Team Energy Corporation (formerly Mirant Pagbilao Corporation)

G.R. No. 230412, March 27, 2019.

Second Division
J. REYES, JR., J.:
Lessons Applicable: VAT tax refund, judicial claim,
Laws Applicable: Section 108(B)(3) of NIRC, Section 4.108-1 of Revenue Regulations No.
7-95 (Consolidated Value Added Tax Regulations)

FACTS:
 Team Energy Corporation (TEC) (formerly Mirant Pagbilao Corporation) is
principally engaged in the business of power generation and the subsequent sale
thereof to the National Power Corporation (NPC) under a Build, Operate,
Transfer Scheme.  It is also a VAT taxpayer.
 December 17, 2004: TEC filed with the BIR Audit Information, Tax Exemption
and Incentives Division an Application for Effective Zero-Rate for the supply of
electricity to the NPC for the period January 1, 2005 to December 31, 2005,
which was subsequently approved.
 December 20, 2006: TEC filed an administrative claim for cash refund or
issuance of tax credit certificate corresponding to the input VAT reported in its
Quarterly VAT Returns for the 1st 3 quarters of 2005 and Monthly VAT
Declaration for October 2005 in the amount of P80,136,251.60
 April 18, 2007: Due to inaction on its claim, TEC filed a Petition for Review before
the CTA in Division
 CTA in Division on July 13, 2010: Partially granted ordered to refund or in the
alternative, issue a tax credit certificate in the amount of P79,185,617.33
representing unutilized input VAT, attributable to its effectively zero-rated sales of
power generation services to NPC for the period covering January 1, 2005 to
October 31, 2005.
 Court in Division: Granted CIR’s Motion for Reconsideration, reversed and set
aside the Decision dated July 13, 2010, and dismissed the Petition for Review for
having been filed prematurely
 CTA En Banc: denied the Petition for Review for lack of merit and denied tis MR
 Supreme Court 3rd Division: Granted Motion to Admit Attached Petition for
Review on Certiorari and granted the Certiorari remanded to the Court of Tax
Appeals for the proper determination of the refundable amount.  It became final
and executory on March 10, 2014 and was recorded in the Book of Entries of
Judgments.
 January 9, 2015: CIR filed a Manifestation with Motion for Reinstatement of the
July 13, 2010 Decision of the Court of Tax Appeals
 CTA En Banc: Petition for Review is denied.
 CIR filed a petition for review on certiorari
ISSUES: 
1.    W/N the Certificate of Compliance (COC) issued by the Energy Regulation Commission
(ERC) is indispensable in claiming a tax refund or tax credit.
2.    W/N judicial claim was prematurely filed for its failure to exhaust administrative
remedies when it failed to submit complete supporting documents for its administrative
claim
HELD:  Petition is denied.
1.    Yes.  But, considering that Team Energy's refund claim is premised on Section 108(B)
(3) of the 1997 NIRC, in relation to Section 13 of the NPC Charter, as amended by Section
10 of P.D. No. 938, the requirements under the EPIRA are inapplicable. To qualify its
electricity sale to NPC as zero-rated, Team Energy needs only to show that it is a VAT-
registered entity and that it has complied with the invoicing requirements under Section
108(B)(3) of the 1997 NIRC, in conjunction with Section 4,.108-1 of Revenue Regulations
No. 7-95.

 CIR v. Toledo Power Company (G.R. No. 196415, December 02, 2015)
 requirements of the EPIRA must be complied with only if the claim for
refund is based on EPIRA
 Section 6 of the EPIRA provides that the sale of generated power by
generation companies shall be zero-rated. Section 4 (x) of the same law
states that a generation company "refers to any person or entity
authorized by the ERC to operate facilities used in the generation of
electricity." Corollarily, to be entitled to a refund or credit of unutilized input
VAT attributable to the sale of electricity under the EPIRA, a taxpayer
must establish: (1) that it is a generation company, and (2) that it derived
sales from power generation.
 Team Energy Corporation v. CIR (G.R. Nos. 197663 and 197770, March 14,
2018)
 CIR that Team Energy is not entitled to tax refund or tax credit because it
cannot qualify for VAT zero-rating for its failure to submit its ERC
Registration and COC required under the EPIRA.
 Effective zero-rating was intended to relieve the exempt entity from being
burdened with the indirect tax which is or which will be shifted to it had there
been no exemption. In this case, respondent is being exempted from paying VAT
on its purchases to relieve NPC of the burden of additional costs that respondent
may shift to NPC by adding to the cost of the electricity sold to the latter.
2.    No.  There is no showing that the CIR sent a written notice requiring respondent to
submit additional documents — a process that is indispensable in computing the 120+30
day period.

 Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue (GR No. 207112,
December 08, 2015)
 To summarize, for the just disposition of the subject controversy, the rule
is that from the date an administrative claim for excess unutilized VAT is
filed, a taxpayer has thirty (30) days within which to submit the
documentary requirements sufficient to support his claim, unless given
further extension by the CIR. Then, upon filing by the taxpayer of his
complete documents to support his application, or expiration of the period
given, the CIR has 120 days within which to decide the claim for tax credit
or refund. Should the taxpayer, on the date of his filing, manifest that he
no longer wishes to submit any other addition documents to complete his
administrative claim, the 120-day period allowed to the CIR begins to run
from the date of filing. 
CONTEX V CIR

Court of Appeals... reversed and set aside the decision

CTA... ordered

CIR... to refund the sum of P683,061.90 to petitioner as erroneously paid input

value-added tax (VAT) or in the alternative, to issue a tax credit certificate for
said amount.

Petitioner is a domestic corporation engaged in... manufacturing hospital textiles

and garments... for export.

place of business is at the Subic Bay Freeport Zone (SBFZ).

It is duly registered with the Subic Bay

Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise... is exempt

from all local and national internal revenue taxes except for the preferential tax...
provided for in Section 12 (c)... of Rep. Act No. 7227.

Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-
VAT taxpayer... petitioner purchased various supplies... necessary in the conduct
of its manufacturing business.

The suppliers of these goods shifted unto petitioner the 10% VAT... which led the
petitioner to... pay input taxes... on the belief that it was exempt... petitioner filed
two applications for tax refund or tax credit of the VAT it paid.

Petitioner stressed that Section 112(A)... if read in relation to

Section 106(A)(2)(a)... ational Internal Revenue Code... as amended and Section

12(b)... and (c) of Rep. Act No. 7227 would show that it was not liable in any way
for any value-added tax.

In opposing the claim

BIR asked the CTA to apply the rule that claims for refund are strictly construed
against the taxpayer.

petitioner failed to establish both its right to a tax refund or tax credit... its claim
should be denied
CTA decided... partial refund... petitioner misread Sections 106(A)(2)(a) and
112(A) of the Tax Code... provisions apply only to those entities registered as VAT
taxpayers whose sales are zero-rated.

since it is a non-VAT taxpayer as evidenced by the Certificate of Registration

RDO... thus it is exempt from VAT

CTA held that the petitioner is exempt from the imposition of input VAT on its
purchases of supplies and materials.

all that petitioner is required to pay as a SBFZ-registered enterprise is a 5%

preferential tax.

The tax court also limited the refund only to the input VAT paid by the petitioner
on the... supplies and materials directly used by the petitioner in the manufacture
of its goods.

CIR then filed a petition... by the Court of Appeal... that the exemption... was
limited only to direct taxes and not to indirect taxes such... as the input
component of the VAT.

the value-added tax is a burden passed on by a VAT registered person to the end
users; hence, the direct liability for the tax lies with the suppliers and not Contex.

Court of Appeals held that the exemption from duties and taxes on the
importation of raw materials, capital, and equipment of SBFZ-registered
enterprises under Rep. Act No. 7227 and its implementing rules covers only "the
VAT imposable under Section 107... of the [Tax Code], which is a direct liability of
the importer, and in no way includes the value-added tax of the seller-exporter
the burden of which was passed on to the importer as an additional costs of the
goods."

Issues:

(1) the correctness of the finding of the Court of Appeals that the VAT
exemption embodied in Rep. Act No. 7227 does not apply to petitioner
as a purchaser; and (2) the entitlement of the petitioner to a tax refund... on its
purchases of supplies and raw materials for 1997 and 1998.

Ruling:
first issue,... petitioner... ontends that the provisions... clearly and unambiguously
mandate that no local and national taxes shall be imposed upon SBFZ-registered
firms... respondent... opposi... uch grant is not all-encompassing but is limited
only to those taxes for which a SBFZ-registered business may be directly liable.

it must be stressed that the VAT is an indirect tax. As such, the amount of tax
paid on the goods, properties or services bought, transferred, or leased may be
shifted or passed on by the seller, transferor, or lessor to the buyer, transferee
or... lessee.

