of 2003, or until June Evidently, the Petition for Review was filed way beyond the 30-day prescribed period. Thus, the
30, 2005; Petition for Review should have been dismissed for being filed late.
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT In recapitulation:
for the second quarter of taxable year 2003 with the BIR, which is within the two-year prescriptive
(1) C.T.A. Case No. 7228
period, provided under Section 112 (A) of the NIRC of 1997, as amended;
Claim for the first quarter of 2003 had already prescribed for having been filed beyond the two-year
(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I submitted the
prescriptive period;
supporting documents together with the application for refund) or until August 2, 2005, to decide the
administrative claim for refund; (2) C.T.A. Case No. 7286
(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to September 1, Claim for the second quarter of 2003 should be dismissed for Mindanao I’s failure to comply with a
2005, Mindanao I should have elevated its claim for refund to the CTA in Division; condition precedent when it failed to exhaust administrative remedies by filing its Petition for Review
even before the lapse of the 120-day period for the CIR to decide the administrative claim;
(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this Court, docketed as
CTA Case No. 7286, even before the 120-day period for the CIR to decide the claim for refund had (3) C.T.A. Case No. 7318
lapsed on August 2, 2005. The Petition for Review was, therefore, prematurely filed and there was
failure to exhaust administrative remedies; Petition for Review was filed beyond the 30-day prescribed period to appeal to the CTA.

xxxx xxxx

C.T.A. Case No. 7318: IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenue’s Motion for
Reconsideration is hereby GRANTED; Mindanao I’s Motion for Partial Reconsideration is hereby
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the third DENIED for lack of merit.
and fourth quarters of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao
I therefore, has two years from September 30, 2003 and December 31, 2003, or until September 30, The May 31, 2010 Decision of this Court En Banc is hereby REVERSED.
2005 and December 31, 2005, respectively, within which to file its administrative claim for the third Accordingly, the Petition for Review of the Commissioner of Internal Revenue in CTA EB No. 476 is
and fourth quarters of 2003; hereby GRANTED and the entire claim of Mindanao I Geothermal Partnership for the first, second,
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT third and fourth quarters of 2003 is hereby DENIED.
for the third and fourth quarters of taxable year 2003 with the BIR, which is well within the two-year SO ORDERED.
prescriptive period, provided under Section 112(A) of the NIRC of 1997, as amended;
The Issues
 40
G.R. No. 193301 I. The administrative claim and judicial claim in CTA Case No. 7228 were timely filed pursuant to
the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal
Mindanao II v. CIR
Revenue, which was then the controlling ruling at the time of filing.
Mindanao II raised the following grounds in its Petition for Review:
A. The recent ruling in the Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation,
I. The Honorable Court of Tax Appeals erred in holding that the claim of Mindanao II for the 1st and which uses the end of the taxable quarter when the sales were made as the reckoning date in counting
2nd quarters of year 2003 has already prescribed pursuant to the Mirant case. the two-year prescriptive period, cannot be applied retroactively in the case of Mindanao I.

A. The Atlas case and Mirant case have conflicting interpretations of the law as to the reckoning date B. The Atlas case promulgated by the Third Division of this Honorable Court on June 8, 2007 was not
of the two year prescriptive period for filing claims for VAT refund. and cannot be superseded by the Mirant Pagbilao case promulgated by the Second Division of this
Honorable Court on September 12, 2008 in light of the explicit provision of Section 4(3), Article VIII
B. The Atlas case was not and cannot be superseded by the Mirant case in light of Section 4(3), of the 1987 Constitution.
Article VIII of the 1987 Constitution.
II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal Revenue vs. Aichi
C. The ruling of the Mirant case, which uses the close of the taxable quarter when the sales were Forging Company of Asia, Inc., cannot be applied retroactively to Mindanao I in the present case.
made as the reckoning date in counting the two-year prescriptive period cannot be applied
retroactively in the case of Mindanao II. In a Resolution dated 14 December 2011, this Court resolved to consolidate G.R. Nos. 193301 and
194637 to avoid conflicting rulings in related cases.
II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated Nissan Patrol is a one-time transaction and is not The Court’s Ruling
incidental to the VAT zero-rated operation of Mindanao II.
Determination of Prescriptive Period
III. The Honorable Court of Tax Appeals erred in denying the amount disallowed by the Independent
G.R. Nos. 193301 and 194637 both raise the question of the determination of the prescriptive period,
Certified Public Accountant as Mindanao II substantially complied with the requisites of the 1997
or the interpretation of Section 112 of the 1997 Tax Code, in light of our rulings in Atlas and Mirant.
Tax Code, as amended, for refund/tax credit.
Mindanao II’s unutilized input VAT tax credit for the first and second quarters of 2003, in the
A. The amount of ₱2,090.16 was brought about by the timing difference in the recording of the
amounts of ₱3,160,984.69 and ₱1,562,085.33, respectively, are covered by G.R. No. 193301, while
foreign currency deposit transaction.
Mindanao I’s unutilized input VAT tax credit for the first, second, third, and fourth quarters of 2003,
in the amounts of ₱3,893,566.14, ₱2,351,000.83, and ₱7,940,727.83, respectively, are covered by
G.R. No. 194637.
B. The amount of ₱2,752.00 arose from the out-of-pocket expenses reimbursed to SGV & Company
which is substantially suppoerted [sic] by an official receipt. Section 112 of the 1997 Tax Code

C. The amount of ₱487,355.93 was unapplied and/or was not included in Mindanao II’s claim for The pertinent sections of the 1997 Tax Code, the law applicable at the time of Mindanao II’s and
refund or tax credit for the year 2004 subject matter of CTA Case No. 7507. Mindanao I’s administrative and judicial claims, provide:

IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the present case. 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)
G.R. No. 194637 years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax
Mindanao I v. CIR 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:
Mindanao I raised the following grounds in its Petition for Review: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and
 41
Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly with CTA45 Actual Date
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
of filing case
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 with CTA
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. (judicial

xxxx claim)

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the 7227 1st Quarter,
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within ₱3,160,984.69 31 March
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof. 2003 31 March

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the 2005 13 April 2005 12 September
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
2005 22 April 2005
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 7287 2nd Quarter,
Appeals.
₱1,562,085.33 30 June
x x x x (Underscoring supplied)
2003 30 June
The relevant dates for G.R. No. 193301 (Mindanao II) are:
2005 13 April 2005 12 September
CTA
2005 7 July 2005
Case No. Periodcovered byVAT Sales in2003 and amount Close ofquarterwhen salesweremade
Last dayfor filingapplicationof taxrefund/taxcreditcertificatewith theCIR Actual date of 7317 3rd and 4th

filing Quarters,

application for ₱3,521,129.50 30

tax refund/ September

credit with the 2003 30

CIR September

(administrative 2005 13 April 2005 12 September

claim)44 Last day for 2005 9 September

filing case 2005

 42
31 refund/tax
December credit
2003 2 January certificate
2006 with the
(31 CIR Actual date of
December filing
2005 being application for
a Saturday) tax refund/
The relevant dates for G.R. No. 194637 (Minadanao I) are: credit with the
CIR
CTA (administrative
Case claim)46 Last day for
No. Period filing case
covered by with CTA47 Actual Date
VAT Sales in of filing case
2003 and with CTA
amount Close of (judicial
quarter claim)
when sales 7227 1st Quarter,
were ₱3,893,566.14 31 March
made Last day 2003 31 March
for filing 2005 4 April 2005 1 September
application 2005 22 April 2005
of tax 7287 2nd Quarter,
 43
₱2,351,000.83 30 June controlling doctrine at the time of filing of the claims. The 1997 Tax Code, which took effect on 1
January 1998, was the applicable law at the time of filing of the claims in issue. As this Court
2003 30 June
explained in the recent consolidated cases of Commissioner of Internal Revenue v. San Roque Power
2005 4 April 2005 1 September Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining
Corporation v. Commissioner of Internal Revenue (San Roque):
2005 7 July 2005
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
7317 3rd to the Commissioner to decide whether to grant or deny San Roque’s application for tax refund or
and 4th credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the
Quarters, first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period
was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997.
₱7,940,727.83 30
Thus, the waiting period has been in our statute books for more than fifteen (15) years before San
September Roque filed its judicial claim.

