SECOND DIVISION

COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,

- versus -

G.R. No. 185371

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:

METRO STAR SUPERAMA, INC.,

Respondent.

December 8, 2010

x -------------------------------------------------------------------------------------- x
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the
petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the
1] September 16, 2008 Decision [1] of the Court of Tax Appeals En Banc (CTA-En
Banc), in C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution[2] denying
petitioners motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTASecond Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the
CIR which assessed respondent Metro Star Superama, Inc. (Metro Star) of deficiency
value-added tax and withholding tax for the taxable year 1999.
Based on a Joint Stipulation of Facts and Issues [3] of the parties, the CTA Second
Division summarized the factual and procedural antecedents of the case, the pertinent
portions of which read:
Petitioner is a domestic corporation duly organized and existing by
virtue of the laws of the Republic of the Philippines, x x x.
On January 26, 2001, the Regional Director of Revenue Region No.
10, Legazpi City, issued Letter of Authority No. 00006561 for Revenue

Officer Daisy G. Justiniana to examine petitioners books of accounts and

other accounting records for income tax and other internal revenue taxes
for the taxable year 1999. Said Letter of Authority was revalidated
on August 10, 2001 by Regional Director Leonardo Sacamos.
For petitioners failure to comply with several requests for the
presentation of records and Subpoena Duces Tecum, [the] OIC of BIR
Legal Division issued an Indorsement dated September 26, 2001 informing
Revenue District Officer of Revenue Region No. 67, Legazpi City to
proceed with the investigation based on the best evidence obtainable
preparatory to the issuance of assessment notice.
On November 8, 2001, Revenue District Officer Socorro O. RamosLafuente issued a Preliminary 15-day Letter, which petitioner received
on November 9, 2001. The said letter stated that a post audit review was
held and it was ascertained that there was deficiency value-added and
withholding taxes due from petitioner in the amount of P292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand
dated April 3, 2002 from Revenue District No. 67, Legazpi City, assessing
petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred
Seventy Four Pesos and Sixteen Centavos (P292,874.16.) for deficiency
value-added and withholding taxes for the taxable year 1999, computed as
follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX
Gross Sales P1,697,718.90
Output Tax P 154,338.08
Less: Input Tax
VAT Payable P 154,338.08
Add: 25% Surcharge P 38,584.54
20% Interest 79,746.49
Compromise Penalty
Late Payment P16,000.00
Failure to File VAT returns 2,400.00 18,400.00 136,731.01
TOTAL P 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92
Total Tax Due P 112,876.83
Less: Tax Withheld 111,848.27

Deficiency Withholding Tax P 1,028.56

Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00
TOTAL P 1,805.07
*Expanded Withholding Tax P1,949,334.25 x 5% 97,466.71
Film Rental 10,000.25 x 10% 1,000.00
Audit Fee 193,261.20 x 5% 9,663.00
Rental Expense 41,272.73 x 1% 412.73
Security Service 156,142.01 x 1% 1,561.42
Service Contractor P 110,103.92
Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX P 291,069.09
WITHHOLDING TAX 1,805.07
TOTAL P 292,874.16
Subsequently, Revenue District Office No. 67 sent a copy of the Final
Notice of Seizure dated May 12, 2003, which petitioner received on May
15, 2003, giving the latter last opportunity to settle its deficiency tax
liabilities within ten (10) [days] from receipt thereof, otherwise respondent
BIR shall be constrained to serve and execute the Warrants of Distraint
and/or Levy and Garnishment to enforce collection.
On February 6, 2004, petitioner received from Revenue District Office
No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12,
2003 demanding payment of deficiency value-added tax and withholding
tax payment in the amount of P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its
authorized representative, Revenue Regional Director of Revenue Region
10, Legaspi City, issued a Decision denying petitioners Motion for
Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.
x x x.