Unlike a direct tax, such as the income tax, which primarily taxes an individual's
ability to pay based on his income or net wealth, an indirect tax, such as the VAT,
is a tax on consumption of goods, services, or certain transactions involving... the
same. The VAT, thus, forms a substantial portion of consumer expenditures.

in indirect taxation, there is a need to distinguish between the liability for the tax
and the burden of the tax.

As earlier pointed out, the amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not... the liability for
the tax, but the tax burden. In adding or including the VAT due to the selling
price, the seller remains the person primarily and legally liable for the payment of
the tax. What is shifted only to the intermediate buyer and ultimately to the
final... purchaser is the burden of the tax.

a seller who is directly and legally liable for payment of an indirect tax, such as
the VAT on goods or services is not necessarily the person who ultimately bears
the burden of the same tax.

It is the final purchaser or consumer of such goods or services who, although not
directly and legally liable for the payment thereof, ultimately bears the burden of
the tax.

Under Zero-rating, all VAT is removed from the zero-rated goods, activity or
firm. In contrast, exemption only removes the VAT at the exempt stage, and it
will actually increase, rather than reduce the total taxes paid by the exempt firm's
business or non-retail... customers.

petitioner rightly claims that it is indeed VAT-Exempt and this fact is not
controverted by the respondent.
however, for exemption from VAT for its purchases of supplies and raw materials
is incongruous with its claim that it is VAT-Exempt, for only VAT-Registered
entities can claim Input VAT Credit/Refund.

While it is true that the petitioner should not have been liable for the VAT
inadvertently passed on to it by its supplier since such is a zero-rated sale on the
part of the supplier, the petitioner is not the proper party to claim such VAT
refund.

Section 4.100-2 of BIR's Revenue Regulations 7-95, as amended, or the

"Consolidated Value-Added Tax Regulations" provide:

Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-registered person,

which is a taxable transaction for VAT purposes, shall not result in any output
tax. However, the input tax on his purchases of goods, properties or services
related to... such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations.

The following sales by VAT-registered persons shall be subject to 0%:

(a) Export Sales

"Export Sales" shall mean

(5) Those considered export sales under Articles 23 and 77 of Executive Order
No. 226, otherwise known as the Omnibus Investments Code of 1987, and other
special laws, e.g. Republic Act No. 7227, otherwise known as the Bases
Conversion and Development Act... of 1992.

...

(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No.
7227 duly registered and accredited enterprises with Subic Bay Metropolitan
Authority (SBMA) and Clark Development Authority (CDA), R. A. No. 7916,
Philippine Economic Zone Authority (PEZA),... or international agreements, e.g.
Asian Development Bank (ADB), International Rice Research Institute (IRRI),
etc. to which the Philippines is a signatory effectively subject such sales to zero-
rate."

Since the transaction is deemed a zero-rated sale, petitioner's supplier may claim
an Input VAT credit with no corresponding Output VAT liability. Congruently, no
Output VAT may be passed on to the petitioner.
second issue... the petitioner is registered as a NON-VAT taxpayer and thus, is
exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on
VAT (input tax) previously paid.

even... if... exemption from the burden of VAT on petitioner's purchases did exist,
petitioner is still not entitled to any tax credit or refund on the input tax
previously paid as petitioner is an exempt VAT taxpayer.

Rather, it is the petitioner's suppliers who are the proper parties to claim the tax
credit and accordingly refund the petitioner of the VAT erroneously passed on to
the latter.

Court of Appeals did not commit any reversible error of law in holding that
petitioner's VAT exemption... s limited to the VAT on which it is directly liable as
a seller and hence, it cannot claim any refund or exemption for... any input VAT it
paid, if any, on its purchases of raw materials and supplies.

Principles:

Exemptions from VAT are granted by express provision of the Tax Code or special
laws. Under VAT, the transaction can have preferential treatment in the
following ways:

(a) VAT Exemption. An exemption means that the sale of goods or properties
and/or services and the use or lease of properties is not subject to VAT (output
tax) and the seller is not allowed any tax credit on VAT (input tax) previously...
paid.[20] This is a case wherein the VAT is removed at the exempt stage (i.e., at
the point of the sale, barter or exchange of the goods or properties).