2003 30 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
September without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
2005 4 April 2005 1 September taxpayer’s petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.
2005 9 September
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the
2005 Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes." When
a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for
31
the decision of the Commissioner, there is no "decision" of the Commissioner to review and thus the
December CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also
expressly provides that if the Commissioner fails to decide within "a specific period" required by law,
2003 2 January such "inaction shall be deemed a denial" of the application for tax refund or credit. It is the
2006 Commissioner’s decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for
review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has
(31 no jurisdiction over a petition for review.
December San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with
2005 being the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory
or prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque’s
a Saturday) void petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil
Code states that such void petition cannot be legitimized "except when the law itself authorizes its
When Mindanao II and Mindanao I filed their respective administrative and judicial claims in 2005,
validity." There is no law authorizing the petition’s validity.
neither Atlas nor Mirant has been promulgated. Atlas was promulgated on 8 June 2007, while Mirant
was promulgated on 12 September 2008. It is therefore misleading to state that Atlas was the
 44
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law Prescriptive Period forthe Filing of Administrative Claims
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from
In determining whether the administrative claims of Mindanao I and Mindanao II for 2003 have
his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states,
prescribed, we see no need to rely on either Atlas or Mirant. Section 112(A) of the 1997 Tax Code is
"No vested or acquired right can arise from acts or omissions which are against the law or which
clear: "Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within
infringe upon the rights of others." For violating a mandatory provision of law in filing its petition
two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of
with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s
a tax credit certificate or refund of creditable input tax due or paid attributable to such sales x x x."
petition with the CTA is a mere scrap of paper.
We rule on Mindanao I and II’s administrative claims for the first, second, third, and fourth quarters
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-
of 2003 as follows:
day period just because the Commissioner merely asserts that the case was prematurely filed with the
CTA and does not question the entitlement of San Roque to the refund. The mere fact that a taxpayer (1) The last day for filing an application for tax refund or credit with the CIR for the first quarter of
has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively 2003 was on 31 March 2005. Mindanao II filed its administrative claim before the CIR on 13 April
collected from him, does not entitle him as a matter of right to a tax refund or credit. Strict 2005, while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims
compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax have prescribed, pursuant to Section 112(A) of the 1997 Tax Code.
refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule that tax
refunds or credits, just like tax exemptions, are strictly construed against the taxpayer. (2) The last day for filing an application for tax refund or credit with the CIR for the second quarter of
2003 was on 30 June 2005. Mindanao II filed its administrative claim before the CIR on 13 April
The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant 2005, while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims
of the tax refund or credit. were filed on time, pursuant to Section 112(A) of the 1997 Tax Code.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because (3) The last day for filing an application for tax refund or credit with the CIR for the third quarter of
the Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit 2003 was on 30 September 2005. Mindanao II filed its administrative claim before the CIR on 13
of the taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive periods, and April 2005, while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both
non-adherence to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or claims were filed on time, pursuant to Section 112(A) of the 1997 Tax Code.
credit, whether or not the Commissioner questions the numerical correctness of the claim of the
taxpayer. This Court should not establish the precedent that non-compliance with mandatory and (4) The last day for filing an application for tax refund or credit with the CIR for the fourth quarter of
jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in claims 2003 was on 2 January 2006. Mindanao II filed its administrative claim before the CIR on 13 April
for tax refunds or credit. Such precedent will render meaningless compliance with mandatory and 2005, while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims
jurisdictional requirements, for then every tax refund case will have to be decided on the numerical were filed on time, pursuant to Section 112(A) of the 1997 Tax Code.
correctness of the amounts claimed, regardless of non-compliance with mandatory and jurisdictional Prescriptive Period forthe Filing of Judicial Claims
conditions.
In determining whether the claims for the second, third and fourth quarters of 2003 have been
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San properly appealed, we still see no need to refer to either Atlas or Mirant, or even to Section 229 of the
Roque filed its petition for review with the CTA more than four years before Atlas was promulgated. 1997 Tax Code. The second paragraph of Section 112(C) of the 1997 Tax Code is clear: "In case of
The Atlas doctrine did not exist at the time San Roque failed to comply with the 120-day period. full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Thus, San Roque cannot invoke the Atlas doctrine as an excuse for its failure to wait for the 120-day Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
period to lapse. In any event, the Atlas doctrine merely stated that the two-year prescriptive period within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the
should be counted from the date of payment of the output VAT, not from the close of the taxable one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
quarter when the sales involving the input VAT were made. The Atlas doctrine does not interpret, Appeals."
expressly or impliedly, the 120+30 day periods.49 (Emphases in the original; citations omitted)
 45
The mandatory and jurisdictional nature of the 120+30 day periods was explained in San Roque: will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of
the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
barred by prescription.
were already in the law. Section 112(C) expressly grants the Commissioner 120 days within which to
decide the taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall Second, Section 112(C) provides that the Commissioner shall decide the application for refund or
grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty credit "within one hundred twenty (120) days from the date of submission of complete documents in
(120) days from the date of submission of complete documents." Following the verba legis doctrine, support of the application filed in accordance with Subsection (A)." The reference in Section 112(C)
this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer of the submission of documents "in support of the application filed in accordance with Subsection A"
cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within means that the application in Section 112(A) is the administrative claim that the Commissioner must
the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers
will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated
San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the
claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the
period, and it cannot blame anyone but itself. "phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications
for refund/credit with the CIR and not to appeals made to the CTA."
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: Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the
claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted
administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond
claim with the Court of Tax Appeals. (Emphasis supplied)
the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day,
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law the Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has
receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of utterly useless, even if the taxpayer complied with the law by filing his administrative claim within
the 120-day period. the two-year prescriptive period.

xxxx The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the
There are three compelling reasons why the 30-day period need not necessarily fall within the two- taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
period. unequivocal language.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
(2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law prescriptive period. If he files his claim on the last day of the two-year prescriptiveperiod, his claim is
states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
years," which means at anytime within two years. Thus, the application for refund or credit may be Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still
filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it
 46
has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the second, third, and fourth quarters of 2003 was on 1 September 2005. However, the judicial claim
only logical interpretation of Section 112(A) and (C).50 (Emphases in the original; citations omitted) cannot be filed earlier than 2 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim.
In San Roque, this Court ruled that "all taxpayers can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal in Aichi on 6 October 2010, where this (1) Mindanao I filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005,
Court held that the 120+30 day periods are mandatory and jurisdictional."51 We shall discuss later before the expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code,
the effect of San Roque’s recognition of BIR Ruling No. DA-489-03 on claims filed between 10 Mindanao I’s judicial claim for the second quarter of 2003 was prematurely filed. However, pursuant
December 2003 and 6 October 2010. Mindanao I and II filed their claims within this period. to San Roque’s recognition of the effect of BIR Ruling No. DA-489-03, we rule that Mindanao I’s
judicial claim for the second quarter of 2003 qualifies under the exception to the strict application of
We rule on Mindanao I and II’s judicial claims for the second, third, and fourth quarters of 2003 as
the 120+30 day periods.
follows:
(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA on 9 September
G.R. No. 193301Mindanao II v. CIR
2005. Mindanao I’s judicial claim for the third quarter of 2003 was thus filed after the prescriptive
Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 period, pursuant to Section 112(C) of the 1997 Tax Code.
April 2005. Counting 120 days after filing of the administrative claim with the CIR (11 August 2005)
(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September
and 30 days after the CIR’s denial by inaction, the last day for filing a judicial claim with the CTA for
2005. Mindanao I’s judicial claim for the fourth quarter of 2003 was thus filed after the prescriptive
the second, third, and fourth quarters of 2003 was on 12 September 2005. However, the judicial claim
period, pursuant to Section 112(C) of the 1997 Tax Code.
cannot be filed earlier than 11 August 2005, which is the expiration of the 120-day period for the
Commissioner to act on the claim. San Roque: Recognition of BIR Ruling No. DA-489-03
(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005, In the consolidated cases of San Roque, the Court En Banc examined and ruled on the different
before the expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code, claims for tax refund or credit of three different companies. In San Roque, we reiterated that
Mindanao II’s judicial claim for the second quarter of 2003 was prematurely filed. "following the verba legis doctrine, Section 112(C) must be applied exactly as worded since it is
clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without
However, pursuant to San Roque’s recognition of the effect of BIR Ruling No. DA-489-03, we rule
waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The
that Mindanao II’s judicial claim for the second quarter of 2003 qualifies under the exception to the
CTA will have no jurisdiction because there will be no ‘decision’ or ‘deemed a denial decision’ of the
strict application of the 120+30 day periods.
Commissioner for the CTA to review."
(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA on 9 September
Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San
2005. Mindanao II’s judicial claim for the third quarter of 2003 was thus filed on time, pursuant to
Roque recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel54 in favor of
Section 112(C) of the 1997 Tax Code.
taxpayers. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for
(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
2005. Mindanao II’s judicial claim for the fourth quarter of 2003 was thus filed on time, pursuant to Review." This Court discussed BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:
Section 112(C) of the 1997 Tax Code.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly
G.R. No. 194637Mindanao I v. CIR 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
Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
2005. Counting 120 days after filing of the administrative claim with the CIR (2 August 2005) and 30 situated, being made to return the tax refund or credit they received or could have received under
days after the CIR’s denial by inaction, the last day for filing a judicial claim with the CTA for the Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud,
 47
bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the 2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
BIR Ruling No. DA-489-03
prospectively. x x x.
3rd Quarter, 2003 Filed on time Filed on time Grant, pursuant to
xxxx
Section 112(C) of the
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. 1997 Tax Code
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, 4th Quarter, 2003 Filed on time Filed on time Grant, pursuant to
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 Section 112(C) of the
of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling 1997 Tax Code
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 G.R. No. 194637
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where
Mindanao I v. CIR
the taxpayer did not wait for the lapse of the 120-day period.
Administrative
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 Claim Judicial Claim Action on Claim
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional. 1st Quarter, 2003 Filed late -- Deny, pursuant to

