CIR v. San Roque (G.R. No. 187485; February 12, 2013)

CASE DIGEST: COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE POWER CORPORATION. G.R. No. 187485; February 12, 2013.

FACTS: San Roque Power Corporation, Taganito Mining Corporation, and Philix Mining Corporation, are all domestic corporations having their respective line of business.The petition stemmed from the separate claims of the parties before the CIR for tax refund and/or credit. The respective petitions were decided on the basis of their filing of such within the periods prescribed by the law.

Thus, after review, the CTA En Banc rendered the following judgments:

With respect to San Roque Corporation, the CTA En Banc denied CIRs petition holding that San Roque's judicial claim was not prematurely filed.

As regards to Taganito Mining Corporation, the CTA En Banc granted the CIRs petition on the fround that Taganitos judicial claim was prematurely filed.

As to Philex Mining Corporation, the CTA En Banc denied Philexs petition on the ground that its judicial claim long after the expiration of the 120-day period.

ISSUE: Whether or not the judicial claims for tax refund or credit were filed within the mandatory period prescribed by law?

HELD: Records show that a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647.

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner to decide whether to grant or deny San Roque's application for tax refund or credit. It is indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in the statute books for more than fifteen (15) years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayers petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles.

San Roque's failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. San Roque's void petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be legitimized except when the law itself authorizes its validity. There is no law authorizing the petitions validity.

For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque's petition with the CTA is a mere scrap of paper.

The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and necessary for such claim to prosper. Well settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayers claim for tax refund or credit, whether or not the Commissioner questions the numerical correctness of the claim of the taxpayer. The 120-day period may extend beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. However, San Roque's fatal mistake is that it did not wait for the Commissioner to decide within the 120-day mandatory period. 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 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 Roque's 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. 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.

As to Taganito, it also filed its petition for review with the CTA without waiting for the 120-day period to lapse. Taganito filed a Petition for Review on 14 February 2007 with the CTA. Taganito is similarly situated as San Roque - both cannot claim being misled, misguided, or confused by the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-03 dated 10 December 2003, which expressly ruled 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. Thus, Taganito is deemed to have filed its judicial claim with the CTA on time.

With respect to Philex, it timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex still filed its administrative claim on time. The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philexs claim. Since the Commissioner did not act on Philexs claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twentysix (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial claim.

Philex did not file any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period. Theinaction of the Commissioner on Philexs claim during the 120-day period is, by express provision of law, deemed a denial of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs failure to do so rendered the deemed a denial decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or deemed a denial decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise.

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There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer 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 the creditable input tax due or paid to such sales.

In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit within two (2) years, which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit 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). The reference in Section 112(C) of the submission of documents in support of the application filed in accordance with Subsection A means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. Thus, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner.

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period.

Thus, section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C).

***

The input VAT is not excessively collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as input by another VAT-registered person in the sale of his own goods, properties, or services. The second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input VAT as credit for his own output VAT. If the input VAT is in fact excessively collected as understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of excess input VAT under Section 110(B) and Section 112(A), the input VAT is not excessively collected as understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is excessively collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an excess input VAT. The term excess input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as excessively collected under Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact excessively collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can file the judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no personality to file the judicial claim under Section 229.

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for excess input VAT is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the output VAT. This prescriptive period has no relation to the date of payment of the excess inputVAT. The excess input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for excess VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming therefund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT was excessively collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the input VAT.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the taxpayer is expressly zero-rated or effectively zero-rated under the law, like companies generating power through renewable sources of energy. Thus, a non zerorated VAT-registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his excess input VAT under the VAT System. He can only carry-over and apply his excess input VAT against his future output VAT. If such excess input VAT is an excessively collected tax, the taxpayer should be able to seek a refund or credit for such excess input VAT whether or not he has output VAT.

The VAT System does not allow such refund or credit. Such excess input VAT is not an excessively collected tax under Section 229. The excess input VAT is a correctly and properly collected tax. However, such excess input VAT can be applied against the output VAT because the VAT is a tax imposed only on the value added by the taxpayer. If the input VAT is in fact excessively collected under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT System, who can file the judicial claim under Section 229. Thus, it is clear that there must be a wrongful payment because what is paid, or part of it, is not legally due.

***

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day period.

Thus, if the taxpayer files its judicial claim before the expiration of the 120-day period, the BIR will nevertheless continue to act on the administrative claim because such premature filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still continue to evaluate the administrative claim. There is nothing new in this because even after the expiration of the 120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of opposing the taxpayers judicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayers judicial claim. The internal administrative evaluation of the taxpayers claim must necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory period,unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.

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BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made by a government agency tasked with processing tax refunds and credits, 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.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims.

This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA- 489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.

With respect to Taganito, it filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.

Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the expiration of the 120-day period.

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Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files the judicial claim after the lapse of the 60-day period, a period with which San Roque failed to comply.

Under Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional.

There can be no dispute that under Section 106(d) of the 1977 Tax

Code, as amended by RA 7716, the Commissioner has a 60-day period to act on the administrative claim.This 60-day period is mandatory and jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA

7716, but merely implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be disputed.

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that if no action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60) day period, the taxpayer may already file the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act on the claim. With the amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day period is deemed a denial of the claim. This is the meaning of the phrase but before the lapse of the two (2) year period in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only after the sixty (60) day period, this period remains mandatory and jurisdictional. Clearly,

Section 4.106-2(c) did not amend Section 106(d) but merely faithfully implemented it.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty days from the expiration of the 120- day period if the Commissioner does not act within the 120-day period. There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five years before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day period is mandatory and jurisdictional. San Roques claim, having been filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and jurisdictional period, San Roques claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the judicial claim after the lapse of the 60-day period from the filing of the administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax refund or credit. San Roque did not comply with the express condition for such statutory grant.