Denying that it received a Preliminary Assessment Notice (PAN) and claiming

that it was not accorded due process, Metro Star filed a petition for review[4] with the
CTA. The parties then stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as
provided under the National Internal Revenue Code and Revenue
Regulations No. 12-99 with regard to the issuance of a deficiency tax
assessment;
1.1 Whether petitioner is liable for the respective amounts
of P291,069.09 and P1,805.07 as deficiency VAT and
withholding tax for the year 1999;
1.2. Whether the assessment has become final and executory
and demandable for failure of petitioner to protest the same
within 30 days from its receipt thereof onApril 11, 2002,
pursuant to Section 228 of the National Internal Revenue
Code;
2. Whether the deficiency assessments issued by the respondent are void
for failure to state the law and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and facts on
which the assessment is made in compliance with Section 228
of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is
subject to VAT on sales of services under Section 108(A) of the National
Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable
pursuant to Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March
21, 2007, rendered a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is
hereby GRANTED. Accordingly, the assailed Decision dated February 8,
2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED
TO DESIST from collecting the subject taxes against petitioner.
The CTA-Second Division opined that [w]hile there [is] a disputable presumption
that a mailed letter [is] deemed received by the addressee in the ordinary course of
mail, a direct denial of the receipt of mail shifts the burden upon the party favored by
the presumption to prove that the mailed letter was indeed received by the addressee.

[5]

It also found that there was no clear showing that Metro Star actually received the
alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of
Demand datedApril 3, 2002, as well as the Warrant of Distraint and/or Levy dated May
12, 2003 were void, as Metro Star was denied due process. [6]
The CIR sought reconsideration[7] of the decision of the CTA-Second Division, but the
motion was denied in the latters July 24, 2007 Resolution.[8]
Aggrieved, the CIR filed a petition for review [9] with the CTA-En Banc, but the petition
was dismissed after a determination that no new matters were raised. The CTA-En
Bancdisposed:
WHEREFORE, the instant Petition for Review is hereby DENIED
DUE COURSE and DISMISSED for lack of merit. Accordingly, the March
21, 2007 Decision and July 27, 2007 Resolution of the CTA Second
Division in CTA Case No. 7169 entitled, Metro Star Superama, Inc.,
petitioner vs. Commissioner of Internal Revenue, respondent are hereby
AFFIRMED in toto. SO ORDERED.
The motion for reconsideration[10] filed by the CIR was likewise denied by the CTA-En
Banc in its November 18, 2008 Resolution.[11]
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002,
and that due process was served nonetheless because the latter received the Final
Assessment Notice (FAN), comes now before this Court with the sole issue of whether
or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the conclusions
reached by the CTA which, by the very nature of its functions, has accordingly
developed an exclusive expertise on the resolution unless there has been an abuse or
improvident exercise of authority.[12] In Barcelon, Roxas Securities, Inc. (now known as
UBP Securities, Inc.) v. Commissioner of Internal Revenue,[13] the Court wrote:
Jurisprudence has consistently shown that this Court accords the
findings of fact by the CTA with the highest respect. In Sea-Land Service
Inc. v. Court of Appeals[G.R. No. 122605, 30 April 2001, 357 SCRA 441,
445-446], this Court recognizes that the Court of Tax Appeals, which by the
very nature of its function is dedicated exclusively to the consideration of
tax problems, has necessarily developed an expertise on the subject, and
its conclusions will not be overturned unless there has been an abuse or
improvident exercise of authority. Such findings can only be disturbed on
appeal if they are not 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.
On the matter of service of a tax assessment, a further perusal of our ruling
in Barcelon is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer
denies ever having received an assessment from the BIR, it is
incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. The onus probandi was
shifted to respondent to prove by contrary evidence that the
Petitioner received the assessment in the due course of mail. The
Supreme Court has consistently held that while a mailed letter is deemed
received by the addressee in the course of mail, this is merely a disputable
presumption subject to controversion and a direct denial thereof shifts the
burden to the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee (Republic vs. Court of
Appeals, 149 SCRA 351). Thus as held by the Supreme Court in Gonzalo
P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30,
1965:
"The facts to be proved to raise this presumption are
(a) that the letter was properly addressed with postage
prepaid, and (b) that it was mailed. Once these facts are
proved, the presumption is that the letter was received by the
addressee as soon as it could have been transmitted to him in
the ordinary course of the mail. But if one of the said facts fails
to appear, the presumption does not lie. (VI, Moran, Comments
on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs.
Sunlife Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry
receipt issued by the Bureau of Posts or the Registry return card
which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located, Respondent
at the very least, should have submitted to the Court a certification
issued by the Bureau of Posts and any other pertinent document
which is executed with the intervention of the Bureau of Posts. This
Court does not put much credence to the self serving documentations
made by the BIR personnel especially if they are unsupported by
substantial evidence establishing the fact of mailing. Thus:
"While we have held that an assessment is made when
sent within the prescribed period, even if received by the

taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L12250 and L-12259, May 27, 1959), this ruling makes it the
more imperative that the release, mailing or sending of the
notice be clearly and satisfactorily proved. Mere notations made
without the taxpayers intervention, notice or control, without
adequate supporting evidence cannot suffice; otherwise, the
taxpayer would be at the mercy of the revenue offices, without
adequate protection or defense." (Nava vs. CIR, 13 SCRA 104,
January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by
the Petitioner leads to the conclusion that no assessment was issued.
Consequently, the governments right to issue an assessment for the said
period has already prescribed. (Industrial Textile Manufacturing Co. of the
Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases
supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and
present any evidence to show that Metro Star indeed received the PAN dated January
16, 2002. It could have simply presented the registry receipt or the certification from the
postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on
why it failed to comply with the requirement of service of the PAN. It merely accepted
the letter of Metro Stars chairman dated April 29, 2002, that stated that he had
received the FAN datedApril 3, 2002, but not the PAN; that he was willing to pay the tax
as computed by the CIR; and that he just wanted to clarify some matters with the hope
of lessening its tax liability.
This now leads to the question: Is the failure to strictly comply with notice
requirements prescribed under Section 228 of the National Internal Revenue Code of
1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial of due
process? Specifically, are the requirements of due process satisfied if only the FAN
stating the computation of tax liabilities and a demand to pay within the prescribed
period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax
Code which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or
his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: provided,
however, that a preassessment notice shall not be required in the following
cases:

(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on the face
of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was determined to
have carried over and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid;
or
(e) When the article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to nonexempt persons.
The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the assessment
shall be void.
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 thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.
(Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first
be informed that he is liable for deficiency taxes through the sending of a PAN.

He must be informed of the facts and the law upon which the assessment is made. The
law imposes a substantive, not merely a formal, requirement. To proceed heedlessly
with tax collection without first establishing a valid assessment is evidently violative of
the cardinal principle in administrative investigations - that taxpayers should be able to
present their case and adduce supporting evidence. [14]
This is confirmed under the provisions R.R. No. 12-99 of the BIR which
pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a
Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax
assessment:
3.1.1 Notice for informal conference. The Revenue Officer who
audited the taxpayer's records shall, among others, state in his report
whether or not the taxpayer agrees with his findings that the taxpayer is
liable for deficiency tax or taxes. If the taxpayer is not amenable, based on
the said Officer's submitted report of investigation, the taxpayer shall be
informed, in writing, by the Revenue District Office or by the Special
Investigation Division, as the case may be (in the case Revenue Regional
Offices) or by the Chief of Division concerned (in the case of the BIR
National Office) of the discrepancy or discrepancies in the taxpayer's
payment of his internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity to present
his side of the case. If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the notice for informal conference, he shall be
considered in default, in which case, the Revenue District Officer or the
Chief of the Special Investigation Division of the Revenue Regional Office,
or the Chief of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the Assessment Division
of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and
issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and
evaluation by the Assessment Division or by the Commissioner or his duly
authorized representative, as the case may be, it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency tax or
taxes, the said Office shall issue to the taxpayer, at least by registered mail,
a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based (see illustration

in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be caused to
be issued by the said Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for
informal conference and the preliminary assessment notice shall not be
required in any of the following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayer's deficiency tax liability
shall be sufficient:
(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax appearing
on the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied
the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable
year; or
(iv) When the excise tax due on excisable articles has not been
paid; or
(v) When an article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. The formal
letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and
assessment notice shall be void (see illustration in ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by

personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized
representative shall acknowledge receipt thereof in the duplicate copy of
the letter of demand, showing the following: (a) His name; (b) signature; (c)
designation and authority to act for and in behalf of the taxpayer, if
acknowledged received by a person other than the taxpayer himself; and
(d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer
to inform him of the assessment made is but part of the due process requirement in the
issuance of a deficiency tax assessment, the absence of which renders nugatory any
assessment made by the tax authorities. The use of the word shall in subsection 3.1.2
describes the mandatory nature of the service of a PAN. The persuasiveness of the
right to due process reaches both substantial and procedural rights and the failure of
the CIR to strictly comply with the requirements laid down by law and its own rules is a
denial of Metro Stars right to due process. [15] Thus, for its failure to send the PAN
stating the facts and the law on which the assessment was made as required by
Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
The case of CIR v. Menguito[16] cited by the CIR in support of its argument that
only the non-service of the FAN is fatal to the validity of an assessment, cannot apply
to this case because the issue therein was the non-compliance with the provisions of
R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No. 8424
has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIRs findings was changed in
1998 toinforming the taxpayer of not only the law, but also of the facts on which an
assessment would be made. Otherwise, the assessment itself would be invalid. [17] The
regulation then, on the other hand, simply provided that a notice be sent to the
respondent in the form prescribed, and that no consequence would ensue for failure to
comply with that form.
The Court need not belabor to discuss the matter of Metro Stars failure to file its
protest, for it is well-settled that a void assessment bears no fruit. [18]
It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law.[19] In balancing the scales between the
power of the State to tax and its inherent right to prosecute perceived transgressors of
the law on one side, and the constitutional rights of a citizen to due process of law and
the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizens right is amply protected by the Bill of Rights under the

Constitution. Thus, while taxes are the lifeblood of the government, the power to tax
has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v.
Algue, Inc.,[20] it was said
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.
xxx xxx xxx
It is said that taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for the lack of the motive power
to activate and operate it. Hence, despite the natural reluctance to
surrender part of ones hard-earned income to taxing authorities, every
person who is able to must contribute his share in the running of the
government. The government for its part is expected to respond in the form
of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in the seat of
power.
But 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. If it is not, then the taxpayer has a right to complain and the
courts will then come to his succor. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can
demonstrate x x x that the law has not been observed.[21] (Emphasis
supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
LASCONA LAND CO., INC.,
Petitioner,

- versus -

THIRD DIVISION
G.R. No. 171251
Present:
VELASCO, JR., J., Chairperson,
PERALTA,
ABAD,
VILLARAMA, JR.,* and
MENDOZA, JJ.

COMMISSIONER OF INTERNAL REVENUE, Promulgated:

Respondent.

March 5, 2012

x----------------------------------------------------------------------------------------x
DECISION
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 Decision [1] dated October 25, 2005 and
Resolution[2]dated January 20, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
58061 which set aside the Decision [3] dated January 4, 2000 and Resolution [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. 0000047-93-407[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 Letter[6] dated March 3, 1999,
which reads, thus:
xxxx
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 180day 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] 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] 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]
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]

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

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]
Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its
receipt of the Letter[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]

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] 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]
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.

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION
COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,

G.R. No. 184823

Present:

- versus -

CORONA, C. J., Chairperson,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

AICHI FORGING COMPANY OF

ASIA, INC.,
Promulgated:
Respondent.
October 6, 2010
x-------------------------------------------------------------------x

DECISION
DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right,
privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes
erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as non-observance of the prescriptive
periods within which to file the administrative and the judicial claims would result in the denial of his
claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside
the July 30, 2008 Decision[1] and the October 6, 2008 Resolution[2] of the Court of Tax Appeals
(CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, is engaged in the manufacturing, producing, and
processing of steel and its by-products.[3] It is registered with the Bureau of Internal Revenue (BIR) as a
Value-Added Tax (VAT) entity[4] and its products, close impression die steel forgings and tool and dies,
are registered with the Board of Investments (BOI) as a pioneer status.[5]
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period
July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner
Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center.[6]
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review[7] with the CTA for the refund/credit of the
same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division
of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30,
2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00,[8]which was paid
pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997
(NIRC);[9] that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from
purchases and importation attributable to its zero-rated sales; [10] and that in its application for
refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center,
it only claimed the amount of P3,891,123.82.[11]
In response, petitioner filed his Answer[12] raising the following special and affirmative defenses,
to wit:

4.
5.

Petitioners alleged claim for refund is subject to administrative investigation by the

Bureau;
Petitioner must prove that it paid VAT input taxes for the period in question;

6.

Petitioner must prove that its sales are export sales contemplated under Sections
106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;

7.

Petitioner must prove that the claim was filed within the two (2) year period
prescribed in Section 229 of the Tax Code;

8.

In an action for refund, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund; and

9.

