Taxation

G.R. No.
183880 January 20, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
TOLEDO POWER, INC., Respondent.
D E C I S I O N
PERALTA, J .:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Court of Tax Appeals (CTA) En Banc Decision1 dated May 7, 2008, and Resolution2
dated July 18, 2008.
The pertinent facts, as narrated by the CT A First Division, are as follows:
Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly organized and existing
under Philippine laws, with principal office at Sangi, Toledo City, Cebu. It is principally engaged in the
business of power generation and subsequent sale thereof to the National Power Corporation (NPC), Cebu
Electric Cooperative III (CEBECO), Atlas Consolidated Mining and Development Corporation, Atlas
Fertilizer Corporation and Cebu Industrial Park Development, Inc., and is registered with the Bureau of
Internal Revenue (BIR) as a Value
Added Tax taxpayer in accordance with Section 236 of the National Internal Revenue Code (NIRC) with
Tax Identification No. 003-883-626-VAT and BIR Certificate of Registration bearing RDO Control No.
94-083-000300.
On June 20, 2002, petitioner filed an application with the Energy Regulatory Commission (ERC) for the
issuance of a Certificate of Compliance pursuant to the Implementing Rules and Regulations of R.A.
9136, otherwise known as the "Electric Power Industry Reform Act of 2007" (EPIRA).
On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO) No. 83 at Toledo City,
Province of Cebu, its Quarterly VAT Return for the third quarter of 2001, declaring among others, the
following:
Zero-rated Sales/Receipts P 143,000,032.37
Taxable Sales-Sale of Scrap/Others 378,651.74
Output Tax 34,422.89
Less: Input Tax

On Domestic Purchases 4,765,458.58
On Importation of Goods 1,242,792.00
Total Available Input Tax 6,008,250.58
Excess Input Tax & Overpayment P 5,973,827.69
However, an amended Quarterly VAT Return for the same quarter of 2001was filed on November 22,
2001. The amended return shows unutilized input VAT credits of P5,909,588.96 arising from petitioners
taxable purchases for the third quarter of 2001 and the following other information:
Less: Input Tax

Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in the total amount of
P5,909,588.96 on its domestic purchase of taxable goods and services and importation of goods, which
purchases and importations are all attributable to its zero-rated sale of power generation services to NPC,
CEBECO, Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer Corporation and
Cebu Industrial Park Development, Inc. Said input VAT of P5,909,588.96 paid by petitioner on its
domestic purchase of goods and services for the third quarter of 2001 allegedly remained unutilized
against output VAT liability in said period or even in subsequent matters.
On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City, Province of Cebu, its
Quarterly VAT Return for the fourth quarter of 2001 declaring, among others, the following:
Less: Input Tax

Thus, petitioner allegedly had an excess input VAT credits of P3,219,781.31 for the fourth quarter of
2001 which remained unutilized against output VAT liability in said period or even in the subsequent
quarters.
For the third and fourth quarters of 2001, petitioner incurred and accumulated input VAT from its
domestic purchase of goods and services, which are all attributable to its zero-rated sales of power
generation services to NPC, CEBECO, Atlas Consolidated Mining and Development
Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development Inc., in the total amount
of P9,129,370.27. Said excess and unutilized input VAT was allegedly not utilized against any output
VAT liability in the subsequent quarters nor carried over to the succeeding taxable quarters.
On September 30, 2003, pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as
amended, petitioner filed with the BIR RDO No. 83, an administrative claim for refund or unutilized
input VAT for the third and fourth quarter of 2001 in the amounts of P5,909,588.96 and P3,219,781.31,
respectively, or the aggregate amount of P9,129,370.27.
Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled upon petitioners
administrative claim and in order to preserve its right to file a judicial claim for the refund or issuance of a
tax credit certificate of its unutilized input VAT, petitioner filed a Petition for
Review to suspend the running of the two-year prescriptive period under Section 112(D) of the 1997
NIRC and Section 4.106-2(c) of Revenue Regulations No. 7-95, as amended. On October 24, 2003,
petitioner filed a Petition for Review for the refund or issuance of a tax credit certificate in the amount of
P5,909,588.96 for the third quarter of 2001, docketed as CTA Case No. 6805 and, on January 22, 2004,
filed another Petition for Review for the refund or issuance of tax credit certificate in the amount of
P3,219,781.31 for the fourth quarter of 2001, docketed as CTA Case No. 6851, both for its unutilized
input VAT paid by petitioner on its domestic purchases of goods and services and importation of goods
attributable to zero-rated sales.
On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos. 6805 and 6851, since
these cases involve the same parties, same facts and issues. The said Motion was granted in open court on
February 27, 2004 and confirmed in a Resolution dated March 8, 2004.
x x x x
After presenting its testimonial and documentary evidence, petitioner formally offered its evidence on
February 16, 2006. On March 24, 2006, this Court promulgated a Resolution admitting all the exhibits
offered by petitioner. Respondent, on the other hand, failed to adduce any evidence.
In a Resolution dated July 6, 2006, this consolidated case was ordered submitted for decision with only
petitioners Memorandum, as respondent failed to file one within the period given by the Court.3
Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007 partially granting
Toledo Power, Inc.s (TPI) refund claim or issuance of tax credit certificate. Pertinent portions of the
Decision read:
In sum, petitioner was able to show its entitlement to the refund or issuance of tax credit certificate in the
amount of P8,553,050.44 computed as follows:
Total Available Input VAT P 9,191,947.49
Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50) 350,267.48
Substantiated available input VAT P 8,841,680.01
Less: Output VAT 62,577.22
Substantiated Unutilized Input VAT P 8,779,102.79
Multiply by the ratio of substantiated
zero-rated sales to the total zero-rated
sales

Substantiated zero-rated sales 263,300,858.02
Total zero-rated sales 270,259,752.81
Refundable Input VAT P 8,553,050.44
IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY GRANTED. Respondent is
hereby ORDERED to refund or to issue a tax credit certificate in favor of petitioner in the reduced
amount of P8,553,050.44 representing the substantiated unutilized input VAT for the third and fourth
quarters of 2001.
SO ORDERED.4
The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for Reconsideration against said
Decision. However, the same was denied in a Resolution dated October 15, 2007.
On appeal to the CTA En Banc, the CIR argued that TPI failed to comply with the invoicing requirements
to prove entitlement to the refund or issuance of tax credit certificate. In addition, he challenged the
jurisdiction of the CTA First Division to entertain respondents petition for review for failure on its part to
comply with the provisions of Section 112 (C) of the Tax Code.
In a Decision dated May 7, 2008, the CTA En Banc affirmed with modification the First Divisions
assailed decision. It held
x x x after re-examination of the records of this case, out of the alleged Zero-rated sales amounting to
P270,259,752.81, only the amount of P248,989,191.87 is fully substantiated. Therefore, respondent is
entitled to the refund or issuance of tax credit certificate in the amount of P8,088,151.07 computed as
follows:
Total Available Input VAT P 9,191,947.49
Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50) 350,267.48
Substantiated available input VAT P 8,841,680.01
Less: Output VAT 62,577.22
Substantiated Unutilized Input VAT P 8,779,102.79
Multiply by the ratio of substantiated
zero-rated sales to the total zero-rated
sales