xxxx Section 112(A) of the

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of 1997 Tax Code
BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial 2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
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 BIR Ruling No. DA-489-03
filing of its judicial claim from the vice of prematurity. (Emphasis in the original)
3rd Quarter, 2003 Filed on time Filed late Grant, pursuant to
Summary of Administrative and Judicial Claims
Section 112(C) of the
G.R. No. 193301Mindanao II v. CIR
1997 Tax Code
Administrative
4th Quarter, 2003 Filed on time Filed late Grant, pursuant to
Claim Judicial Claim Action on Claim
Section 112(C) of the
1st Quarter, 2003 Filed late -- Deny, pursuant to
1997 Tax Code
Section 112(A) of the
Summary of Rules on Prescriptive Periods Involving VAT
1997 Tax Code
 48
We summarize the rules on the determination of the prescriptive period for filing a tax refund or The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in
credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows: the Philippines by nonresident foreign persons shall be considered as being rendered in the course of
trade or business. (Emphasis supplied)
(1) An administrative claim must be filed with the CIR within two years after the close of the taxable
quarter when the zero-rated or effectively zero-rated sales were made. Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay) and
Imperial v. Collector of Internal Revenue (Imperial) to justify its position. Magsaysay, decided under
(2) The CIR has 120 days from the date of submission of complete documents in support of the
the NIRC of 1986, involved the sale of vessels of the National Development Company (NDC) to
administrative claim within which to decide whether to grant a refund or issue a tax credit certificate.
Magsaysay Lines, Inc. We ruled that the sale of vessels was not in the course of NDC’s trade or
The 120-day period may extend beyond the two-year period from the filing of the administrative
business as it was involuntary and made pursuant to the Government’s policy for privatization.
claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without
Magsaysay, in quoting from the CTA’s decision, imputed upon Imperial the definition of "carrying on
any decision from the CIR, then the administrative claim may be considered to be denied by inaction.
business." Imperial, however, is an unreported case that merely stated that "‘to engage’ is to embark
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision in a business or to employ oneself therein."
denying the administrative claim or from the expiration of the 120-day period without any action
Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction. However, it does not
from the CIR.
follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction "in the course
10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the of trade or business" includes "transactions incidental thereto."
mandatory and jurisdictional 120+30 day periods.
Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity and to
"Incidental" Transaction deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a
Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and
Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of
the course of its business; hence, it is an isolated transaction that should not have been subject to 10% Mindanao II’s business which should be liable for VAT.
VAT.
Substantiation Requirements
Section 105 of the 1997 Tax Code does not support Mindanao II’s position:
Mindanao II claims that the CTA’s disallowance of a total amount of ₱492,198.09 is improper as it
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, has substantially complied with the substantiation requirements of Section 113(A) in relation to
exchanges, leases goods or properties, renders services, and any person who imports goods shall be Section 237 of the 1997 Tax Code, as implemented by Section 4.104-1, 4.104-5 and 4.108-1 of
subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. Revenue Regulation No. 7-95.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, We are constrained to state that Mindanao II’s compliance with the substantiation requirements is a
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing finding of fact. The CTA En Banc evaluated the records of the case and found that the transactions in
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act question are purchases for services and that Mindanao II failed to comply with the substantiation
No. 7716. requirements. We affirm the CTA En Banc’s finding of fact, which in turn affirmed the finding of the
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial CTA First Division. We see no reason to overturn their findings.
or an economic activity, including transactions incidental thereto, by any person regardless of whether WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of Tax Appeals
or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the En Bane in CT A EB No. 513 promulgated on 10 March 2010, as well as the Resolution promulgated
disposition of its net income and whether or not it sells exclusively to members or their guests), or on 28 July 2010, and the Decision of the Court of Tax Appeals En Bane in CTA EB Nos. 476 and 483
government entity.
 49
promulgated on 31 May 2010, as well as the Amended Decision promulgated on 24 November 2010, No. 8424 (National Internal Revenue Code of 1997) became effective. This new Tax Code
are AFFIRMED with MODIFICATION. substantially adopted and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on
E-VAT.
For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first quarter of 2003 is
DENIED while its claims for the second, third, and fourth quarters of 2003 are GRANTED. For G.R. In the interim, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for
No. 19463 7, the claims of Mindanao I Geothermal Partnership for the first, third, and fourth quarters deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and
of 2003 are DENIED while its claim for the second quarter of 2003 is GRANTED. 1997.
SO ORDERED. On October 20, 1999, respondent filed a protest with the BIR.
On January 27, 2000, petitioner CIR sent respondent a letter demanding payment of deficiency VAT
in the amount of P100,505,030.26 and DST in the amount of P124,196,610.92, or a total of
5. COMMISSIONER OF INTERNAL REVENUE,Petitioner, v. PHILIPPINE HEALTH CARE P224,702,641.18 for taxable years 1996 and 1997. Attached to the demand letter were four (4)
PROVIDERS, INC.,Respondent.G.R. No. 168129 assessment notices.
For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
On February 23, 2000, respondent filed another protest questioning the assessment notices.
Civil Procedure, as amended, seeking to reverse the Decision dated February 18, 2005 and Resolution
dated May 9, 2005 of the Court of Appeals (Fifteenth Division) in CA-G.R. SP No. 76449. Petitioner CIR did not take any action on respondents protests. Hence, on September 21, 2000,
respondent filed with the Court of Tax Appeals (CTA) a petition for review, docketed as CTA Case
The factual antecedents of this case, as culled from the records, are:
No. 6166.
The Philippine Health Care Providers, Inc., herein respondent, is a corporation organized and existing
On April 5, 2002, the CTA rendered its Decision, the dispositive portion of which reads:
under the laws of the Republic of the Philippines. Pursuant to its Articles of Incorporation, its primary
purpose is to establish, maintain, conduct and operate a prepaid group practice health care delivery WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
system or a health maintenance organization to take care of the sick and disabled persons enrolled in GRANTED. Petitioner is hereby ORDERED TO PAY the deficiency VAT amounting to
the health care plan and to provide for the administrative, legal, and financial responsibilities of the P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid
organization. for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from
January 20, 1998 until paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. 231-88 is
On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending the
declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against
National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-Added
petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
Tax (VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988.
collecting the said DST deficiency tax.
Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent wrote the Commissioner
SO ORDERED.
of Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in
its health care program are exempt from the payment of the VAT. Respondent filed a motion for partial reconsideration of the above judgment concerning its liability to
pay the deficiency VAT.
On June 8, 1988, petitioner CIR, through the VAT Review Committee of the Bureau of Internal
Revenue (BIR), issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical In its Resolution dated March 23, 2003, the CTA granted respondents motion, thus:
services, is exempt from the VAT coverage. This Ruling was subsequently confirmed by Regional
WHEREFORE, in view of the foregoing, the instant Motion for Partial Reconsideration is
Director Osmundo G. Umali of Revenue Region No. 8 in a letter dated April 22, 1994.
GRANTED. Accordingly, the VAT assessment issued by herein respondent against petitioner for the
Meanwhile, on January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took taxable years 1996 and 1997 is hereby WITHDRAWN and SET ASIDE.
effect, amending further the National Internal Revenue Code of 1977. Then on January 1, 1998, R.A.
 50
SO ORDERED. Hence, the instant petition for review on certiorari raising these two issues: (1) whether respondents
services are subject to VAT; and (2) whether VAT Ruling No. 231-88 exempting respondent from
The CTA held:
payment of VAT has retroactive application.
Moreover, this court adheres to its conclusion that petitioner is a service contractor subject to VAT
On the first issue, respondent is contesting petitioners assessment of its VAT liabilities for taxable
since it does not actually render medical service but merely acts as a conduit between the members
years 1996 and 1997.
and petitioners accredited and recognized hospitals and clinics.
Section 102 of the National Internal Revenue Code of 1977, as amended by E.O. No. 273 (VAT Law)
However, after a careful review of the facts of the case as well as the Law and jurisprudence
and R.A. No. 7716 (E-VAT Law), provides:
applicable, this court resolves to grant petitioners Motion for Partial Reconsideration. We are in
accord with the view of petitioner that it is entitled to the benefit of non-retroactivity of rulings SEC. 102. Value-added tax on sale of services and use or lease of properties. (a) Rate and base of tax.
guaranteed under Section 246 of the Tax Code, in the absence of showing of bad faith on its part. There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts
Section 246 of the Tax Code provides: derived from the sale or exchange of services, including the use or lease of properties.
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules The phrase sale or exchange of service means the performance of all kinds of services in the
and regulations promulgated in accordance with the preceding Sections or any of the rulings or Philippines for a fee, remuneration or consideration, including those performed or rendered by
circulars promulgated by the Commissioner shall not be given retroactive application if the construction and service contractors x x x.
revocation, modification or reversal will be prejudicial to the taxpayers, x x x.
Section 103 of the same Code specifies the exempt transactions from the provision of Section 102,
Clearly, undue prejudice will be caused to petitioner if the revocation of VAT Ruling No. 231-88 will thus:
be retroactively applied to its case. VAT Ruling No. 231-88 issued by no less than the respondent
SEC. 103. Exempt Transactions. The following shall be exempt from the value-added tax:
itself has confirmed petitioners entitlement to VAT exemption under Section 103 of the Tax Code. In
saying so, respondent has actually broadened the scope of medical services to include the case of the xx
petitioner. This VAT ruling was even confirmed subsequently by Regional Director Ormundo G.
Umali in his letter dated April 22, 1994 (Exhibit M). Exhibit P, which served as basis for the issuance (l) Medical, dental, hospital and veterinary services except those rendered by professionals
of the said VAT ruling in favor of the petitioner sufficiently described the business of petitioner and xxx
there is no way BIR could be misled by the said representation as to the real nature of petitioners
business. Such being the case, this court is convinced that petitioners reliance on the said ruling is The import of the above provision is plain. It requires no interpretation. It contemplates the exemption
premised on good faith. The facts of the case do not show that petitioner deliberately committed from VAT of taxpayers engaged in the performance of medical, dental, hospital, and veterinary
mistakes or omitted material facts when it obtained the said ruling from the Bureau of Internal services. In Commissioner of International Revenue v. Seagate Technology (Philippines), we defined
Revenue. Thus, in the absence of such proof, this court upholds the application of Section 246 of the an exempt transaction as one involving goods or services which, by their nature, are specifically listed
Tax Code. Consequently, the pronouncement made by the BIR in VAT Ruling No. 231-88 as to the in and expressly exempted from the VAT, under the Tax Code, without regard to the tax status of the
VAT exemption of petitioner should be upheld. party in the transaction. In Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.) Inc., we reiterated this definition.
Petitioner seasonably filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP
No. 76449. In its letter to the BIR requesting confirmation of its VAT-exempt status, respondent described its
services as follows:
In its Decision dated February 18, 2005, the Court of Appeals affirmed the CTA Resolution.
Under the prepaid group practice health care delivery system adopted by Health Care, individuals
Petitioner CIR filed a motion for reconsideration, but it was denied by the appellate court in its enrolled in Health Cares health care program are entitled to preventive, diagnostic, and corrective
Resolution dated May 9, 2005. medical services to be dispensed by Health Cares duly licensed physicians, specialists, and other
 51
professional technical staff participating in said group practice health care delivery system established from the BIR. The CTA held that respondents letter which served as the basis for the VAT ruling
and operated by Health Care. Such medical services will be dispensed in a hospital or clinic owned, sufficiently described its business and there is no way the BIR could be misled by the said
operated, or accredited by Health Care. To be entitled to receive such medical services from Health representation as to the real nature of said business.
Care, an individual must enroll in Health Cares health care program and pay an annual fee.
In sustaining the CTA, the Court of Appeals found that the failure of respondent to refer to itself as a
Enrollment in Health Cares health care program is on a year-to-year basis and enrollees are issued
health maintenance organization is not an indication of bad faith or a deliberate attempt to make false
identification cards.
representations. As the term health maintenance organization did not as yet have any particular
From the foregoing, the CTA made the following conclusions: significance for tax purposes, respondents failure to include a term that has yet to acquire its present
definition and significance cannot be equated with bad faith.
a) Respondent is not actually rendering medical service but merely acting as a conduit between
the members and their accredited and recognized hospitals and clinics. We agree with both the Tax Court and the Court of Appeals that respondent acted in good faith. In
Civil Service Commission v. Maala, we described good faith as that state of mind denoting honesty of
b) It merely provides and arranges for the provision of pre-need health care services to its
intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry;
members for a fixed prepaid fee for a specified period of time.
an honest intention to abstain from taking any unconscientious advantage of another, even through
c) It then contracts the services of physicians, medical and dental practitioners, clinics and technicalities of law, together with absence of all information, notice, or benefit or belief of facts
hospitals to perform such services to its enrolled members; and which render transaction unconscientious.