Claims for refund are construed strictly against the claimant for the same partake of
the nature of exemption from taxation.[13]

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a
Decision partially granting respondents claim for refund/credit. Pertinent portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund,
Section 112 (A) of the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output tax: x x x

Pursuant to the above provision, petitioner must comply with the following requisites:
(1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the
taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the
taxable quarter when such sales were made; and (4) the creditable input tax due or paid must
be attributable to such sales, except the transitional input tax, to the extent that such input tax
has not been applied against the output tax.
The Court finds that the first three requirements have been complied [with] by
petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the
Sales Invoices (Exhibits II to II-262, JJ to JJ-431, KK to KK-394 and LL) shows that it is
engaged in sales which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration
with OCN 1RC0000148499 (Exhibit C) with the BIR proves that petitioner is a registered
VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for
refund on September 30, 2004 (Exhibit N) and the present Petition for Review on September
30, 2004, both within the two (2) year prescriptive period from the close of the taxable
quarter when the sales were made, which is from September 30, 2002.
As regards, the fourth requirement, the Court finds that there are some documents and
claims of petitioner that are baseless and have not been satisfactorily substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a
tax credit certificate representing unutilized excess input VAT payments for the period July 1,
2002 to September 30, 2002, which are attributable to its zero-rated sales for the same
period, but in the reduced amount of P3,239,119.25, computed as follows:
Amount of Claimed Input VAT
Less:
Exceptions as found by the ICPA
Net Creditable Input VAT
Less:
Output VAT Due
Excess Creditable Input VAT

P 3,891,123.82
41,020.37
P 3,850,103.45
610,984.20
P 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY

GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A
TAX CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE
MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED
NINETEEN AND 25/100 PESOS (P3,239,119.25), representing the unutilized input VAT
incurred for the months of July to September 2002. SO ORDERED.[14]

Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,[15] insisting that the administrative and the judicial claims were filed beyond the twoyear period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He
reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on
September 30, 2004 was beyond the two-year period, which expired on September 29, 2004. [16] He
cited as basis Article 13 of the Civil Code, [17] which provides that when the law speaks of a year, it is
equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative
and the judicial claims contravenes Sections 112 and 229 of the NIRC.[18] According to the petitioner, a
prior filing of an administrative claim is a condition precedent [19] before a judicial claim can be
filed. He explained that the rationale of such requirement rests not only on the doctrine of exhaustion of

administrative remedies but also on the fact that the CTA is an appellate body which exercises the
power of judicial review over administrative actions of the BIR. [20]
The Second Division of the CTA, however, denied petitioners Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a
Petition for Review.[21]
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision allowing the
partial tax refund/credit in favor of respondent. However, as to the reckoning point for counting the
two-year period, the CTA En Banc ruled:
Petitioner argues that the administrative and judicial claims were filed beyond the
period allowed by law and hence, the honorable Court has no jurisdiction over the same. In
addition, petitioner further contends that respondent's filing of the administrative and judicial
[claims] effectively eliminates the authority of the honorable Court to exercise jurisdiction
over the judicial claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days
following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That
VAT-registered persons shall pay the value-added tax on a monthly basis.

[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the
close of each taxable quarter within which to file a quarterly return of the amount of his gross
sales or receipts. In the case at bar, the taxable quarter involved was for the period of July 1,
2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, respondent has until
October 25, 2002 within which to file its quarterly return for its gross sales or receipts [with]
which it complied when it filed its VAT Quarterly Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of
the 1997 NIRC should start from the payment of tax subject claim for refund. As stated
above, respondent filed its VAT Return for the taxable third quarter of 2002 on October 20,
2002. Thus, respondent's administrative and judicial claims for refund filed on September
30, 2004 were filed on time because AICHI has untilOctober 20, 2004 within which to file
its claim for refund.

In addition, We do not agree with the petitioner's contention that the 1997 NIRC
requires the previous filing of an administrative claim for refund prior to the judicial claim.
This should not be the case as the law does not prohibit the simultaneous filing of the
administrative and judicial claims for refund. What is controlling is that both claims for
refund must be filed within the two-year prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and
conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008
Resolution of the CTA Second Division. What the instant petition seeks is for the Court En
Banc to view and appreciate the evidence in their own perspective of things, which
unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE
and DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March
13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, AICHI
Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent
are hereby AFFIRMED in toto. SO ORDERED.[22]