Substantiated zero-rated sales 248,989,191.87
Total zero-rated sales 270,259,752.81
Refundable Input VAT P 8,088,151.07
WHEREFORE, premises considered, the Petition for Review En Banc is DENIED for lack of merit.
Accordingly, the Decision dated May 17, 2007 and Resolution dated October 15, 2007 are AFFIRMED
with MODIFICATION. Petitioner is hereby ORDERED TO REFUND to respondent the sum of EIGHT
MILLION EIGHTY-EIGHT THOUSAND ONE HUNDRED FIFTY-ONE PESOS AND SEVEN
CENTAVOS (P8,088,151.07) only for the third and fourth quarters of taxable year 2001.
SO ORDERED.5
In a Resolution dated July 18, 2008, the CTA En Banc denied the CIRs motion for reconsideration.
Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this Court on the following
ground:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT IS
LIABLE TO REFUND PETITIONER FOR ALLEGED OVERPAYMENT OF VAT.6
In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim for
refund or issuance of tax credit certificate: (1) whether TPI complied with the 120+30 day rule under
Section 112 (C) of the Tax Code, and (2) whether TPI sufficiently complied with the invoicing
requirements under the Tax Code.
Let us discuss the issues in seriatim.
First, it must be emphasized that to validly claim a refund or tax credit of input tax, compliance with the
120+30 day rule under Section 112 of the Tax Code is mandatory.
Pertinent portions of Section 112 of the Tax Code, as amended by Republic Act No. 9337,7 state:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally,
That for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be
allocated ratably between his zero-rated and non-zero-rated sales.
x x x x
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer 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.
Section 112 decrees that a VAT-registered person, whose sales are zero-rated or effectively zero-rated,
may apply for the issuance of a tax credit or refund creditable input tax due or paid attributable to such
sales within two years after the close of the taxable quarter when the sales were made. From the date of
submission of complete documents in support of its application, the CIR has 120 days to decide whether
or not to grant the claim for refund or issuance of tax credit certificate. In case of full or partial denial of
the claim for tax refund or tax credit, or the failure on the part of the CIR to act on the application within
the given period, the taxpayer may, within 30 days from receipt of the decision denying the claim or after
the expiration of the 120-day period, appeal with the CTA the decision or inaction of the CIR.
Recently, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation,8 (San Roque), the Court confirmed the mandatory and jurisdictional nature of the 120+30
day rule. It ratiocinated as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section 112 (C) expressly grants the Commissioner 120 days within which to decide
the taxpayers claim. The law is clear, plain and unequivocal: "x x x the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents." Following the verba legis doctrine, this law must be
applied exactly as worded since it is clear, plain and unequivocal. The taxpayer cannot simply file a
petition with the CTA without waiting for the Commissioners decision within the 120-day mandatory
and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or
"deemed a denial" decision of the Commissioner for the CTA to review. In San Roques case, it filed its
petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner.
Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone
but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or
inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the one-hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)
This law is clear, plain, and unequivocal.1avvphi1 Following the well-settled verba legis doctrine, this
law should be applied exactly as worded since it is clear, plain and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioners decision, or if the Commissioner does not act on the taxpayers claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the
120-day period.
x x x x
When Section 112 (C) states that "the taxpayer affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the
decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day
periods optional just because the law uses the word "may." The word "may" simply means that the
taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the
decision, or within 30 days from the expiration of the 120-day period. Certainly by no stretch of the
imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the
taxpayer to file a judicial claim one day after filing the administrative claim with the Commissioner.
The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioners
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted
before the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the
old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim
even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period.
With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim
for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of
the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the
120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on
10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the
120+30 day periods as mandatory and jurisdictional.9
In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit of
unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:
(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.
(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The 120-day period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year period. If the 120-day
period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIRs
decision denying the administrative claim or from the expiration of the 120-day period without
any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance
on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception
to the mandatory and jurisdictional 120+30 day periods.10
Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and January 25,
2002, respectively. It then filed an administrative claim for refund of its unutilized input VAT for the
third and fourth quarters of 2001 on September 30, 2003. Thus, the CIR had 120 days or until January 28,
2004, after the submission of TPIs administrative claim and complete documents in support of its
application, within which to decide on its claim. Then, it is only after the expiration of the 120-day period,
if there is inaction on the part of the CIR, where TPI may elevate its claim with the CTA within 30 days.
In the present case, however, it appears that TPIs judicial claims for refund of its unutilized input VAT
covering the third and fourth quarters of 2001 were prematurely filed on October 24, 2003 and January
22, 2004, respectively.
However, although TPIs judicial claim for the fourth quarter of 2001 has been filed prematurely, the
most recent pronouncements of the Court provide for a window wherein the same may be entertained.
As held in the San Roque ponencia, strict compliance with the 120+30 day mandatory and jurisdictional
periods is not necessary when the judicial claims are filed between December 10, 2003 (issuance of BIR
Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day period to expire
before it could seek judicial relief) to October 6, 2010 (promulgation of the Aichi doctrine).
Clearly, therefore, TPIs refund claim of unutilized input VAT for the third quarter of 2001 was denied
for being prematurely filed with the CTA, while its refund claim of unutilized input VAT for the fourth
quarter of 2001 may be entertained since it falls within the exception provided in the Courts most recent
rulings.
With that settled, we now resolve the issue of whether TPI sufficiently complied with the invoicing
requirements under the Tax Code with respect to the fourth quarter of 2001.
Section 113 (A), in relation to Section 237 of the Tax Code, provides:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.
(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or
receipt.1wphi1 In addition to the information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayers
identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes value-added tax.
x x x x
SEC. 237. Issuance of Receipts or Sales of Commercial Invoices. All persons subject to an internal
revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five
pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in
duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of
service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred
pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable
to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover
payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which
shall show the name, business style, if any, and address of the purchaser, customer or client: Provided,
further, That where the purchaser is a VAT-registered person, in addition to the information herein
required, the invoice or receipts shall further show the Taxpayer Identification Number (TIN) of the
purchaser.
Section 4.108-1 of Revenue Regulations No. 7-95 states:
Section 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every sale or lease of
goods or properties or services, issue duly registered receipts or sales or commercial invoices which must
show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer
or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.11
In the present case, we agree with the CTAs findings that the words "zero-rated" appeared on the VAT
invoices/official receipts presented by the TPI in support of its refund claim. Although the same was
merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting
of the word "zero-rated" was required merely to distinguish sales subject to 10% VAT, those that are
subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly
implement and enforce the other VAT provisions of the Tax Code.
Moreover, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA
which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems,
has accordingly developed an expertise on the subject, unless there has been an abuse or improvident
exercise of authority.12
In Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue,13 the Court held that it accords
the findings of fact by the CTA with the highest respect. It ruled that factual findings made by the CTA
can only be disturbed on appeal if they are supported by substantial evidence or there is a showing of
gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.14
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The
Commissioner of Internal Revenue is hereby ORDERED to refund or issue tax credit certificate in favor
of Toledo Power, Inc. only for the fourth quarter of 2001. This case is hereby REMANDED to the Court
of Tax Appeals for the proper computation of the refundable amount representing unutilized input VAT
for the fourth quarter of 2001.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
ROBERTO A. ABAD
Associate Justice
JOSE CATRAL MENDOZA
Associate Justice
I dissent consistent with my opinion in the San Roque case
MARVIC MARIO VICTOR F. LEONEN
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
PRESBITEO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