d) Respondent also enters into contract with clinics, hospitals, medical professionals and then According to the Court of Appeals, respondents failure to describe itself as a health maintenance
negotiates with them regarding payment schemes, financing and other procedures in the delivery of organization, which is subject to VAT, is not tantamount to bad faith. We note that the term health
health services. maintenance organization was first recorded in the Philippine statute books only upon the passage of
The National Health Insurance Act of 1995 (Republic Act No. 7875). Section 4 (o) (3) thereof defines
We note that these factual findings of the CTA were neither modified nor reversed by the Court of a health maintenance organization as an entity that provides, offers, or arranges for coverage of
Appeals. It is a doctrine that findings of fact of the CTA, a special court exercising particular designated health services needed by plan members for a fixed prepaid premium. Under this law, a
expertise on the subject of tax, are generally regarded as final, binding, and conclusive upon this health maintenance organization is one of the classes of a health care provider.
Court, more so where these do not conflict with the findings of the Court of Appeals. Perforce, as
respondent does not actually provide medical and/or hospital services, as provided under Section 103 It is thus apparent that when VAT Ruling No. 231-88 was issued in respondents favor, the term health
on exempt transactions, but merely arranges for the same, its services are not VAT-exempt. maintenance organization was yet unknown or had no significance for taxation purposes. Respondent,
therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the
Relative to the second issue, Section 246 of the 1997 Tax Code, as amended, provides that rulings, basis of VAT Ruling No. 231-88.
circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no
retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are: In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of
(1) where the taxpayer deliberately misstates or omits material facts from his return or in any the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position
document required of him by the Bureau of Internal Revenue; (2) where the facts subsequently contrary to one previously taken where injustice would result to the taxpayer. Hence, where an
gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling assessment for deficiency withholding income taxes was made, three years after a new BIR Circular
is based, or (3) where the taxpayer acted in bad faith. reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial
to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith,
We must now determine whether VAT Ruling No. 231-88 exempting respondent from paying its equity, and fair play.
VAT liabilities has retroactive application.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases of
In its Resolution dated March 23, 2003, the CTA found that there is no showing that respondent Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega
deliberately committed mistakes or omitted material facts when it obtained VAT Ruling No. 231-88 Gen. Mdsg. Corp. Commissioner of Internal Revenue v. Telefunken Semiconductor
 52
(Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR petitioner the 10% VAT on the purchased items, which led the petitioner to pay input taxes in the
rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.
taxpayer, as in this case.
Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid.
was entitled to tax refunds or credits based on the BIRs own issuances but later was suddenly saddled Mr. Edilberto Carlos, revenue district officer of BIR RDO No. 19, denied the first application letter,
with deficiency taxes due to its subsequent ruling changing the category of the taxpayers transactions dated December 29, 1998.
for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively would be
Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this
prejudicial to the taxpayer.
time directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4. The
WHEREFORE, we DENY the petition and AFFIRM the assailed Decision and Resolution of the second letter sought a refund or issuance of a tax credit certificate in the amount of P1,108,307.72,
Court of Appeals in CA-G.R. SP No. 76449. No costs. representing erroneously paid input VAT for the period January 1, 1997 to November 30, 1998.
SO ORDERED. When no response was forthcoming from the BIR Regional Director, petitioner then elevated the
matter to the Court of Tax Appeals, in a petition for review docketed as CTA Case No. 5895.
Petitioner stressed that Section 112(A) if read in relation to Section 106(A)(2)(a) of the National
Internal Revenue Code, as amended and Section 12(b) and (c) of Rep. Act No. 7227 would show that
it was not liable in any way for any value-added tax.
6. [G.R. No. 151135. July 2, 2004]
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims
CONTEX CORPORATION, petitioner, vs. HON. COMMISSIONER OF INTERNAL for refund are strictly construed against the taxpayer. Since petitioner failed to establish both its right
REVENUE, respondent. to a tax refund or tax credit and its compliance with the rules on tax refund as provided for in Sections
For review is the Decision dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 204 and 229 of the Tax Code, its claim should be denied, according to the BIR.
62823, which reversed and set aside the decision dated October 13, 2000, of the Court of Tax Appeals On October 13, 2000, the CTA decided CTA Case No. 5895 as follows:
(CTA). The CTA had ordered the Commissioner of Internal Revenue (CIR) to refund the sum of
P683,061.90 to petitioner as erroneously paid input value-added tax (VAT) or in the alternative, to WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY
issue a tax credit certificate for said amount. Petitioner also assails the appellate courts Resolution, GRANTED. Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX
dated December 19, 2001, denying the motion for reconsideration. CREDIT CERTIFICATE in favor of Petitioner the sum of P683,061.90, representing erroneously
paid input VAT.
Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and
garments and other hospital supplies for export. Petitioners place of business is at the Subic Bay SO ORDERED.
Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A)
Subic Bay Freeport Enterprise, pursuant to the provisions of Republic Act No. 7227. As an SBMA-
of the Tax Code. The tax court stressed that these provisions apply only to those entities registered as
registered firm, petitioner is exempt from all local and national internal revenue taxes except for the
VAT taxpayers whose sales are zero-rated. Petitioner does not fall under this category, since it is a
preferential tax provided for in Section 12 (c) of Rep. Act No. 7227. Petitioner also registered with
non-VAT taxpayer as evidenced by the Certificate of Registration RDO Control No. 95-180-000133
the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO
issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay Freeport Zone and thus it is
Control No. 95-180-000133.
exempt from VAT, pursuant to Rep. Act No. 7227, said the CTA.
From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its
necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto
purchases of supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and
 53
the Implementing Rules and Regulations of the Bases Conversion and Development Act of 1992, all Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was
that petitioner is required to pay as a SBFZ-registered enterprise is a 5% preferential tax. denied.
The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for Hence, the instant petition raising as issues for our resolution the following:
being barred by the two-year prescriptive period under Section 229 of the Tax Code. The tax court
A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL
also limited the refund only to the input VAT paid by the petitioner on the supplies and materials
REVENUE TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED
directly used by the petitioner in the manufacture of its goods. It struck down all claims for input
TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES
VAT paid on maintenance, office supplies, freight charges, and all materials and supplies shipped or
OF SUPPLIES AND MATERIALS.
delivered to the petitioners Makati and Pasay City offices.
B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT
Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA
PETITIONER IS ENTITLED TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS
decision by the Court of Appeals. Respondent maintained that the exemption of Contex Corp. under
PURCHASES OF SUPPLIES AND RAW MATERIALS FOR THE YEARS 1997 AND 1998.
Rep. Act No. 7227 was limited only to direct taxes and not to indirect taxes such as the input
component of the VAT. The Commissioner pointed out that from its very nature, the value-added tax Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the
is a burden passed on by a VAT registered person to the end users; hence, the direct liability for the Court of Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to
tax lies with the suppliers and not Contex. petitioner as a purchaser; and (2) the entitlement of the petitioner to a tax refund on its purchases of
supplies and raw materials for 1997 and 1998.
Finding merit in the CIRs arguments, the appellate court decided CA-G.R. SP No. 62823 in his favor,
thus: On the first issue, petitioner argues that the appellate courts restrictive interpretation of petitioners
VAT exemption as limited to those covered by Section 107 of the Tax Code is erroneous and devoid
WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET
of legal basis. It contends that the provisions of Rep. Act No. 7227 clearly and unambiguously
ASIDE. Contexs claim for refund of erroneously paid taxes is DENIED accordingly.
mandate that no local and national taxes shall be imposed upon SBFZ-registered firms and hence, said
SO ORDERED. law should govern the case. Petitioner calls our attention to regulations issued by both the SBMA and
BIR clearly and categorically providing that the tax exemption provided for by Rep. Act No. 7227
In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the
includes exemption from the imposition of VAT on purchases of supplies and materials.
importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act
No. 7227 and its implementing rules covers only the VAT imposable under Section 107 of the [Tax The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax
Code], which is a direct liability of the importer, and in no way includes the value-added tax of the exemptions, such grant is not all-encompassing but is limited only to those taxes for which a SBFZ-
seller-exporter the burden of which was passed on to the importer as an additional costs of the goods.[ registered business may be directly liable. Hence, SBFZ locators are not relieved from the indirect
This was because the exemption granted by Rep. Act No. 7227 relates to the act of importation and taxes that may be shifted to them by a VAT-registered seller.
Section 107 of the Tax Code specifically imposes the VAT on importations. The appellate court
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on
applied the principle that tax exemptions are strictly construed against the taxpayer. The Court of
the goods, properties or services bought, transferred, or leased may be shifted or passed on by the
Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the exemption of SBFZ-
seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income
registered enterprises from internal revenue taxes is qualified as pertaining only to those for which
tax, which primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect
they may be directly liable. It then stated that apparently, the legislative intent behind Rep. Act No.
tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the
7227 was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may be liable
same. The VAT, thus, forms a substantial portion of consumer expenditures.
for and only in connection with their importation of raw materials, capital, and equipment as well as
the sale of their goods and services. Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the
burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax
 54
burden. In adding or including the VAT due to the selling price, the seller remains the person Petitioners claim, however, for exemption from VAT for its purchases of supplies and raw materials
primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer is incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim
and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly Input VAT Credit/Refund.
and legally liable for payment of an indirect tax, such as the VAT on goods or services is not
The point of contention here is whether or not the petitioner may claim a refund on the Input VAT
necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or
erroneously passed on to it by its suppliers.
consumer of such goods or services who, although not directly and legally liable for the payment
thereof, ultimately bears the burden of the tax. While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to
it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the
Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under
proper party to claim such VAT refund.
VAT, the transaction can have preferential treatment in the following ways:
Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the Consolidated Value-Added
(a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the
Tax Regulations provide:
use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit
on VAT (input tax) previously paid. This is a case wherein the VAT is removed at the exempt stage Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-registered person, which is a taxable
(i.e., at the point of the sale, barter or exchange of the goods or properties). transaction for VAT purposes, shall not result in any output tax. However, the input tax on his
purchases of goods, properties or services related to such zero-rated sale shall be available as tax
The person making the exempt sale of goods, properties or services shall not bill any output tax to his
credit or refund in accordance with these regulations.
customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered
purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to The following sales by VAT-registered persons shall be subject to 0%:
any input tax on such purchase despite the issuance of a VAT invoice or receipt.
(a) Export Sales
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate,
meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered Export Sales shall mean
person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, ...
the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be
available as tax credit or refund in accordance with these regulations. (5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No.
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, 7227, otherwise known as the Bases Conversion and Development Act of 1992.
exemption only removes the VAT at the exempt stage, and it will actually increase, rather than reduce
the total taxes paid by the exempt firms business or non-retail customers. It is for this reason that a ...
sharp distinction must be made between zero-rating and exemption in designating a value-added tax.
(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly
Apropos, the petitioners claim to VAT exemption in the instant case for its purchases of supplies and registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark
raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically Development Authority (CDA), R. A. No. 7916, Philippine Economic Zone Authority (PEZA), or
exempts them from all national and local internal revenue taxes, including VAT and Section 4 (A)(a) international agreements, e.g. Asian Development Bank (ADB), International Rice Research Institute
of BIR Revenue Regulations No. 1-95. (IRRI), etc. to which the Philippines is a signatory effectively subject such sales to zero-rate.