The person making the exempt sale of goods, properties or services shall not bill
any output tax to his customers because the said transaction is not subject to
VAT. On the other hand, a VAT-registered purchaser of VAT-exempt
goods/properties or services which are exempt... from VAT is not entitled to any
input tax on such purchase despite the issuance of a VAT invoice or receipt.[21]

(b) Zero-rated Sales. These are sales by VAT-registered persons which are
subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A
zero-rated sale by a VAT-registered person, which is a taxable transaction for
VAT purposes,... shall not result in any output tax. However, the input tax on his
purchases of goods, properties or services related to such zero-rated sale shall be
available as tax credit or refund in accordance with these regulations.
CASE DIGEST: [ G.R. No. 212735, December 05, 2018 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
NEGROS CONSOLIDATED FARMERS MULTI-PURPOSE
COOPERATIVE, RESPONDENT. DECISION. TIJAM, J.:

FACTS: Negros Consolidated Farmers Multi-Purpose Cooperative (COFA) is a

multi-purpose agricultural cooperative organized under Republic Act (RA) No.
6938.

COFA's farmer-members deliver the sugarcane produce to be milled and

processed in COFA's name with the sugar mill/refinery. Before the refined sugar
is released by the sugar mill, however, an Authorization Allowing the Release of
Refined Sugar (AARRS) from the BIR is required from COFA. For several
instances, upon COFA's application, the BIR issued the AARRS without
requiring COFA to pay advance VAT pursuant to COFA's tax
exemption under Section 61 of RA 6938 and Section 109(r) (now under
Section 109[L]) of RA No. 8424, as amended by RA No. 9337. As such, COFA was
issued Certificates of Tax Exemption dated May 24, 1999 and April 23, 2003 by
the BIR.

However, from February 3, 2009, the BIR, through the Regional Director of
Region 12-Bacolod City, required as a condition for the issuance of the AARRS
the payment of "advance VAT" on the premise that COFA, as an agricultural
cooperative, does not fall under the term "producer." According to the BIR, a
"producer" is one who tills the land it owns or leases, or who incurs cost for
agricultural production of the sugarcane to be refined by the sugar refinery.

As bases for the required payment of advance VAT, the Regional Director pointed
to Sections 3 and 4 of Revenue Regulations (RR) No. 13-2008.

COFA was thus constrained to pay advance VAT under protest and to seek the
legal opinion of the BIR Legal Division, as to whether COFA is considered the
producer of the sugar product of its members.

In a Ruling dated January 11, 2008, the BIR stated that the sales of sugar produce
by COFA to its members and non-members are exempt from VAT pursuant to
Section 109(L) of RA 9337, as implemented by Revenue Regulations (RR) No. 4-
2007.

COFA filed with the CIR an administrative claim for refund at P11,172,570.00 for
the advance VAT it paid on the 109,535 LKG bags of refined sugar computed at
P102.00 VAT per bag for the period covering February 3, 2009 to July 22, 2009.
CIR's inaction, COFA filed a petition for review before the CTA Division, but this
time seeking the refund at P7,290,960.00 representing 71,480 LKG bags of
refined sugar at P102.00 VAT per bag for the period covering May 12, 2009 to
July 22, 2009.

In its Answer, the CIR raised as sole point COFA's alleged failure to comply with
the requisites for recovery of tax erroneously or illegally collected as spelled
under Section 229 of RA 8424, specifically, the lack of a prior claim for refund or
credit with the CIR.

Trial on the merits thereafter ensued where only COFA presented evidence. The
CIR, on the other hand, waived the presentation of evidence. However, the CIR
additionally argued that COFA is not entitled to refund as it failed to present
certain documents required under Sections 3 and 4 of RR No. 13-2008.

CTA-D found COFA to be exempt from VAT based on Certificates of Tax

Exemption and the BIR Ruling with COFA's status as a tax-exempt agricultural
cooperative. Also found COFA as "as the actual producer of the members'
sugarcane production because it primarily provided the various production
inputs (fertilizers), capital, technology transfer and farm management." Ordered
refund based on receipts and documents.
The CIR argues: lack of proof of COFA as producer; failure to present quedan of
raw sugar as fatal to refund claim.

COFA argues that this case is about advance VAT assessed on its withdrawal of
sugar from the refinery/mill, and not on its sale of sugar to members or
non-members. Thus, COFA argued that the payment in advance of VAT for the
withdrawal of sugar from the refinery/mill was without basis.