G.R. No. 197760 January 13, 2014
TEAM ENERGY CORPORATION (Formerly MIRANT PAGBILAO CORPORATION),
Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
D E C I S I O N
PERALTA, J .:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks to
reverse and set aside the May 2, 20111 and the July 15, 20112 Resolutions of the Court of Tax Appeals
(CTA) En Banc in CTA EB Case No. 706. The assailed resolutions affirmed the November 26, 2010
Amended Decision3 of the CTA Special First Division in CTA Case No. 7617, which dismissed
petitioner's claim for tax refund or issuance of a tax_ credit certificate for failure to comply with the 120-
day period provided under Section 112 (C) of the National Internal Revenue Code (NIRC).
The facts, as found by the CTA follow:
Petitioner is principally engaged in the business of power generation and subsequent sale thereof to the
National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) scheme. As such, it is
registered with the BIR as a VAT taxpayer in accordance with Section 107 of the National Internal
Revenue Code (NIRC) of 1977 (now Section 236 of the NIRC of 1997), with Tax Identification No. 001-
726-870-000, as shown on its BIR Certificate of Registration No. OCN8RC0000017854.
On December 17, 2004, petitioner filed with the BIR Audit Information, Tax Exemption and Incentives
Division an Application for VAT Zero-Rate for the supply of electricity to the NPC from January 1, 2005
to December 31, 2005, which was subsequently approved.
Petitioner filed with the BIR its Quarterly VAT Returns for the first three quarters of 2005 on April 25,
2005, July 26, 2005, and October 25, 2005, respectively. Likewise, petitioner filed its Monthly VAT
Declaration for the month of October 2005 on November 21, 2005, which was subsequently amended on
May 24, 2006. These VAT Returns reflected, among others, the following entries:
Exhibit Period
Covered
Zero-Rated
Sales/Receipts
Taxable Sales Output VAT Input VAT
"C" 1st Qtr-2005 P3,044,160,148.16 P1,397,107.80 P139,710.78 P16,803,760.82
"D" 2nd Qtr-2005 3,038,281,557.57 1,241,576.30 124,157.63 32,097,482.29
"E" 3rd Qtr-2005 3,125,371,667.08 452,411.64 45,241.16 16,937,644.73
"G"
(amended)
October
2005
910,949.50 91,094.95 14,297,363.76
Total P9,207,813,372.81 P4,002,045.24 P400,204.52 P80,136,251.60
On December 20, 2006, petitioner filed an administrative claim for cash refund or issuance of tax credit
certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the first three
quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of P80,136,251.60, citing
as legal bases Section 112 (A), in relation to Section 108 (B)(3) of the NIRC of 1997, Section 4.106-2(c)
of Revenue Regulations No. 7-95, Revenue Memorandum Circular No. 61-2005, and the case of Maceda
v. Macaraig.
Due to respondents inaction on its claim, petitioner filed the instant Petition for Review before this Court
on April 18, 2007.
In his Answer filed on May 27, 2007, respondent interposed the following Special and Affirmative
Defenses:
5. He reiterates and pleads the preceding paragraphs of this answer as part of his Special and
Affirmative Defenses.
6. Petitioners alleged claim for refund is subject to administrative investigation/examination by
respondent.
7. Taxes remitted to the BIR are presumed to have been made in the regular course of business
and in accordance with the provision of law.
8. To support its claim for refund, it is imperative for petitioner to prove the following, viz.:
a. The registration requirements of a value-added taxpayer in compliance with the
pertinent provision of the Tax Code, of 1997, as amended, and its implementing revenue
regulations;
b. The invoicing and accounting requirements for VAT-registered persons, as well as the
filing and payment of VAT in compliance with the provisions of Sections 113 and 114 of
the Tax Code of 1997, as amended;
c. Proof of compliance with the submission of complete documents in support of the
administrative claim for refund pursuant to Section 112 (D) of the Tax Code of 1997, as
amended, otherwise there would be no sufficient compliance with the filing of
administrative claim for refund which is a condition sine qua non prior to the filing of
judicial claim in accordance with the provision of Section 229 of the Tax Code, as
amended;
d. That the input taxes of P80,136,261.60 allegedly representing unutilized input VAT
from its domestic purchases of capital goods, domestic purchases of goods other than
capital goods, domestic purchases of services, services rendered by nonresidents,
importation of capital goods and importation of goods other than capital goods were:
d.i paid by petitioner;
d.ii attributable to its zero-rated sales;
d.iii used in the course of its trade or business; and
d.iv such have not been applied against any output tax;
e. That petitioners claim for tax credit or refund of the unutilized input tax (VAT) was
filed within two (2) years after the close of the taxable quarter when the sales were made
in accordance with Section 112 (A) of the Tax Code of 1997, as amended;
f. That petitioner has complied with the governing rules and regulations with reference to
recovery of tax erroneously or illegally collected as explicitly found in Sections 112 (A)
and 229 of the Tax Code, as amended.
g. Petitioner failed to prove compliance with the aforementioned requirements.
9. Furthermore, in action for refund the burden of proof is on the taxpayer to establish its right to
refund and failure to sustain the burden is fatal to the claim for refund/credit. This is so because
exemptions from taxation are highly disfavored in law and he who claims exemption must be able
to justify his claim by the clearest grant of organic or statutory law. An exemption from common
burden cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. [P.I.] v.
Llanes, 49 Phil 446, cited in Collector of Internal Revenue v. Manila Jockey Club, 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same partake the nature of
exemption from taxation.
During trial, petitioner presented documentary and testimonial evidence. Respondent, on the other hand,
waived his right to present evidence.
This case was submitted for decision on July 13, 2009, after the parties filed their respective
Memorandum.4
In a Decision5 dated July 13, 2010, the CTA Special First Division partially granted petitioners claim for
refund or issuance of tax credit certificate. It held as follows:
WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED TO REFUND or in the alternative, ISSUE A TAX CREDIT
CERTIFICATE in the amount of SEVENTY-NINE MILLION ONE HUNDRED EIGHTY-FIVE
THOUSAND SIX HUNDRED SEVENTEEN AND 33/100 PESOS (P79,185,617.33) in favor of
petitioner, representing unutilized input VAT, attributable to its effectively zero-rated sales of power
generation services to NPC for the period covering January 1, 2005 to October 31, 2005. SO ORDERED.
Disgruntled, respondent filed a Motion for Reconsideration against said decision.
On November 26, 2010, the CTA Special First Division rendered an Amended Decision granting
respondents Motion for Reconsideration. In light of this Courts ruling in Commissioner of Internal
Revenue v. Aichi Forging Company, Inc.6 (Aichi), it reversed and set aside the earlier decision of the
CTA Special First Division. Thus:
In the case at bench, petitioners administrative claim was filed on December 20, 2006 which is well
within the two-year [prescriptive] period prescribed under Section 112 (A) of the NIRC. Observing the
120-day period for the Commissioner to render a decision on the administrative claim, as required under
Section 112 (D) of the NIRC, petitioners judicial claim should have been filed not earlier than April 19,
2007. Petitioner, however, filed its judicial claim on April 18, 2007 or only 199 days from December 20,
2006, thus, prematurely filed.
Accordingly, petitioners claim for refund/credit of excess input VAT, covering the period January 1 to
October 31, 2005, warrants a dismissal for having been prematurely filed.
WHEREFORE, the Motion for Reconsideration (Re: Decision promulgated 13 July 2010) of the
respondents is hereby GRANTED. The assailed July 13, 2010 Decision is hereby REVERSED and SET
ASIDE and CTA Case No. 7617 is hereby considered DISMISSED for having been prematurely filed.
SO ORDERED.7
Petitioner then filed a Petition for Review with the CTA En Banc arguing that the requirement to exhaust
the 120-day period for respondent to act on its administrative claim for input VAT refund/credit under
Section 112 (C) of the NIRC is merely a species of the doctrine of exhaustion of administrative remedies
and is, therefore, not jurisdictional.
In a Resolution dated May 2, 2011, the CTA En Banc denied the petition for lack of merit. Its fallo reads:
WHEREFORE, premises considered, the Petition for Review is hereby DENIED DUE COURSE for lack
of merit.
Attys. Rachel P. Follosco and Froilyn P. Doyaoen-Pagayatan are hereby ADMONISHED to be more
careful in the discharge of their duty to the court as a lawyer under the Code of Professional
Responsibility.
SO ORDERED.8
Unfazed, petitioner filed a Motion for Reconsideration. However, the same was denied in a Resolution
dated July 15, 2011.
Hence, the present petition.
Petitioner invokes the following grounds to support its petition:
I.
THE CTA ACQUIRED JURISDICTION OVER THE PETITION FOR REVIEW FILED WITH AND
TRIED BY THE SPECIAL FIRST DIVISION OF THE CTA DUE TO FAILURE OF THE
RESPONDENT CIR TO INVOKE THE RULE OF NON-EXHAUSTION OF ADMINISTRATIVE
REMEDIES.
II.
THE CTA EN BANCS APPLICATION OF THE RECENT JUDICIAL INTERPRETATION OF THE
SUPREME COURT IN THE AICHI CASE TO THE INSTANT PETITION FOR REVIEW IS
ERRONEOUS BECAUSE:
A) IT VIOLATES ESTABLISHED RULES PROHIBITING RETROACTIVE
APPLICATION OF JUDICIAL DECISIONS;
B) IT WILL BE UNJUST AND INEQUITABLE TO THE PETITIONER WHO
RELIED IN GOOD FAITH ON PREVAILING JURISPRUDENCE AT THE TIME OF
INSTITUTING THE ADMINISTRATIVE AND JUDICIAL CLAIMS; AND,
C) IT WILL UNJUSTLY ENRICH THE GOVERNMENT AT THE EXPENSE OF THE
PETITIONER.9
In essence, the issue is whether or not the CTA has jurisdiction to take cognizance of the instant case.
Prefatorily, to address the issue of lack of jurisdiction, there is a need to discuss Section 112 (A) and (C)
which states:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax: x x x.
x x x x
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of complete documents in
support of the application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
From the foregoing, it is clear that a VAT-registered taxpayer claiming for refund or tax credit of their
excess and unutilized input VAT must file their administrative claim within two years from the close of
the taxable quarter when the sales were made. After that, the taxpayer must await the decision or ruling of
denial of its claim, whether full or partial, or the expiration of the 120-day period from the submission of
complete documents in support of such claim. Once the taxpayer receives the decision or ruling of denial
or expiration of the 120-day period, it may file its petition for review with the CTA within thirty (30)
days.
In the Aichi case, this Court ruled that the 120-30-day period in Section 112 (C) of the NIRC is
mandatory and its non-observance is fatal to the filing of a judicial claim with the CTA. In this case, the
Court explained that if after the 120-day mandatory period, the Commissioner of Internal Revenue (CIR)
fails to act on the application for tax refund or credit, the remedy of the taxpayer is to appeal the inaction
of the CIR to the CTA within thirty (30) days. The judicial claim, therefore, need not be filed within the
two-year prescriptive period but has to be filed within the required 30-day period after the expiration of
the 120 days. Thus:
Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission
of the complete documents in support of the application [for tax refund/credit]," within which to grant or
deny the claim. In case of full or partial denial by the CIR, the taxpayers recourse is to file an appeal
before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day
period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal
the inaction of the CIR to [the] CTA within 30 days.
x x x x
There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of the said
provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated
may, within two years after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales."
The phrase "within two years x x x apply for the issuance of a tax credit certificate or refund" refers to
applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in
the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from
the submission of complete documents in support of the application filed in accordance with Subsections
(A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the
NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or
inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1)
when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is
made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal
with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.10
(Emphasis supplied)
Recently, however, in the case of Commissioner of Internal Revenue v. San Roque Power Corporation11
(San Roque), the Court clarified that the mandatory and jurisdictional nature of the 120-30-day rule does
not apply on claims for refund that were prematurely filed during the interim period from the issuance of
Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010
when the Aichi doctrine was adopted. The exemption was premised on the fact that prior to the
promulgation of the Aichi decision, there was an existing interpretation laid down in BIR Ruling No. DA-
489-03 where the BIR expressly ruled that the taxpayer need not wait for the expiration of the 120-day
period before it could seek judicial relief with the CTA. It expounded on the matter in this wise:
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code.1wphi1 BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals, that the
expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not
acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There
are, however, two exceptions to this rule. The first exception is if the Commissioner, through a specific
ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific
ruling is applicable only to such particular taxpayer. The second exception is where the Commissioner,
through a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into
filing prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to
later on question the CTAs assumption of jurisdiction over such claim since equitable estoppel has set in
as expressly authorized under Section 246 of the Tax Code.
x x x x
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in
good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner
interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the
Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a
BIR regulation or ruling cannot adversely prejudice a taxpayer who, in good faith, relied on the BIR
regulation or ruling prior to its reversal. Section 246 provides as follows:
Section 246. Non-retroactivity of Rulings. Any modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by the taxpayers from
the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited
to a reversal only by the Commissioner because this Section expressly states, "Any revocation,
modification or reversal" without specifying who made the revocation, modification or reversal. Hence, a
reversal by this Court is covered by Section 246.
x x x x
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to
all taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query made, not
by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that
is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This
government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the Commissioner the administrative claim of Lazi
Bay Resources Development, Inc., the agency was, in fact, asking the Commissioner what to do in cases
like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse
of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.1wphi1 Thus, all taxpayers can rely
on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120-130 day periods are mandatory
and jurisdictional.12
In the present case, petitioner filed its judicial claim on April 18, 2007 or after the issuance of BIR Ruling
No. DA-489-03 on December 10, 2003 but before October 6, 2010, the date when the Aichi case was
promulgated. Thus, even though petitioner s judicial claim was prematurely filed without waiting for the
expiration of the 120-day mandatory period, the CT A may still take cognizance of the instant case as it
was filed within the period exempted from the 120-30-day mandatory period.
WHEREFORE, the foregoing considered, the instant Petition for Review on Certiorari is hereby
GRANTED. The May 2, 2011 and the July 15, 2011 Resolutions of the Court of Tax Appeals En Banc in
CTA EB Case No. 706 are REVERSED and SET ASIDE. Let this case be remanded to the Court of Tax
Appeals for the proper determination of the refundable amount.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
ROBERTO A. ABAD
Associate Justice
JOSE CATRAL MENDOZA
Associate Justice
MARVIC MARIO VICTOR F. LEONEN
Associate Justice
A T T E S T A T I O N
assigned to the writer of the opinion of the Courts Division.
PRESBITERO J. VELASCO JR.
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
MARIA LOURDES P. A. SERENO
Chief Justice