On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT credit
by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of with no corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the
Registration issued by the BIR. As such, it is exempt from VAT on all its sales and importations of petitioner.
goods and services.
 55
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON- WHEREFORE, premises considered, the present petition for review is hereby DENIED DUE
VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax COURSE and accordingly DISMISSED for lack of merit. The Decision dated April 26, 2001 of the
credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption from the Court of Tax Appeals in CTA Case No. 5751 is hereby AFFIRMED and UPHELD.
burden of VAT on petitioners purchases did exist, petitioner is still not entitled to any tax credit or
On the other hand, the dispositive portion of the CTA Decision reads:
refund on the input tax previously paid as petitioner is an exempt VAT taxpayer.
WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. [Petitioner] is hereby
Rather, it is the petitioners suppliers who are the proper parties to claim the tax credit and accordingly
ordered to refund or to issue a Tax Credit Certificate in favor of the [Respondent] in the amount of
refund the petitioner of the VAT erroneously passed on to the latter.
P4,377,102.26 representing excess input taxes paid for the period covering January 1 to June 30,
Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding 1997.
that petitioners VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly
The Facts
liable as a seller and hence, it cannot claim any refund or exemption for any input VAT it paid, if any,
on its purchases of raw materials and supplies. The uncontested facts are narrated by the CA as follows:
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of Respondent is a domestic corporation duly organized and existing under and by virtue of the laws of
the Court of Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are the Philippines with principal office located at the Special Export Processing Zone, Laguna
AFFIRMED. No pronouncement as to costs. Technopark, Bian, Laguna. It is principally engaged in the business of manufacturing, importing,
exporting, buying, selling, or otherwise dealing in, at wholesale such goods as strapping bands and
SO ORDERED.
other packaging materials and goods of similar nature, and any and all equipment, materials, supplies
used or employed in or related to the manufacture of such finished products.
7. G.R. No. 149671 COMMISSIONER OF INTERNAL REVENUE,Petitioner, v.SEKISUI Having registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer,
JUSHI PHILIPPINES, INC.,Respondent. July 21, 2006 respondent filed its quarterly returns with the BIR, for the period January 1 to June 30, 1997,
reflecting therein input taxes in the amount of P4,631,132.70 paid by it in connection with its
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
domestic purchase of capital goods and services. Said input taxes remained unutilized since
Business enterprises registered with the Philippine Export Zone Authority (PEZA) may choose respondent has not engaged in any business activity or transaction for which it may be liable for
between two fiscal incentive schemes: (1) to pay a five percent preferential tax rate on its gross output tax and for which said input taxes may be credited.
income and thus be exempt from all other taxes; or (b) to enjoy an income tax holiday, in which case
On November 11, 1998, respondent filed with the One-Stop-Shop Inter-Agency Tax Credit and Duty
it is not exempt from applicable national revenue taxes including the value-added tax (VAT). The
Drawback Center of the Department of Finance (CENTER-DOF) two (2) separate applications for tax
present respondent, which availed itself of the second tax incentive scheme, has proven that all its
credit/refund of VAT input taxes paid for the period January 1 to March 31, 1997 and April 1 to June
transactions were export sales. Hence, they should be VAT zero-rated.
30, 1997, respectively. There being no action on its application for tax credit/refund under Section
The Case 112 (B) of the 1997 National Internal Revenue Code (Tax Code), as amended, private respondent
filed, within the two (2)-year prescriptive period under Section 229 of said Code, a petition for review
Before us is a Petition for Review under Rule 45 of the Rules of Court, challenging the August 16, with the Court of Tax Appeals on March 26, 1999.
2001 Decision of the Court of Appeals (CA) in CA-GR SP No. 64679. The assailed Decision upheld
the April 26, 2001 Decision of the Court of Tax Appeals (CTA) in CTA Case No. 5751. The CA Petitioner filed its Answer to the petition asseverating that: (1) said claim for tax credit/refund is
Decision disposed as follows: subject to administrative routinary investigation by the BIR; (2) respondent miserably failed to show
that the amount claimed as VAT input taxes were erroneously collected or that the same were
properly documented; (3) taxes due and collected are presumed to have been made in accordance with
law, hence, not refundable; (4) the burden of proof is on the taxpayer to establish his right to a refund
 56
in an action for tax refund. Failure to discharge such duty is fatal to his action; (5) respondent should VAT pursuant to Section 24 of Republic Act No. 7916 in relation to Section 103 (now Sec. 109) of
show that it complied with the provisions of Section 204 in relation to Section 229 of the 1997 Tax the Tax Code, as amended by R.A. 7716.
Code; and (6) claims for refund are strictly construed against the taxpayer as it partakes of the nature
II. The Court of Appeals erred in not holding that since respondent is EXEMPT from Value-Added
of a tax exemption. Hence, petitioner prayed for the denial of respondent’s petition.
Tax (VAT), the capital goods and services it purchased are considered not used in VAT taxable
Ruling of the Court of Tax Appeals business, hence, is not allowed any tax credit/refund on VAT input tax previously paid on such capital
goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95, and of input taxes paid on
The CTA ruled that respondent was entitled to the refund. While the company was registered with the
services pursuant to Section 4.103-1 of the same regulations.
PEZA as an ecozone and was, as such, exempt from income tax, it availed itself of the fiscal incentive
under Executive Order No. 226. It thereby subjected itself to other internal revenue taxes like the III. The Court of Appeals erred in not holding that tax refunds being in the nature of tax exemptions
VAT. The CTA then found that only input taxes amounting to P4,377,102.26 were duly substantiated are construed strictissimi juris against claimants.
by invoices and Official Receipts, while those amounting to P254,313.43 had not been sufficiently
These issues have previously been addressed by this Court in Commissioner of Internal Revenue v.
proven and were thus disallowed.
Toshiba Information Equipment (Phils.), Commissioner of Internal Revenue v. Cebu Toyo
Ruling of the Court of Appeals Corporation, and Commissioner of Internal Revenue v. Seagate Technology (Philippines).
The Court of Appeals upheld the Decision of the CTA. According to the CA, respondent had An entity registered with the PEZA as an ecozone may be covered by the VAT system. Section 23 of
complied with the procedural and substantive requirements for a claim by 1) submitting receipts, Republic Act 7916, as amended, gives a PEZA-registered enterprise the option to choose between two
invoices, and supporting papers as evidence; 2) paying the subject input taxes on capital goods; 3) not fiscal incentives: a) a five percent preferential tax rate on its gross income under the said law; or b) an
applying the input taxes against any output tax liability; and 4) filing the claim within the two-year income tax holiday provided under Executive Order No. 226 or the Omnibus Investment Code of
prescriptive period under Section 229 of the 1997 Tax Code. 1987, as amended. If the entity avails itself of the five percent preferential tax rate under the first
scheme, it is exempt from all taxes, including the VAT; under the second, it is exempt from income
Hence, this Petition.
taxes for a number of years, but not from other national internal revenue taxes like the VAT.
The Issue
The CA and CTA found that respondent had availed itself of the fiscal incentive of an income tax
Petitioner raises this sole issue for our consideration: holiday under Executive Order No. 226. This Court respects that factual finding. Absent a sufficient
showing of error, findings of the CTA as affirmed by the CA are deemed conclusive. Moreover, a
Whether or not respondent is entitled to the refund or issuance of tax credit certificate in the amount perusal of the pleadings and supporting documents before us indicates that when it registered as a
of P4,377,102.26 as alleged unutilized input taxes paid on domestic purchase of capital goods and VAT-entity -- a fact admitted by the parties -- respondent intended to avail itself of the income tax
services for the period covering January 1 to June 30, 1997. holiday. Verily, being a question of fact, the type of fiscal incentive chosen cannot be a subject of this
The Courts Ruling Petition, which should raise only questions of law.