Petitioner sought reconsideration but the CTA En Banc denied[23] his Motion for
Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether respondents judicial
and administrative claims for tax refund/credit were filed within the two-yearprescriptive
period provided in Sections 112(A) and 229 of the NIRC.[24]
Petitioners Arguments
Petitioner maintains that respondents administrative and judicial claims for tax refund/credit were filed
in violation of Sections 112(A) and 229 of the NIRC. [25] He posits that pursuant to Article 13 of the
Civil Code,[26] since the year 2004 was a leap year, the filing of the claim for tax refund/credit
on September 30, 2004 was beyond the two-year period, which expired onSeptember 29, 2004.[27]
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in
determining the start of the two-year period as the said provision pertains to the compliance
requirements in the payment of VAT.[28] He asserts that it is Section 112, paragraph (A), of the same
Code that should apply because it specifically provides for the period within which a claim for tax
refund/ credit should be made.[29]

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial
claim with the CTA were filed on the same day.[30] He opines that the simultaneous filing of the
administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior
filing of an administrative claim.[31] He insists that such procedural requirement is based on the doctrine
of exhaustion of administrative remedies and the fact that the CTA is an appellate body exercising
judicial review over administrative actions of the CIR.[32]
Respondents Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the
period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially complied
with all the requirements provided by law.[33] Respondent likewise defends the CTA En Banc in
applying Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax
refund/credit. Respondent believes that Section 112(A) of the NIRC must be read together with
Section 114(A) of the same Code.[34]
As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that
it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the DOF before it filed a judicial claim with the CTA.[35] To prove this, respondent
points out that its Claimant Information Sheet No. 49702 [36] and BIR Form No. 1914 for the third
quarter of 2002,[37] which were filed with the DOF, were attached as Annexes M and N, respectively, to
the Petition for Review filed with the CTA.[38] Respondent further contends that the non-observance of
the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not
fatal because what is important is that both claims are filed within the two-year prescriptive period.
[39]
In support thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.
[40]
where it was ruled that [i]f, however, the [CIR] takes time in deciding the claim, and the period of
two years is about to end, the suit or proceeding must be started in the [CTA] before the end of the twoyear period without awaiting the decision of the [CIR].[41] Lastly, respondent argues that even if the
period had already lapsed, it may be suspended for reasons of equity considering that it is not a
jurisdictional requirement.[42]
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two years
after the close of the taxable quarter when the sales were
made
In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the
Second Division of the CTA applied Section 112(A) of the NIRC, which states:

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC,
which read:
SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for each
taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on
a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236,
shall file a return and pay the tax due thereon within twenty-five (25) days from the date of
cancellation of registration: Provided, That only one consolidated return shall be filed by the
taxpayer for his principal place of business or head office and all branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner may, even
without written claim therefor, refund or credit any tax, where on the face of the return upon

which payment was made, such payment appears clearly to have been erroneously
paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for
refund/credit of unutilized input VAT should start from the date of payment of tax and not from the
close of the taxable quarter when the sales were made.[43]
The pivotal question of when to reckon the running of the two-year prescriptive period, however, has
already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,[44] where
we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the
two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229
of the NIRC are inapplicable as both provisions apply only to instances of erroneous payment or illegal
collection of internal revenue taxes.[45] We explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain
terms that unutilized input VAT payments not otherwise used for any internal revenue
tax due the taxpayer must be claimed within two years reckoned from the close of the
taxable quarter when the relevant sales were made pertaining to the input VAT
regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it
erroneously applied the aforequoted Sec. 112 (A), [P]rescriptive period commences from the
close of the taxable quarter when the sales were made and not from the time the input VAT
was paid nor from the time the official receipt was issued. Thus, when a zero-rated VAT
taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a
year to file a claim for refund or tax credit of the unutilized creditable input VAT. The
reckoning frame would always be the end of the quarter when the pertinent sales or
transaction was made, regardless when the input VAT was paid. Be that as it may, and given
that the last creditable input VAT due for the period covering the progress billing of
September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for
unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for
refund or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of
the NIRC which, for the purpose of refund, prescribes a different starting point for the twoyear prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively
provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. The Commissioner may
xxxx

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good condition by
the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the tax or penalty: Provided, however,
That a return filed showing an overpayment shall be considered as a written claim for credit or
refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty,
or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that may arise
after payment: Provided, however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid.