LASCONA LAND CO., INC.,
Petitioner,

- versus -

COMMISSIONER OF INTERNAL
REVENUE,

Respondent.
G.R. No. 171251

Present:

VELASCO, JR., J., Chairperson,
PERALTA,
ABAD,
VILLARAMA, JR.,* and
MENDOZA, JJ.

Promulgated:

March 5, 2012

x----------------------------------------------------------------------------------------x

D E C I S I O N

PERALTA, J .:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the reversal of the Decision1[1] dated October 25, 2005 and Resolution2[2] dated January 20,
2006 of the Court of Appeals (CA) in CA-G.R. SP No. 58061 which set aside the Decision3[3] dated
January 4, 2000 and Resolution4[4] dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A.

Case No. 5777 and declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final,
executory and demandable.
The facts, as culled from the records, are as follows:

On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No.
0000047-93-4075[5] against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged
deficiency income tax for the year 1993 in the amount of P753,266.56.

Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R.
Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8,
Makati City, in his Letter6[6] dated March 3, 1999, which reads, thus:

x x x x

Subject: LASCONA LAND CO., INC.
1993 Deficiency Income Tax

Madam,

Anent the 1993 tax case of subject taxpayer, please be informed that while we
agree with the arguments advanced in your letter protest, we regret, however, that we
cannot give due course to your request to cancel or set aside the assessment notice
issued to your client for the reason that the case was not elevated to the Court of Tax
Appeals as mandated by the provisions of the last paragraph of Section 228 of the Tax
Code. By virtue thereof, the said assessment notice has become final, executory and
demandable.

In view of the foregoing, please advise your client to pay its 1993 deficiency
income tax liability in the amount of P753,266.56.

x x x x (Emphasis ours)

On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A.
Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the

CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and
executory.

The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after
the lapse of the 180-day reglementary period provided under Section 228 of the National Internal
Revenue Code (NIRC) resulted to the finality of the assessment.

On January 4, 2000, the CTA, in its Decision,7[7] nullified the subject assessment. It held that in
cases of inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options
for the taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty
(180)-day period, or (2) wait until the Commissioner decides on his protest before he elevates the case.