CTA En Banc ruled for COFA. Ruled that COFA was exempt from VAT for
transactions with non-members, provided that the goods subject of the
transaction were produced by the members of the cooperative; that the processed
goods were sold in the name and for the account of the cooperative; and, that at
least 25% of the net income of the cooperatives was returned to the members in
the form of interest and/or patronage refunds.

ISSUES:

1. What the requisites are when an agricultural cooperative is considered

exempt from the payment of advance VAT for the withdrawal of the refined
sugar from the sugar refinery/mill;
2. Whether COFA complies with those requisites;
3. Whether COFA's sales are exempt from VAT and advance VAT;
4. Whether VAT exemption to cooperative extends only to the sale of the
sugar but not to the withdrawal of the sugar from the refinery; and
5. Whether there is fatal failure to submit complete documentary
requirements to COFA's claim for tax refund.

HELD: PETITION DENIED. Negros Consolidated Farmers Multi-Purpose

Cooperative exempt from VAT and entitled to refund at P7,290,960.00 for the
withdrawal of the refined sugar it made from May 12, 2009 to July 22, 2009.

FIRST ISSUE: There are certain transactions exempt from VAT such as the sale
of agricultural products in their original state, including those which underwent
simple processes of preparation or preservation for the market, such as raw cane
sugar.

While the sale of raw sugar, by express provision of law, is exempt from VAT, the
sale of refined sugar, on the other hand, is not so exempted as refined sugar
already underwent several refining processes and as such, is no longer considered
to be in its original state. However, if the sale of the sugar, whether raw
or refined, was made by an agricultural cooperative to its members or
non-members, such transaction is still VAT-exempt. Section 7 of RA
9337 amending Section 109 (L) of RA 8424, the law applicable at the time
material to the claimed tax refund.

Thus, by express provisions of the law under Section 109 (L) of RA 8424, as
amended by RA 9337, and Article 61 of RA 6938 as amended by RA 9520,
the sale itself by agricultural cooperatives duly registered with the CDA to their
members as well as the sale of their produce, whether in its original state or
processed form, to non-members are exempt from VAT.

RR No. 13-2008 consolidates the regulations on the advance payment of VAT or

"advance VAT" on the sale of refined sugar. Generally, the advance VAT on the
sale of the refined sugar is required to be paid in advance by the owner/seller
before the refined sugar is withdrawn from the sugar refinery/mill. The "sugar
owners" refer to those persons having legal title over the refined sugar and may
include, among others, the cooperatives.

By way of exception, withdrawal of refined sugar is exempted from advance VAT

upon the concurrence of certain conditions which ultimately relate to a two-
pronged criteria: first, the character of the cooperative seeking the exemption;
and second, the kind of customers to whom the sale is made.

For an agricultural cooperative to be exempted from the payment of advance VAT

on refined sugar, it must be (a) a cooperative in good standing duly accredited
and registered with the CDA; and (b) the producer of the sugar. Section 4 of RR
No. 13-2008 says:

A cooperative shall be considered in good standing if it is a holder of a "Certificate of

Good Standing" issued by the CDA. x x x

A cooperative is said to be the producer of the sugar if it is the tiller of the land it owns,
or leases, incurs cost of agricultural production of the sugar and produces the sugar
cane to be refined.
RR No. 13-2008 clarifies that the withdrawal of refined sugar by the agricultural
cooperative for sale to its members is not subject to advance VAT, while sale to
non-members of refined sugar is not subject to advance VAT only if
the cooperative is the agricultural producer of the sugar cane. Thus, it
appears that the requirement as to the character of the cooperative being the
producer of the sugar is relevant only when the sale of the refined sugar is
likewise made to non-members.

SECOND ISSUE: The findings of the CTA, the certificates shown and the lack
of objection from the CIR on said certificates must be regarded as conclusive
proof of COFA's good standing and due registration with the CDA.

COFA was found by the CTA as the producer of the sugar. This is affirmed no
other than the BIR itself when it issued its Ruling on the matter.

The BIR ruling operates as an equitable estoppel precluding the CIR from
unilaterally revoking its pronouncement.