The Petition has no merit. By availing itself of the income tax holiday, respondent became subject to the VAT. It correctly
registered as a VAT taxpayer, because its transactions were not VAT-exempt.
Sole Issue:
Notably, while an ecozone is geographically within the Philippines, it is deemed a separate customs
Entitlement to Refund territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders of the
ecozone to this separate customs territory are deemed as exportsand treated as export sales. These
To support the issue raised, petitioner advances the following arguments:
sales are zero-rated or subject to a tax rate of zero percent.
I. The Court of Appeals erred in not holding that respondent being registered with the Philippine
Notwithstanding the fact that its purchases should have been zero-rated, respondent was able to prove
Economic Zone Authority (PEZA) as an [e]cozone [e]xport [e]nterprise, its business is not subject to
that it had paid input taxes in the amount of P4,377,102.26. The CTA found, and the CA affirmed,
 57
that this amount was substantially supported by invoices and Official Receipts; and petitioner has not 26 July 2004 12 July 2005 2nd 2004
challenged the computation. Accordingly, this Court upholds the findings of the CTA and the CA.
22 October 2004 12 July 2005 3rd 2004
On the other hand, since 100 percent of the products of respondent are exported, all its transactions
25 January 2005 12 July 2005 4th 2004
are deemed export sales and are thus VAT zero-rated. It has been shown that respondent has no
output tax with which it could offset its paid input tax. Since the subject input tax it paid for its On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for
domestic purchases of capital goods and services remained unutilized, it can claim a refund for the the refund or credit of accumulated unutilized creditable input taxes. In support of the administrative
input VAT previously charged by its suppliers. The amount of P4,377,102.26 is excess input taxes claim for refund or credit, Mindanao II alleged, among others, that it is registered with the BIR as a
that justify a refund. value-added taxpayer and all its sales are zero-rated under the EPIRA law. It further stated that for the
second, third, and fourth quarters of taxable year 2004, it paid input VAT in the aggregate amount of
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. No costs, as
₱7,167,005.84, which were directly attributable to the zero-rated sales. The input taxes had not been
petitioner is a government agency.
applied against output tax.
SO ORDERED.
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.
8. G. R. No. 191498 January 15, 2014
Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. MINDANAO II which case, the former would have 30 days to file an appeal to the CTA, that is, on 5 March 2006.
GEOTHERMAL PARTNERSHIP, Respondent. Mindanao II, however, did not file an appeal within the 30-day period.
This Rule 45 Petition requires this Court to address the question of timeliness with respect to
Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive
petitioner's administrative and judicial claims for refund and credit of accumulated unutilized input
period provided under Section 112(A) and that such time frame was to be reckoned from the filing of
Value Added Tax (VAT) under Section 112(A) and Section 112(D) of the 1997 Tax Code. Petitioner
its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, that is, from
Mindanao II Geothermal Partnership (Mindanao II) assails the Decision and Resolution of the Court
26 July 2004, 22 October 2004, and 25 January 2005, respectively. Thus, on 21 July 2006, Mindanao
of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case No. 448, affirming the Decision in
II, claiming inaction on the part of the CIR and that the two-year prescriptive period was about to
CTA Case No. 7507 of the CTA Second Division. The latter ordered the refund or issuance of a tax
expire, filed a Petition for Review with the CTA docketed as CTA Case No. 6133.
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. 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
FACTS
and Development Corporation v. CIR (Atlas). Atlas held that the two-year prescriptive period for the
Mindanao II is a partnership registered with the Securities and Exchange Commission. It is engaged filing of a claim for an input VAT refund or credit is to be reckoned from the date of filing of the
in the business of power generation and sale of electricity to the National Power Corporation corresponding quarterly VAT return and payment of the tax.
(NAPOCOR) and is accredited by the Department of Energy.
On 12 August 2008, the CTA Second Division rendered a Decision ordering the CIR to grant a refund
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of taxable year or a tax credit certificate, but only in the reduced amount of ₱6,791,845.24, representing unutilized
2004 on the following dates: input VAT incurred for the second, third and fourth quarters of taxable year 2004.