The CIR moved for reconsideration. It argued that in declaring the subject assessment as final,
executory and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99
dated September 6, 1999 which reads, thus:

If the Commissioner or his duly authorized representative fails to act on the
taxpayer's protest within one hundred eighty (180) days from date of submission, by the
taxpayer, of the required documents in support of his protest, the taxpayer may appeal to
the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day
period; otherwise, the assessment shall become final, executory and demandable.

On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit.8[8]
The CTA held that Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed
out that the former spoke of an assessment becoming final, executory and demandable by reason of the
inaction by the Commissioner, while the latter referred to decisions becoming final, executory and
demandable should the taxpayer adversely affected by the decision fail to appeal before the CTA within
the prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must
prevail over the revenue regulations.

Dissatisfied, the CIR filed an appeal before the CA.9[9]

In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition
and set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It
further declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final,
executory and demandable.

Lascona moved for reconsideration, but was denied for lack of merit.

Thus, the instant petition, raising the following issues:

I
THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX
APPEALS WHICH IT RECENTLY PROMULGATED, RULED THAT AN APPEAL
FROM THE INACTION OF RESPONDENT COMMISSIONER IS NOT
MANDATORY.

II
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE
ASSESSMENT HAS BECOME FINAL AND DEMANDABLE BECAUSE,
ALLEGEDLY, THE WORD DECISION IN THE LAST PARAGRAPH OF SECTION
228 CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY TO THE
DECISION PER SE OF THE COMMISSIONER, BUT SHOULD ALSO BE
CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN
PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY
THE COMMISSIONER.10[10]

In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final,
executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty
(30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the
NIRC.

Petitioner Lascona, invoking Section 3,11[11] Rule 4 of the Revised Rules of the Court of Tax
Appeals, maintains that in case of inaction by the CIR on the protested assessment, it has the option to
either: (1) appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessment even beyond the 180-day period in which
case, the taxpayer may appeal such final decision within 30 days from the receipt of the said decision.
Corollarily, petitioner posits that when the Commissioner failed to act on its protest within the 180-day
period, it had the option to await for the final decision of the Commissioner on the protest, which it did.

The petition is meritorious.

Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of
the Commissioner on the protested assessment, to wit:

SEC. 228. Protesting of Assessment. x x x

x x x x

Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in
such form and manner as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the Court of Tax Appeals within (30)
days from receipt of the said decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise the decision shall become final, executory and demandable.
(Emphasis supplied).

Respondent, however, insists that in case of the inaction by the Commissioner on the protested
assessment within the 180-day reglementary period, petitioner should have appealed the inaction to the

CTA. Respondent maintains that due to Lascona's failure to file an appeal with the CTA after the lapse of
the 180-day period, the assessment became final and executory.

We do not agree.

In RCBC v. CIR,12[12] the Court has held that in case the Commissioner failed to act on the
disputed assessment within the 180-day period from date of submission of documents, a taxpayer can
either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such
decision.13[13]

This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of Tax
Appeals,14[14] to wit:

SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in
Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or

other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code
or other applicable law provides a specific period for action: Provided,
that in case of disputed assessments, the inaction of the
Commissioner of Internal Revenue within the one hundred eighty
day-period under Section 228 of the National Internal revenue Code
shall be deemed a denial for purposes of allowing the taxpayer to
appeal his case to the Court and does not necessarily constitute a
formal decision of the Commissioner of Internal Revenue on the tax
case; Provided, further, that should the taxpayer opt to await the
final decision of the Commissioner of Internal Revenue on the
disputed assessments beyond the one hundred eighty day-period
abovementioned, the taxpayer may appeal such final decision to the
Court under Section 3(a), Rule 8 of these Rules; and Provided, still
further, that in the case of claims for refund of taxes erroneously or
illegally collected, the taxpayer must file a petition for review with the
Court prior to the expiration of the two-year period under Section 229 of
the National Internal Revenue Code;
(Emphasis ours)

In arguing that the assessment became final and executory by the sole reason that petitioner failed
to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period,
respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just
one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the
180-day period. This is incorrect.

As early as the case of CIR v. Villa,15[15] it was already established that the word "decisions" in
paragraph 1, Section 7 of Republic Act No. 1125, quoted above, has been interpreted to mean the
decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself. We quote what this Court said aptly in a
previous case:

In the first place, we believe the respondent court erred in holding that the
assessment in question is the respondent Collector's decision or ruling appealable to it,
and that consequently, the period of thirty days prescribed by section 11 of Republic Act
No. 1125 within which petitioner should have appealed to the respondent court must be
counted from its receipt of said assessment. Where a taxpayer questions an assessment
and asks the Collector to reconsider or cancel the same because he (the taxpayer)

believes he is not liable therefor, the assessment becomes a "disputed assessment"
that the Collector must decide, and the taxpayer can appeal to the Court of Tax
Appeals only upon receipt of the decision of the Collector on the disputed
assessment, . . . 16[16]

Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the
CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day
prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to
decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final
decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the protested assessment.

It must be emphasized, however, that in case of the inaction of the CIR on the protested
assessment, while we reiterate the taxpayer has two options, either: (1) file a petition for review with
the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days after
the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the
application of the other.

Accordingly, considering that Lascona opted to await the final decision of the Commissioner on
the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition
for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of
the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments.17[17] Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its
receipt of the Letter18[18] dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was
filed within 30 days after receipt of the copy of the decision.

Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on
the protested assessment. It is imperative that the taxpayers are informed of its action in order that the
taxpayer should then at least be able to take recourse to the tax court at the opportune time. As correctly
pointed out by the tax court:

x x x to adopt the interpretation of the respondent will not only sanction inefficiency, but
will likewise condone the Bureau's inaction. This is especially true in the instant case
when despite the fact that respondent found petitioner's arguments to be in order, the
assessment will become final, executory and demandable for petitioner's failure to appeal
before us within the thirty (30) day period.19[19]

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.20[20] Thus, even as we concede the inevitability and
indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure.21[21]

WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and the
Resolution dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No. 58061 are
REVERSED and SET ASIDE. Accordingly, the Decision dated January 4, 2000 of the Court of Tax
Appeals in C.T.A. Case No. 5777 and its Resolution dated March 3, 2000 are REINSTATED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

Associate Justice
Chairperson

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.
Associate Justice Associate Justice