THIRD ISSUE: Having established that COFA is a cooperative in good standing

and duly registered with the CDA and)s the-producer of the sugar, its sale then of
refined sugar whether sold to members or non-members, following the express
provisions of Section 109(L) of RA 8424, as amended, is exempt from VAT. As a
logical and necessary consequence then of its established VAT exemption, COFA
is likewise exempted from the payment of advance VAT required under RR No.
13-2008.

COFA is a VAT-exempt agricultural cooperative. Exemption from the payment of

VAT on sales made by the agricultural cooperatives to members or to non-
members necessarily includes exemption from the payment of "advance VAT"
upon the withdrawal of the refined sugar from the sugar mill.

FOURTH ISSUE: The CIR argues that the VAT exemption given to

cooperatives under the laws pertain only to the sale of the sugar but not to the
withdrawal of the sugar from the refinery. The CIR is wrong.

To recall, VAT is a transaction tax - it is imposed on sales, barters, exchanges of

goods or property, and on the performance of services. The withdrawal from the
sugar refinery by the cooperative is not the incident which gives rise to the
imposition of VAT, but the subsequent sale of the sugar. If at all, the withdrawal
of the refined sugar gives rise to the obligation to pay the VAT on the would-be
sale. In other words, the advance VAT which is imposed upon the withdrawal of
the refined sugar is the very same VAT which would be imposed on the sale of
refined sugar following its withdrawal from the refinery, hence, the term
"advance." It is thus wrong to say the withdrawal of the refined sugar as a tax
incident different from or in addition to the sale itself.

FIFTH ISSUE: COFA was a previous recipient and holder of certificates of tax

exemption issued by the BIR. The issuance of the certificate of tax exemption
presupposes that the cooperative submitted to the BIR the complete
documentary requirements. In the same manner, COFA's entitlement to tax
exemption cannot be made dependent upon the submission of the monthly VAT
declarations and quarterly VAT returns, as the CIR suggests. Here, it was
established that COFA satisfied the requirements under Section 109(L) of RA
8424, as amended, to enjoy the exemption from VAT on its sale of refined sugar;
its exemption from the payment of advance VAT for the withdrawal it made from
May 12, 2009 to July 22, 2009 follows, as a matter of course.

ADDITIONAL READINGS:

[1] Section 61. Tax Treatment of Cooperatives. - Duly registered

cooperatives under this Code which do not transact any business with non-
members or the general public shall not be subject to any government taxes and
fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives
not falling under this article shall be governed by the succeeding section.

[2] Sec. 109 Exempt Transactions. - Subject to the provisions •of Subsection (2)

hereof, the following transactions shall be exempt from the value-added tax:

xxxx

(L) Sales by agricultural cooperatives duly registered with the Cooperative

Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their
importation of direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the production and/or
processing of their produce;

[3] 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 x x x, 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 1he expiration of two
(2) years from the date of payment of the tax x x x.
[4] x x x In case of inaction of the Commissioner of Internal Revenue on claims
for refund of internal revenue taxes erroneously or illegally collected, the
taxpayer must file a petition for review within the two year period prescribed by
law from payment or collection of the taxes. x x x.

[5] Commissioner of Internal Revenue v. Court of Appeals, 385 Phil. 875 (2000).

[6] Exempt transaction is defined as one involving goods or services which, by

their nature, are specifically listed in and expressly exempted from the VAT under
the Tax Code, without regard to the tax status of the party in the transaction.
(Commissioner of Internal Revenue v. Philippine Health Care Providers, Inc.,
550 Phil. 304, 311-312 [2007]).

[7] Section 2(a) of RR No. 13-2008 defines "refined sugar" as sugar whose

sucrose content by weight, in the dry state corresponds to a polarimeter reading
of 99.5° and above.

[8] Section 2(d) of RR No. 13-2008.

[9] Commissioner of Internal Revenue v. United Cadiz Sugar Farmers

Association Multi Purpose Cooperative, 802 Phil. 636 (2016).

[10] BIR Ruling ECCEP-002-2008 dated January 11, 2008.

Cir v philhealth care providers

Facts:

The Philippine Health Care Providers, Inc., herein respondent, is a corporation

organized and existing under the laws of the Republic of the Philippines.
Pursuant to its Articles of Incorporation,[2] its primary purpose is "To establish,
maintain, conduct... and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and disabled
persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the... organization."

On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No.
273, amending the National Internal Revenue Code of 1977 (Presidential Decree
No. 1158) by imposing Value-Added Tax (VAT) on the sale of goods and services.