Notably, the above provisions also set a two-year prescriptive period, reckoned from
date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably
too, both provisions apply only to instances of erroneous payment or illegal collection of
internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax
which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties,
or services of the taxpayer. The fact that the subsequent sale or transaction involves a whollytax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not,
standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input
VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.
xxxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC,
providing a two-year prescriptive period reckoned from the close of the taxable
quarter when the relevant sales or transactions were made pertaining to the creditable
input VAT, applies to the instant case, and not to the other actions which refer to
erroneous payment of taxes.[46] (Emphasis supplied.)

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229
of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized

input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input
VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the
sales were made.
The administrative claim was timely filed
Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely
filed.
Relying on Article 13 of the Civil Code,[47] which provides that a year is equivalent to 365 days,
and taking into account the fact that the year 2004 was a leap year, petitioner submits that the two-year
period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired
on September 29, 2004.[48]
We do not agree.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,[49] we said that as
between the Civil Code, which provides that a year is equivalent to 365 days, and theAdministrative
Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must
prevail following the legal maxim, Lex posteriori derogat priori.[50] Thus:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the computation of legal
periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or
a leap year. Under the Administrative Code of 1987, however, a year is composed of 12
calendar months. Needless to state, under the Administrative Code of 1987, the number of
days is irrelevant.
There obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code of 1987. For this
reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987,
being the more recent law, governs the computation of legal periods. Lex posteriori derogat
priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this
case, the two-year prescriptive period (reckoned from the time respondent filed its final
adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows:
Year 1 1st calendar month
2nd calendar month
3rd calendar month
4th calendar month
5th calendar month
6th calendar month
7th calendar month
8th calendar month
9th calendar month

April 15, 1998 to May 14, 1998

May 15, 1998 to June 14, 1998
June 15, 1998 to July 14, 1998
July 15, 1998 to August 14, 1998
August 15, 1998 to September 14, 1998
September 15, 1998 to October 14, 1998
October 15, 1998 to November 14, 1998
November 15, 1998 to December 14, 1998
December 15, 1998 to January 14, 1999

10th calendar month

11th calendar month
12th calendar month
Year 2 13th calendar month
14th calendar month
15th calendar month
16th calendar month
17th calendar month
18th calendar month
19th calendar month
20th calendar month
21st calendar month
22nd calendar month
23rd calendar month
24th calendar month

January 15, 1999 to February 14, 1999

February 15, 1999 to March 14, 1999
March 15, 1999 to April 14, 1999
April 15, 1999 to May 14, 1999
May 15, 1999 to June 14, 1999
June 15, 1999 to July 14, 1999
July 15, 1999 to August 14, 1999
August 15, 1999 to September 14, 1999
September 15, 1999 to October 14, 1999
October 15, 1999 to November 14, 1999
November 15, 1999 to December 14, 1999
December 15, 1999 to January 14, 2000
January 15, 2000 to February 14, 2000
February 15, 2000 to March 14, 2000
March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the
last day of the 24th calendar month from the day respondent filed its final adjusted
return. Hence, it was filed within the reglementary period.[51]

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the
period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondents
administrative claim was timely filed.
The filing of the judicial claim was premature
However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondents claim for tax refund/credit for having been filed in violation of
Section 112(D) of the NIRC, which provides that:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) and
(B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the 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. (Emphasis supplied.)

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 CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on September
30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day
period. For this reason, we find the filing of the judicial claim with the CTA premature.
Respondents assertion that the non-observance of the 120-day period is not fatal to the filing of a
judicial claim as long as both the administrative and the judicial claims are filed within the two-year
prescriptive period[52] has no legal basis.
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 zerorated may, within two years after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales. The phrase within two (2) years x x x apply for the issuance of a tax credit certificate or
refund refers to applications for refund/credit filed with the CIR and not to appeals made to the
CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states that
the CIR has 120 days from the submission of complete documents in support of the application filed
in accordance with Subsections (A) and (B) within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of
the NIRC, which already provides for a specific period within which a taxpayer should appeal the
decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2)
when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within
which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.[53] relied upon
by respondent, we find the same inapplicable as the tax provision involved in that case is Section
306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to
refunds/credits of input VAT, such as the instant case.
In fine, the premature filing of respondents claim for refund/credit of input VAT before the CTA
warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and
the October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED andSET

ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for
having been prematurely filed.
SO ORDERED.