JOSE CATRAL MENDOZA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

Associate Justice
Third Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

Atlas consolidated mining and development corporation,
Petitioner,
- versus -
commissioner of internal revenue,
Respondent.
G.R. No. 159471
Present:
CARPIO, J., Chairperson,
PERALTA,
ABAD,
PEREZ,* and
MENDOZA, JJ.
Promulgated:
January 26, 2011
x--------------------------------------x
DECISION
PERALTA, J .:
For this Court's resolution is the Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Civil Procedure assailing the Decision[1] dated April 19, 2001 and Resolution[2] dated August 6, 2003 of
the Court of Appeals (CA).
The facts, as shown in the records, are the following:
Under Section 100 of the Tax Code of the Philippines, petitioner is a zero-rated Value Added Tax (VAT)
person for being an exporter of copper concentrates. According to petitioner, on January 20, 1994, it filed
its VAT return for the fourth quarter of 1993, showing a total input tax of P863,556,963.74 and an excess
VAT credit of P842,336,291.60 and, on January 25, 1996, it applied for a tax refund or a tax credit
certificate for the latter amount with respondent Commissioner of Internal Revenue (CIR). On the same
date, petitioner filed the same claim for refund with the Court of Tax Appeals (CTA), claiming that the
two-year prescriptive period provided for under Section 230 of the Tax Code for claiming a refund was
about to expire. The CIR failed to file his answer with the CTA; thus, the former declared the latter in
default.
On August 24, 1998, the CTA rendered its Decision[3] denying petitioner's claim for refund due to
petitioner's failure to comply with the documentary requirements prescribed under Section 16 of Revenue
Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, dated April 7, 1988. The
dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DISMISSED for lack
of merit.
SO ORDERED.[4]
Petitioner filed a Motion for Reconsideration[5] praying for the reopening of the case in order for it to
present the required documents, together with its proof of non-availment for prior and succeeding quarters
of the input VAT subject of petitioner's claim for refund. The CTA granted the motion in its
Resolution[6] dated October 29, 1998. Thereafter, in a Resolution[7] dated June 21, 2000, the CTA
denied petitioner's claim. It ruled that the action has already prescribed and that petitioner has failed to
substantiate its claim that it has not applied its alleged excess input taxes to any of its subsequent quarter's
output tax liability.
The CTA's Decision and Resolution were questioned in the CA. However, the CA affirmed in toto the
said Decision and Resolution, disposing the case as follows:
WHEREFORE, the petition is DISMISSED for lack of merit. The questioned Decision of the CTA dated
August 24, 1998 and the Resolution dated June 21, 2000 are AFFIRMED in toto.
SO ORDERED.[8]
Subsequently, petitioner's Motion for Reconsideration[9] of the CA's Decision was denied in a
Resolution[10] dated August 6, 2003.
Thus, the present petition.
Petitioner lists the following as grounds for his petition:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM FOR REFUND
HAS PRESCRIBED, DESPITE FAILURE OF RESPONDENT AND THE COURT OF TAX APPEALS
TO RAISE THE ISSUE OF PRESCRIPTION IN RESPONDENT'S ANSWER OR IN THE CTA'S
ORIGINAL DECISION DATED 16 SEPTEMBER 1998.
II
THE COURT OF APPEALS ERRED IN UPHOLDING THE COURT OF TAX APPEALS' FINDING
IN ITS DECISION DATED 24 AUGUST 1998 THAT PETITIONER, IN NOT SUBMITTING ITS
EXPORT DOCUMENTS, FAILED TO PRESENT ADEQUATE PROOF THAT ITS INPUT TAXES
ARE DIRECTLY ATTRIBUTABLE TO ITS EXPORT SALES.
III
THE COURT OF APPEALS ERRED IN UPHOLDING THE COURT OF TAX APPEALS FINDING
THAT PETITIONER FAILED TO PRESENT ADEQUATE PROOF THAT IT HAD NOT APPLIED
THE CLAIMED INPUT TAX TO ITS OUTPUT TAXES FROM PRIOR AND SUCCEEDING
QUARTERS.[11]
Petitioner herein had, in the past, similar petitions with this Court regarding the denial of its claims for tax
refund of the input VAT on its purchases of capital goods and on its zero-rated sales. In Atlas
Consolidated Mining and Development Corporation v. CIR,[12] petitioner filed with the Bureau of
Internal Revenue (BIR) its VAT Return for the first quarter of 1992 and also alleged that it filed with the
BIR the corresponding application for the refund/credit of its input VAT on its purchases of capital goods
and on its zero-rated sales in the amount of P26,030,460.00. Its application for refund/credit remained
having been unresolved by the BIR, petitioner filed with the CTA, on April 20, 1994, a Petition for
Review. Claiming to be a zero-rated VAT person, petitioner prayed that the CTA order the CIR to
refund/credit petitioner with the amount of P26,030,460.00, representing the input VAT it had paid for the
first quarter of 1992. Both, the CTA and the CA denied the claims of petitioner, ratiocinating that its
claim has been filed beyond the prescriptive period provided by law and that evidence presented was
insufficient.
In the present case, petitioner is basically asking this Court to review the factual findings of the CTA and
the CA. Petitioner insists that it had presented the necessary documents or copies thereof with the CTA
that would prove that it is entitled to a tax refund. Again, citing the earlier case of Atlas Consolidated
Mining and Development Corporation v. CIR,[13] this Court has expounded the nature and bases of
claiming tax refund, thus:
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
x x x x
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR
Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where the
principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT
Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however, shall
be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the
following documents shall be attached whenever applicable:
x x x x
3. Effectively zero-rated sale of goods and services.
i) photocopy of approved application for zero-rate if filing for the first time.
ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services
were delivered, date of delivery, amount of consideration, and description of goods or services delivered.
iii) evidence of actual receipt of goods or services.
4. Purchase of capital goods.
i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of value-added
tax paid and description of the capital equipment locally purchased.
ii) with respect to capital equipment imported, the photocopy of import entry document for internal
revenue tax purposes and the confirmation receipt issued by the Bureau of Customs for the payment of
the value-added tax.
5. In applicable cases,
where the applicants zero-rated transactions are regulated by certain government agencies, a statement
therefrom showing the amount and description of sale of goods and services, name of persons or entities
(except in case of exports) to whom the goods or services were sold, and date of transaction shall also be
submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the
value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the
period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services,
and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the
aforementioned transactions, the following formula shall be used to determine the creditable or refundable
input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
x
Total Amount of Input Taxes
= Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR,
and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition
for Review before the CTA. If the taxpayers claim is supported by voluminous documents, such as
receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by
CTA Circular No. 1-95, as amended, reproduced in full below
In the interest of speedy administration of justice, the Court hereby promulgates the following rules
governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and
vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of Court
and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well
as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and
approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts
covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent
Certified Public Accountant attesting to the correctness of the contents of the summary after making an
examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the
Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification
pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking,
identification and comparison with the originals thereof need not be done before the Court or Clerk of
Court anymore after the introduction of the summary and CPA certification. It is enough that the receipts,
invoices, vouchers or other documents covering the said accounts or payments to be introduced in
evidence must be pre-marked by the party concerned and submitted to the Court in order to be made
accessible to the adverse party who desires to check and verify the correctness of the summary and CPA
certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for
verification and comparison in case doubt on the authenticity thereof is raised during the hearing or
resolution of the formal offer of evidence.[14]
As to the evidence that must be presented, the provisions of the pertinent laws provide:
Section 106, Tax Code
Refunds or tax credits of input tax. - (a) Any VAT-registered person, whose sales are zero-rated, may,
within two (2) years after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in case of zero-rated sales under Section 100 (a) (2) (A) (I), (ii) and (b) and
Section 102 (b) (1) and (2), the acceptable foreign currency exchange proceeds thereof have been duly
accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable
or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid
cannot be directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
Section 16 of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, dated April
7, 1988
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted
together with the application. The original copy of the said invoice/receipt, however, shall be presented
for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:
1. Export Sales
i) Photocopy of export document showing the amount of export, the date and destination of the goods
exported. With respect to foreign currency denominated sale, the photocopy of the invoice or receipt
evidencing the sale of the goods, as well as the name of the person to whom the goods were delivered.
ii) Statement from the Central Bank or any of its accredited agent banks that the proceeds of the sale in
acceptable foreign currency has been inwardly remitted and accounted for in accordance with applicable
banking regulations.
x x x x
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of
value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the
period covered by the application for credit or refund.