Date filed Quarter Taxable Year 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
Original Amended derived sales from power generation. It also ruled that Mindanao II satisfied the requirements for the
 58
grant of a refund/credit under Section 112 of the Tax Code: (1) there must be zero-rated or effectively Second Division correctly applied the Atlas ruling. It reasoned that Atlas remained to be the
zero-rated sales; (2) input taxes must have been incurred or paid; (3) the creditable input tax due or controlling doctrine. Mirant was a new doctrine and, as such, the latter should not apply retroactively
paid must be attributable to zero-rated sales or effectively zero-rated sales; (4) the input VAT to Mindanao II who had relied on the old doctrine of Atlas and had acted on the faith thereof.
payments must not have been applied against any output liability; and (5) the claim must be filed
As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc held
within the two-year prescriptive period.
that this was a requirement only when the CIR actually denies the taxpayer’s claim. But in cases of
As to the second requisite, however, the input tax claim to the extent of ₱375,160.60 corresponding to CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is seasonably filed
purchases of services from Mitsubishi Corporation was disallowed, since it was not substantiated by as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of
official receipts. filing of the return.
As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas, counted The CIR filed a Motion for Partial Reconsideration of the Decision, but it was denied for lack of
from 26 July 2004, 22 October 2004, and 25 January 2005 – the dates when Mindanao II filed its merit.
Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, respectively –
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of its
and determined that both the administrative claim filed on 6 October 2005 and the judicial claim filed
appeal:
on 21 July 2006 fell within the two-year prescriptive period.
I. THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, pointing out that
CASE.
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 basis for this argument, the CIR II. THE COURT A QUO’S RELIANCE ON THE RULING IN ATLAS IS MISPLACED.
relied on Section 112(D) of the 1997 Tax Code.
ISSUES
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation
(Mirant). Mirant fixed the reckoning date of the two-year prescriptive period for the application for The resolution of this case hinges on the question of compliance with the following time requirements
refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales for the grant of a claim for refund or credit of unutilized input VAT: (1) the two-year prescriptive
were made, as stated in Section 112(A). period for filing an application for refund or credit of unutilized input VAT; and (2) the 120+30 day
period for filing an appeal with the CTA.
On 3 December 2008, the CTA Second Division denied the CIR’s Motion for Partial Reconsideration.
The tax court stood by its reliance on Atlas and on its finding that both the administrative and judicial THE COURT’S RULING
claims of Mindanao II were timely filed. We deny Mindanao II’s claim for refund or credit of unutilized input VAT on the ground that its
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for Review. Apart judicial claims were filed out of time, even as we hold that its application for refund was filed on
from the contention that the judicial claim of Mindanao II was filed beyond the 30-day period fixed time.
by Section 112(D) of the 1997 Tax Code, the CIR argued that Mindanao II erroneously fixed 26 July I. MINDANAO II’S APPLICATION FOR REFUND WAS FILED ON TIME
2004, the date when the return for 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 We find no error in the conclusion of the tax courts that the application for refund or credit of
under Section 112(A). As the two-year prescriptive period ended on 30 June 2006, the Petition for unutilized input VAT was timely filed. The problem lies with their bases for the conclusion as to: (1)
Review of Mindanao II was filed out of time on 21 July 2006. The CIR invoked the recently what should be filed within the prescriptive period; and (2) the date from which to reckon the
promulgated Mirant to support this theory. prescriptive period.

On 11 November 2009, the CTA En Banc rendered its Decision denying the CIR’s Petition for We thus take a different route to reach the same conclusion, initially focusing our discussion on what
Review. On the question whether the application for refund was timely filed, it held that the CTA should be filed within the two-year prescriptive period.
 59
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period 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
Section 112(A) provides:
appeal with the CTA. (Emphasis supplied)
SEC. 112. Refunds or Tax Credits of Input Tax. —
The message of Aichi is clear: it is only the administrative claim that must be filed within the two-
(A) Zero-rated or Effectively Zero-rated Sales — Any VAT-registered person, whose sales are zero- year prescriptive period; the judicial claim need not fall within the two-year prescriptive period.
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
Having disposed of this question, we proceed to the date for reckoning the prescriptive period under
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
Section 112(A).
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 B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were Made.
Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency
The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling, which fixed the
exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations
reckoning point to the date of filing the return and payment of the tax.
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 The CIR’s Stand
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. 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
Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the the other hand, this case deals with claims for tax refund or credit of unutilized input VAT for the
issuance of a tax credit certificate or refund" in Section 112(A) is construed to refer to both the second, third, and fourth quarters of 2004, which are covered by Section 112 of the 1977 Tax Code.
administrative claim filed with the CIR and the judicial claim filed with the CTA. This view,
however, has no legal basis. 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
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we dispelled or credit with the CIR and one year after it filed a Petition for Review with the CTA on 21 July 2006.
the misconception that both the administrative and judicial claims must be filed within the two-year
prescriptive period: 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
There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said administrative claim in 2005. It argues that Mirant can be applied retroactively to this case, since the
provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated decision merely interprets Section 112, a provision that was already effective when Mindanao II filed
may, within two years after the close of the taxable quarter when the sales were made, apply for the its claims for tax refund or credit.
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 The Taxpayer’s Defense
refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. On the other hand, Mindanao II counters that Atlas, decided by the Third Division of this Court, could
This is apparent in the first paragraph of subsection (D) of the same provision, which states that the not have been superseded by Mirant, a Second Division Decision of this Court. A doctrine laid down
CIR has "120 days from the submission of complete documents in support of the application filed in by the Supreme Court in a Division may be modified or reversed only through a decision of the Court
accordance with Subsections (A) and (B)" within which to decide on the claim. sitting en banc.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the Mindanao II further contends that when it filed its Petition for Review, the prevailing rule in the CTA
NIRC, which already provides for a specific period within which a taxpayer should appeal the reckons the two-year prescriptive period from the date of the filing of the VAT return. Finally, after
decision or inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC envisions two building its case on Atlas, Mindanao II assails the CIR’s reliance on the Mirant doctrine stating that it
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2)
 60
cannot be applied retroactively to this case, lest it violate the rock-solid rule that a judicial ruling the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
cannot be given retroactive effect if it will impair vested rights. 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
Section 112(A) is the Applicable Rule
the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v. San Roque Section 229.
Power Corporation (San Roque), this Court resolved the threshold question of when to reckon the
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the
two-year prescriptive period for filing an administrative claim for refund or credit of unutilized input
date of payment of the tax "erroneously, . . . illegally, . . . excessively or in any manner wrongfully
VAT under the 1997 Tax Code in view of our pronouncements in Atlas and Mirant. In that case, we
collected." The prescriptive period is reckoned from the date the person liable for the tax pays the tax.
delineated the scope and effectivity of the Atlas and Mirant doctrines as follows:
Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the pays more than what is legally due, the taxpayer must file a judicial claim for refund within two years
two-year prescriptive period under Section 229, should be effective only from its promulgation on 8 from his date of payment. Only the person legally liable to pay the tax can file the judicial claim for
June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to refund. The person to whom the tax is passed on as part of the purchase price has no personality to
the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior file the judicial claim under Section 229.
to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which
"excess" input VAT is two years from the close of the taxable quarter when the sale was made by the
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
person legally liable to pay the output VAT. This prescriptive period has no relation to the date of
computing the two-year prescriptive period in claiming refund or credit of input VAT. (Emphases
payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two
supplied)
years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A),
Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997 Tax Code: 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
The input VAT is not "excessively" collected as understood under Section 229 because at the time the VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that
input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid
legally paid by, a VAT-registered seller of goods, properties or services used as input by another the input VAT.
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 As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the
VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on
VAT as credit for his own output VAT. If the input VAT is in fact "excessively" collected as the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
understood under Section 229, then it is the first VAT-registered person — the taxpayer who is However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold
legally liable and who is deemed to have legally paid for the input VAT — who can ask for a tax him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT
refund or credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such only on the value that he adds to the goods, properties, or services that he actually sells.
event, the second VAT-registered taxpayer will have no input VAT to offset against his own output
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
VAT.
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the companies generating power through renewable sources of energy. Thus, a non zero-rated VAT-
input VAT is not "excessively" collected as understood under Section 229. At the time of payment of registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or
the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input
claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the VAT System. He can only carry-over and apply his "excess" input VAT against his future output
 61
VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to the above timeline. In other words, it is covered by the rule prior to the advent of either Atlas or
seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT Mirant.
System does not allow such refund or credit. Such "excess" input VAT is not an "excessively"
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the 1997 Tax
collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax.
Code, is the close of the taxable quarter when the relevant sales were made.
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 C. The Administrative Claims Were Timely Filed
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 We sum up our conclusions so far: (1) it is only the administrative claim that must be filed within the
VAT System, who can file the judicial claim under Section 229. 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.
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 Bearing these in mind, we now proceed to determine whether Mindanao II's administrative claims for
under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section 229, the second, third, and fourth quarters of 2004 were timely filed.
mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no Second Quarter
requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or services
using materials subject to input VAT. 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
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is Section 112(A), Mindanao II had two years from 30 June 2004, or until 30 June 2006 to file an
"erroneously . . . illegally, . . . excessively or in any manner wrongfully collected." In short, there administrative claim with the CIR. Mindanao II filed its administrative claim on 6 October 2005,
must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held in which is within the two-year prescriptive period. The administrative claim for the second quarter of
Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of 2004 was thus timely filed. For clarity, we present the rules laid down by San Roque in determining
internal revenue taxes." Erroneous or wrongful payment includes excessive payment because they all the proper reckoning date of the two-year prescriptive period through the following timeline:
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" Third Quarter
input VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to apply
As regards the claim for the third quarter of 2004, the two-year prescriptive period started to run on
such "excessively" collected input VAT to offset his output VAT may have no legal basis to make
30 September 2004, the close of the taxable quarter. It ended on 30 September 2006, pursuant to
such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such
Section 112(A) of the 1997 Tax Code. Mindanao II filed its administrative claim on 6 October 2005.
"excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will upend
Thus, since the administrative claim was filed well within the two-year prescriptive period, the
the present VAT System as we know it.
administrative claim for the third quarter of 2004 was timely filed. (See timeline below)
Two things are clear from the above quoted San Roque disquisitions. First, when it comes to recovery
Fourth Quarter
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). 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
We present the rules laid down by San Roque in determining the proper reckoning date of the two-
refund/credit with the CIR was on 31 December 2006. Mindanao II filed its administrative claim with
year prescriptive period through the following timeline:
the CIR on 6 October 2005. Hence, the claims were filed on time, pursuant to Section 112(A) of the
Thus, the task at hand is to determine the applicable period for this case. 1997 Tax Code. (See timeline below)