On June 8, 1988, petitioner CIR, through the VAT Review Committee of the
Bureau of Internal Revenue (BIR), issued VAT Ruling No. 231-88 stating that
respondent, as a provider of medical services, is exempt from the VAT coverage...
on January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law)
took effect, amending further the National Internal Revenue Code of 1977. Then
on January 1, 1998, R.A. No. 8424 (National Internal Revenue Code of 1997)
became effective. This new Tax Code... substantially adopted and reproduced the
provisions of E.O. No. 273 on VAT and R.A. No. 7716 on E-VAT.

In the interim, on October 1, 1999, the BIR sent respondent a Preliminary

Assessment Notice for deficiency in its payment of the VAT and documentary
stamp taxes (DST) for taxable years 1996 and 1997.

On January 27, 2000, petitioner CIR sent respondent a letter demanding

payment of "deficiency VAT" in the amount of P100,505,030.26 and DST in the
amount of P124,196,610.92, or a total of P224,702,641.18 for taxable years 1996
and 1997. Attached to the demand letter were four

(4) assessment notices.

Petitioner CIR did not take any action on respondent's protests. Hence, on
September 21, 2000, respondent filed with the Court of Tax Appeals (CTA) a
petition for review,

Issues:

(1) whether respondent's services are subject to VAT; and (2) whether VAT
Ruling No. 231-88 exempting respondent from payment of VAT has retroactive
application.

Ruling:

Principles:

Section 102[5] of the National Internal Revenue Code of 1977, as amended by

E.O. No. 273 (VAT Law) and R.A. No. 7716 (E-VAT Law), provides:

SEC. 102. Value-added tax on sale of services and use or lease of properties. (a)
Rate and base of tax. There shall be levied, assessed and collected, a value-added
tax equivalent to 10% of gross receipts derived from the sale or exchange of...
services, including the use or lease of properties.
The phrase "sale or exchange of service" means the performance of all kinds of
services in the Philippines for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors x x x.

Section 103[6] of the same Code specifies the exempt transactions from the
provision of Section 102, thus:

SEC. 103. Exempt Transactions. The following shall be exempt from the value-
added tax:... x x x

(l) Medical, dental, hospital and veterinary services except those rendered by
professionals... x x x

The import of the above provision is plain. It requires no interpretation. It

contemplates the exemption from VAT of taxpayers engaged in the performance
of medical, dental, hospital, and veterinary services. In Commissioner of
International Revenue v. Seagate Technology

(Philippines),[7] we defined an exempt transaction as one involving goods or

services which, by their nature, are specifically listed in and expressly exempted
from the VAT, under the Tax Code, without regard to the tax status of the party in
the... transaction. In Commissioner of Internal Revenue v. Toshiba Information
Equipment (Phils.) Inc.,[8] we reiterated this definition.

Relative to the second issue, Section 246 of the 1997 Tax Code, as amended,
provides that rulings, circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue have no retroactive application if to apply
them would prejudice the taxpayer. The exceptions... to this rule are: (1) where
the taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue; (2) where the
facts subsequently gathered by the Bureau of Internal Revenue are materially
different from... the facts on which the ruling is based, or (3) where the taxpayer
acted in bad faith.

We agree with both the Tax Court and the Court of Appeals that respondent acted
in good faith. In Civil Service Commission v. Maala,[10] we described good faith
as "that state of mind denoting honesty of intention and freedom from knowledge
of... circumstances which ought to put the holder upon inquiry; an honest
intention to abstain from taking any unconscientious advantage of another, even
through technicalities of law, together with absence of all information, notice, or
benefit or belief of facts which render... transaction unconscientious."

According to the Court of Appeals, respondent's failure to describe itself as a

"health maintenance organization," which is subject to VAT, is not tantamount to
bad faith. We note that the term "health maintenance organization" was first
recorded in the Philippine statute books... only upon the passage of "The National
Health Insurance Act of 1995" (Republic Act No. 7875). Section 4 (o) (3) thereof
defines a health maintenance organization as "an entity that provides, offers, or
arranges for coverage of designated health services needed by plan members... for
a fixed prepaid premium." Under this law, a health maintenance organization is
one of the classes of a "health care provider."