The CTA, applying the abovementioned rules, in its Decision dated August 24, 1998, came out with the
following factual findings:
The formal offer of evidence of the petitioner failed to include photocopy of its export documents, as
required. There is no way therefore, in determining the kind of goods and actual amount of export sales it
allegedly made during the quarter involved. This finding is very crucial when we try to relate it with the
requirement of the aforementioned regulations that the input tax being claimed for refund or tax credit
must be shown to be entirely attributable to the zero-rated transaction, in this case, export sales of goods.
Without the export documents, the purchase invoice/receipts submitted by the petitioner as proof of its
input taxes cannot be verified as being directly attributable to the goods so exported.
Lastly, We cannot grant petitioner's claim for credit or refund of input taxes due to its failure to show
convincingly that the same has not been applied to any of its output tax liability as provided under Section
106 (a) of the Tax Code. There is no evidence to show that the amount herein claimed for refund when
applied for on January 25, 1996 has not been priorly or thereafter applied to its output tax liability.[15]

The above factual findings of the CTA were even bolstered when it granted petitioner's motion for
reconsideration allowing petitioner to submit the necessary documents and other pieces of evidence, so as
to comply with the requirements provided for by law. However, despite such allowance, petitioner still
failed to comply. Thus, in its Resolution[16] dated June 21, 2000, the CTA finally disposed the case by
ruling that:
The Court finds and so holds that Petitioner failed again to present proof that it has not applied the alleged
excess input taxes to any of its subsequent quarter's output tax liability. In this Court's decision dated
August 24, 1998, We already mentioned that petitioner failed to convince us that its input taxes have not
been applied to any of its output tax liability as provided under Section 106 (a). Now on its second
opportunity to substantiate its claim, Petitioner again failed to prove this particular allegation. Petitioner
merely presented in evidence the following documents to show that it has not applied the amount of
P4,534,933.74, subject of the claim, to its 1994 first quarter output tax liability, to wit:
Exhibits
1.) Output/Input VAT (Per Return) Listings T
for the first quarter of 1994
2.) Schedule of Output Taxes for the month U, U-1 to U-2
of January 1994 U-3 to U-5
3.) Schedule of Materials and Supplies for V, V-1 to V-9
for the first quarter of 1994
4.) Schedule of Output Taxes for the month W, W-1 to W-4
of February 1994
Nowhere in all the documents submitted to this Court by the Petitioner can We find its 1994 first quarter
VAT return which, to Our mind and as repeatedly ruled in a litany of cases, is necessary for purposes of
determining with particular certainty whether or not the claimed input taxes were applied to any of its
output tax liability in the first quarter or in the succeeding quarters of 1994. And there is no reason at this
point for Us to digress from this ruling.[17]

The above factual findings were affirmed and accorded respect by the CA. Nevertheless, petitioner insists
that it has submitted documents and other pieces of evidence, except those required by law, that would
establish the existence of the input VAT for the fourth quarter of 1993 and that the excess input VAT
claimed for refund or tax credit has not been applied to its output tax liability for prior and succeeding
quarters.
The above argument, however, is flawed. It must be remembered that when claiming tax refund/credit,
the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input
VAT, and the same has not been applied against its output VAT liabilities information which are
supposed to be reflected in the taxpayers VAT returns. Thus, an application for tax refund/credit must be
accompanied by copies of the taxpayers VAT return/s for the taxable quarter/s concerned.[18] The CTA
and the CA, based on their appreciation of the evidence presented, committed no error when they declared
that petitioner failed to prove that it is entitled to a tax refund and this Court, not being a trier of facts,
must defer to their findings. Again, as aptly ruled by this Court in Atlas:[19]
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is
the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals, by
way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are conclusive. This Court is not a trier of
facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence
presented.
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here
is a question of law in a given case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts."
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales
in the amount it had declared in its returns; whether all the input VAT subject of its applications for
refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input
VAT against its output VAT liabilities, are all questions of fact which could only be answered after
reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and which
this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under
Rule 45 of the Revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact under
particular circumstances, none of these exist in the instant cases. The Court of Appeals, in both cases,
found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its non-
compliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95,
as amended. It concentrated its arguments on its assertion that the substantiation requirements under
Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the
evidentiary requirements mandated by other relevant regulations.[20]

Taxation is a destructive power which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the government. And, since taxes are what
we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be
clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is
the rule, exemption therefrom is the exception.[21]
Anent the issue of prescription, wherein petitioner questions the ruling of the CA that the former's claim
for refund has prescribed, disregarding the failure of respondent Commissioner of Internal Revenue and
the CTA to raise the said issue in their answer and original decision, respectively, this Court finds the
same moot and academic. Although it may appear that the CTA only brought up the issue of prescription
in its later resolution and not in its original decision, its ruling on the merits of the application for refund,
could only imply that the issue of prescription was not the main consideration for the denial of petitioner's
claim for tax refund. Otherwise, the CTA would have just denied the application on the ground of
prescription.
WHEREFORE, the Petition is hereby DENIED for lack of merit. The Decision and Resolution of the
Court of Appeals, dated April 19, 2001 and August 6, 2003, respectively, are hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ROBERTO A. ABAD
Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice

JOSE CATRAL MENDOZA
Associate Justice

ATTESTATION
ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

REPUBLIC OF THE PHILIPPINES represented
by the COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,

- versus -

PHILIPPINE AIRLINES, INC. (PAL),
Respondent.

G.R. No. 179800

Present:

CARPIO,* J.,
CORONA, J., Chairperson,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
February 4, 2010

DECISION

PERALTA, J .:

Before this Court is a Petition for Review on Certiorari,22[1] under Rule 45 of the Revised Rules
of Court, seeking to set aside the August 9, 2007 Decision23[2] and September 17, 2007 Resolution24[3]
of the Court of Tax Appeals (CTA) En Banc, in E.B. Case No. 273 (CTA Case No. 6962).

The facts, as culled from the record by the CTA En Banc:

[Respondent Philippine Airlines] (PAL) is a corporation duly organized and
existing under and by virtue of the laws of the Republic of the Philippines. It is engaged
in the air transportation business with principal address at the 9
th
Floor, PAL Center,
Legaspi Village, Makati City.

[Petitioner] Commissioner of Internal Revenue [CIR] is the duly authorized
government official empowered, among others, to refund erroneously collected taxes
under the 1997 National Internal Revenue Code (NIRC), as amended, with office address
at the BIR National Office Building, Agham Road, Diliman, Quezon City.

To meet the exigencies of its daily business operations, [respondent] PAL availed
[of] the communication services of the Philippine Long Distance Company (PLDT). For
the period January 1, 2002 to December 31, 2002, PAL allegedly paid PLDT the 10%
[Overseas Communications Tax] OCT in the amount of P134,431.95 on its overseas
telephone calls.

On February 24, 2004, [respondent] PAL, through its AVP-Financial Planning
and Analysis Ma. Stella L. Diaz, filed with the Commissioner a claim for refund in the
amount of P134,431.95 representing the total amount of 10% OCT paid to PLDT from

January to December 2002 citing as legal bases Section 13 of Presidential Decree (P.D.)
No. 159025[4] and BIR Ruling No. 97-94 dated April 13, 1994.

Due to the Commissioners inaction on its claim for refund, PAL appealed before
the CTA on April 22, 2004. The case was raffled to the Second Division of the
CTA.26[5]

Respondent PAL argued that since it incurred negative taxable income27[6] for fiscal years 2002
and 2003 and opted for zero basic corporate income tax, which was lower than the 2% franchise tax,
respondent PAL had complied with the in lieu of all other taxes clause of Presidential Decree (P.D.)
No. 1590.28[7] Thus, it was no longer liable for all other taxes of any kind, nature, or description,
including the 10% OCT, and the erroneous payments thereof entitled it to a refund pursuant to its
franchise.29[8]

Petitioner CIR disagreed. It maintained that Section 120 of the 1997 NIRC, as amended, imposes
10% OCT on overseas dispatch, message or conversion originating from the Philippines, which includes

PLDT communication services. It further stated that respondent PAL, in order for it to be not liable for
other taxes, in this case the 10% OCT, should pay the 2% franchise tax, since it did not pay any amount as
its basic corporate income tax.30[9]

Ruling of CTA Second Division

The CTA Second Division rendered a Decision dated November 13, 2006, and ruled that
respondent PAL was not required to pay the 10% OCT and, therefore, was not entitled to the refund,
based on the in lieu of all taxes provision under Sec. 13 of P.D. No. 1590, respondent PALs franchise.