In this case, Mindanao II filed its administrative claims for refund or credit for the second, third and II.MINDANAO II’S JUDICIAL CLAIMS WERE FILED OUT OF TIME
fourth quarters of 2004 on 6 October 2005. The case thus falls within the first period as indicated in
 62
Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc erred in x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
holding that Mindanao II’s judicial claims were timely filed. 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.
A. 30-Day Period Also Applies to Appeals from Inaction
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
refund or tax credit of input VAT:
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
one hundred twenty (120) days from the date of submission of complete documents in support of the the 120-day period. (Emphasis supplied)
application filed in accordance with Subsection (A) and (B) hereof. In case of full or partial denial of
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two ways: (1) file
the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the
the judicial claim within thirty days after the Commissioner denies the claim within the 120-day
application within the period prescribed above, the taxpayer affected may, within thirty (30) days
period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the
from the receipt of the decision denying the claim or after the expiration of the one hundred twenty
Commissioner does not act within the 120-day period.
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphases
supplied) B. The Judicial Claim Was Belatedly Filed
Section 112(D) speaks of two periods: the period of 120 days, which serves is a waiting period to give In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund or
time for the CIR to act on the administrative claim for refund or credit, and the period of 30 days, credit for the second, third, and fourth quarters of 2004 on 6 October 2005. The CIR, therefore, had a
which refers to the period for interposing an appeal with the CTA. It is with the 30-day period that period of 120 days, or until 3 February 2006, to act on the claim. The CIR, however, failed to do so.
there is an issue in this case. 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.
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 Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of
given two options: 1) file an appeal within 30 days from the CIR’s denial of the administrative claim; the 30-day period on 5 March 2006. The judicial claim was therefore filed late. (See timeline below.)
or 2) file an appeal with the CTA after expiration of the 120-day period, in which case the 30-day
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional
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 However, what is up for debate is the nature of the 30-day time requirement. The CIR posits that it is
112(A). 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).
We do not agree.
The answer is found in San Roque. There, we declared that the 30-day period to appeal is both
The 30-day period applies not only to instances of actual denial by the CIR of the claim for refund or
mandatory and jurisdictional:
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: 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:
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)
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This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question
receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of situated, being made to return the tax refund or credit they received or could have received under
the 120-day period. 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
xxxx
Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. prospectively. x x x.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
xxxx
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 Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still to all taxpayers or a specific ruling applicable only to a particular taxpayer.
has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made,
only logical interpretation of Section 112(A) and (C).
not by a particular taxpayer, but by a government agency tasked with processing tax refunds and
xxx 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
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where
day periods optional just because the law uses the word " may." The word "may" simply means that
the taxpayer did not wait for the lapse of the 120-day period.
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. 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
D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not applicable
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature of the mandatory and jurisdictional.
120+30 day period ─ BIR Ruling No. DA-489-03 dated 10 December 2003. The BIR ruling declares
Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation (Taganito), one
that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
of the taxpayers in San Roque. Taganito filed its judicial claim on 14 February 2007, after the BIR
judicial relief with the CTA by way of Petition for Review."
ruling took effect on 10 December 2003 and before the promulgation of Mirant. The Court stated:
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as necessary to
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of
dwell on this issue to determine whether this case falls under the exception.
BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial
For this question, we come back to San Roque, which provides that BIR Ruling No. DA-489-03 is a claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No.
general interpretative rule; thus, taxpayers can rely on it from the time of its issuance on 10 December DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
2003 until its reversal by this Court in Aichi on 6 October 2010, when the 120+30 day periods were filing of its judicial claim from the vice of prematurity.
held to be mandatory and jurisdictional. The Court reasoned as follows:
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:
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However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is We find that Mindanao II’s situation is similar to that of Philex in San Roque.
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, but before its reversal on 5
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
October 2010. However, while the BIR ruling was in effect when Mindanao II filed its judicial claim,
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
the rule cannot be properly invoked. The BIR ruling, as discussed earlier, contemplates premature
construed against the taxpayer.
filing. The situation of Mindanao II is one of late filing. To repeat, its judicial claim was filed on 21
Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge in the BIR July 2006 – long after 5 March 2006, the last day of the 30-day period for appeal. In fact, it filed its
ruling as it jumped the gun when it filed its judicial claim on 10 April 2003, prior to the issuance of judicial claim 138 days after the lapse of the 30-day period. (See timeline below)
the BIR ruling on 10 December 2003.1âwphi1 The Court stated:
E. Undersigned dissented in San Roque to the retroactive application of the mandatory and
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial jurisdictional nature of the 120+30 day period.
claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10
It is worthy to note that in San Roque, this ponente registered her dissent to the retroactive application
December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its
of the mandatory and jurisdictional nature of the 120+30 day period provided under Section 112(D)
judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed
of the Tax Code which, in her view, is unfair to taxpayers. It has been the view of this ponente that
its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered
the mandatory nature of 120+30 day period must be completely applied prospectively or, at the
by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact
earliest, only upon the finality of Aichi in order to create stability and consistency in our tax laws.
the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never
Nevertheless, this ponente is mindful of the fact that judicial precedents cannot be ignored. Hence, the
claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or
majority view expressed in San Roque must be applied.
before the Commissioner.
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT
San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court held
OF INPUT VAT
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 The lessons of this case may be summed up as follows:
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 A. Two-Year Prescriptive Period
benefit of the BIR ruling: 1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)
Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed 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)
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. 3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008.
Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of
claim prematurely but filed it long after the lapse of the 30-day period following the expiration of the unutilized input VAT payments should be counted from the date of filing of the VAT return and
120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period. payment of the tax. (San Roque)

We sum up the rules established by San Roque on the mandatory and jurisdictional nature of the 30- B. 120+30 Day Period
day period to appeal through the following timeline: 1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days
Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or credit of after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim
unutilized input VAT, we rule on the present case of Mindanao II as follows:
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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.1âwphi1 The CTA EB erred in granting these claims.
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.