The Second Division granted respondent PALs claim for a refund of the OCT, albeit in the
reduced amount of P93,424.67.31[10] The amounts of P2,424.16 and P38,583.12 were disallowed due to
non-verification and prescription, respectively.32[11]

The Second Division reasoned that since respondent PAL chose to pay the basic corporate
income tax for January to December 2002, and given that for the same period respondent PAL incurred
zero tax liability, it was not required to pay the 2% franchise tax before it could avail itself of the in lieu
of all taxes provision under Sec. 13 of P.D. No. 1590.33[12] It emphasized that the law simply states

that PAL, in order for it to be exempt from taxes, must only choose between two alternatives under Sec.
13 of P.D. No. 1590, namely: (1) the basic corporate income tax or (2) the 2% franchise tax.34[13] And,
having chosen the first option, respondent PAL was under no obligation to pay the 2% franchise tax in
order to avail itself of the exemption.

Petitioner CIR filed a Motion for Partial Reconsideration of the Decision of the CTA Second
Division. However, the same was denied on February 7, 2007. Consequently, petitioner CIR filed a
Petition for Review with the CTA En Banc.

Ruling of the CTA En Banc

The CTA En Banc upheld the Decision of the CTA Second Division and pointed out that since
respondent PAL chose the first option, even if it incurred negative taxable income and consequently did
not pay any income tax, it could still avail itself of the exemption, and could not be held liable for the
10% OCT.35[14] The operative act, in order for it to avail itself of exemption from all other taxes under
the in lieu of all other taxes clause of its Charter, is actual exercise by respondent PAL of the option
to avail itself either of the basic corporate income tax or the 2% franchise tax, and no actual payment
is required.36[15]

Hence, the Commissioner of Internal Revenue, through the Office of the Solicitor General, filed
before this Court a Petition for Review on certiorari under Rule 45 of the Rules of Court assailing the
CTA En Banc Decision dated August 9, 2007.

Issue
The sole issue for consideration before this Court, as stated in the present petition, is:

WHETHER OR NOT RESPONDENT IS EXEMPT FROM THE PAYMENT OF
THE 10% OVERSEAS COMMUNICATIONS TAX UNDER ITS FRANCHISE,
PD 1590, AND THEREFORE, ENTITLED TO THE REFUND PRAYED
FOR.37[16]

The Courts Ruling

The petition is without merit.

Sec. 13 of P.D. No. 1590 states that:

In consideration of the franchise and rights hereby granted, the grantee shall pay
to the Philippine Government during the life of this franchise whichever of subsections
(a) and (b) hereunder will result in a lower tax:

(a) The basic corporate income tax based on the grantee's annual
net taxable income computed in accordance with the provisions of the
National Internal Revenue Code; or

(b) A franchise tax of two percent (2%) of the gross revenues
derived by the grantee from all sources, without distinction as to
transport or nontransport operations; provided, that with respect to
international air-transport service, only the gross passenger, mail, and
freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives
shall be in lieu of all other taxes, duties, royalties, registration, license,
and other fees and charges of any kind, nature, or description, imposed,
levied, established, assessed, or collected by any municipal, city,
provincial, or national authority or government agency, now or in the
future, including but not limited to the following:

x x x x

Petitioner firmly contends that the law uses the mandatory terms shall pay whichever will
result in a lower tax; and while these words clearly envision the payment of a lower tax, petitioner asserts
that they mandate payment, nonetheless. Hence, petitioner argues that since respondent PAL has not paid
taxes during the fiscal years subject of the refund, respondent PAL cannot claim exemption from paying
other taxes under the in lieu of all taxes provision.

Petitioners contention does not hold water.

It is worthy to note that the sole issue raised by petitioner in this case has already been settled in a
similar case entitled Commissioner of Internal Revenue v. Philippine Airlines,38[17] penned by then Chief
Justice Artemio Panganiban. This was the same case upon which the CTA En Banc Decision was based.

In said case, therein respondent PAL also sought the refund of the amount of P2,241,527.22,
which represented the total amount of 20% final withholding tax withheld by various withholding agent
banks for the period starting March 1995 through February 1997.39[18] Therein respondent PALs
request for a refund was also based on the in lieu of all taxes provision found under Sec. 13 of P.D.
1590.

Therein petitioner CIR argued that the "in lieu of all other taxes" proviso was a mere incentive that
applied only when therein respondent PAL actually paid something (emphasis supplied), that is, either the
basic corporate income tax or the franchise tax.40[19] Because of the zero tax liability of respondent
under the basic corporate income tax system, it was not eligible for exemption from other taxes.41[20]

Deciding in favor of therein respondent PAL, this Court enunciated:

A franchise is a legislative grant to operate a public utility. Like those of any
other statute, the ambiguous provisions of a franchise should be construed in accordance
with the intent of the legislature. In the present case, Presidential Decree 1590 granted
Philippine Airlines an option to pay the lower of two alternatives: (a) "the basic corporate
income tax based on PALs annual net taxable income computed in accordance with the
provisions of the National Internal Revenue Code" or (b) "a franchise tax of two percent
of gross revenues." Availment of either of these two alternatives shall exempt the airline
from the payment of "all other taxes," including the 20 percent final withholding tax on
bank deposits.

x x x x

A careful reading of Section 13 rebuts the argument of the CIR that the "in lieu
of all other taxes" proviso is a mere incentive that applies only when PAL actually pays
something. It is clear that PD 1590 intended to give respondent the option to avail
itself of Subsection (a) or (b) as consideration for its franchise. Either option
excludes the payment of other taxes and dues imposed or collected by the national
or the local government. PAL has the option to choose the alternative that results in
lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its
option. (Emphasis and underscoring supplied).

x x x x

The fallacy of the CIRs argument is evident from the fact that the payment of a
measly sum of one peso would suffice to exempt PAL from other taxes, whereas a zero
liability arising from its losses would not. There is no substantial distinction between a
zero tax and a one-peso tax liability.42[21]

It is clear from the foregoing that this Court had already settled the issue of whether or not there
was a need for the actual payment of tax, either the basic corporate income tax or the 2% franchise tax,

before therein respondent PAL could avail itself of the in lieu of all other taxes provision under its
Charter. This Court finds no cogent reason to deviate from the ruling in the said case.

This Court reiterates the pronouncement of the CTA that under the first option of Sec. 13 of P.D.
No. 1590, the basis for the tax rate is PALs annual net taxable income. By basing the tax rate on the
annual net taxable income, P.D. No. 1590 necessarily recognized the situation in which taxable income
may result in a negative amount and, thus, translate into a zero tax liability.43[22] In this scenario,
respondent PAL operates at a loss and no taxes are due. Consequently, the first option entails a lower tax
liability than the second option.

Lastly, petitioner contends that since P.D. No. 1590 does not provide for an exemption from the
payment of taxes, any claim of exemption from the payment thereof must be strictly construed against the
taxpayer.44[23] Said position is, however, dispelled by Commissioner of Internal Revenue v. Philippine
Airlines, where this Court ruled:
While the Court recognizes the general rule that the grant of tax exemptions is
strictly construed against the taxpayer and in favor of the taxing power, Section 13 of the
franchise of respondent leaves no room for interpretation. Its franchise exempts it
from paying any tax other than the option it chooses: either the "basic corporate
income tax" or the two percent gross revenue tax.

Determining whether this tax exemption is wise or advantageous is outside the
realm of judicial power. This matter is addressed to the sound discretion of the
lawmaking department of government.45[24]

Given the foregoing, and the fact that the 10% OCT properly falls within the purview of the all
other taxes proviso in P.D. No. 1590, this Court holds that respondent PAL is exempt from the 10%
OCT and, therefore, entitled to the refund requested.

WHEREFORE, premises considered, the petition is DENIED. The August 9, 2007 Decision and
September 17, 2007 Resolution of the Court of Tax Appeals En Banc, in E.B. Case No. 273 (CTA Case
No. 6962), are hereby AFFIRMED.

SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

RENATO C. CORONA
Associate Justice
Chairperson

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA
Associate Justice

ATTESTATION


RENATO C. CORONA
Associate Justice
Third Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Taxation

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G.R. No.

183880 January 20, 2014

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