WHEREFORE, we DENY the petition and AFFIRM the assailed Decision and
Resolution of the Court of Appeals

CIR V TOYO CORPORATION

FACTS:

Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses
and various optical components. Its principal office is located at the Mactan Export Processing Zone
(MEPZ) in Lapu-Lapu City, Cebu and is a subsidiary of Toyo Lens Corporation, a non-resident
corporation organized under the laws of Japan. It is a zone export enterprise registered with the
Philippine Economic Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a
VAT taxpayer. 

The sales of respondent are considered export sales subject to VAT at 0% rate under Section 106 of
the NIRC, as amended.

Respondent then filed, an application for tax credit/refund of VAT paid for the period April 1, 1996 to
December 31, 1997 amounting to P4,439,827.21 representing excess VAT input payments.
Respondents claim that they can avail of the tax credits as they are VAT-registered exporter of goods
at the rate of 0%.

The CIR oppose such stating that they are not entitled to the tax credit as the claims for refund are
strictly construed against respondents as it is of the nature of tax exemption.

The CTA granted the motion partially to the respondents as they only lowered the tax credits to
P2,158,714.46 representing unutilized input tax payments. The CIR filed a petition with the CA which
was denied.

ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits.

RULING:

YES. Respondents availed of an income tax holiday as provided in the Omnibus Investments Code
( EO 226). It is one of the fiscal incentives granted to PEZA-registered enterprises and one of the
options to its tax burden. Both the CA and CTA found that respondent availed of the income tax
holiday for four (4) years as it was shown in their Annual Corporate Income Tax Returns. In it also is
where respondent specified that it was availing of the tax relief under EO 226. Hence, respondent is
not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in
taxable rather than exempt transactions.

Taxable transactions are those transactions which are subject to value-added tax either at the rate of
ten percent (10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax
credit for the value-added tax paid on purchases and leases of goods, properties or services. 

An exemption means that the sale of goods, properties or services and the use or lease of properties
is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax)
previously paid. The person making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not subject to VAT. Thus, a VAT-
registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any
input tax on such purchases despite the issuance of a VAT invoice or receipt. 

The court also held that respondent is subjected to VAT at 0% rate as it is engaged in the export
business.

CIR V EASTERN TELECOMMUNICATIONS

Facts:
Eastern is a domestic corporation granted by Congress with a telecommunications franchise under
Republic Act (RA) No. 7617 on June 25, 1992.
Eastern purchased various imported equipment, machineries, and spare parts necessary in carrying
out its business activities.
Eastern filed with the CIR a written application for refund or credit of unapplied input taxes... e CTA
found that Eastern has a valid claim for the refund/credit of the unapplied input taxes,... SECTION
106. Refunds or tax credits of input tax.
x  x  x  x
(b) Capital goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes.
The application may be made only within two (2) years after the close of the taxable quarter when
the importation or purchase was made.[11] [Emphases supplied.]... e CIR takes exception to the CA's
ruling that Eastern is entitled to the full amount of unapplied input taxes
Issues:
it paid on the imported equipment during the taxable years 1995 and 1996 amounting to
P22,013,134.00.
Eastern principally... relied on Sec. 10 of RA No. 7617, which allows Eastern to pay 3% of its gross
receipts in lieu of all taxes
In the alternative, Eastern cited Section 106(B) of the National Internal Revenue Code of
1977[6] (Tax Code) which authorizes a VAT-registered taxpayer to claim for the issuance of a tax
credit certificate or a tax refund of input taxes paid on capital goods imported or purchased locally to
the extent that such input taxes[7] have not been applied against its output taxes.[8]
Ruling:
Principles:

Commissioner of Internal Revenue v. Eastern Telecommunications Philippines

G.R. No. 163835 July 7, 2010
Brion, J.

Doctrine:
Lapses in the literal observance of a rule of procedure may be overlooked when
they have not prejudiced the adverse party and especially when they are more
consistent with upholding settled principles in taxation.

The burden of strict compliance with statutory and administrative requirements

by the person claiming for a tax refund cannot be offset by the non-observance of
procedural technicalities by the government’s tax agents when the non-
observance of the remedial measure addressing it does not in any manner
prejudice the taxpayer’s due process rights.

Facts:
Eastern filed with the CIR a written application for refund or credit of unapplied
input taxes it paid on the imported equipment purchased during 1995 and 1996
amounting to P22,013,134.00. To toll the running of the two-year prescriptive
period under the same provision, Eastern filed an appeal with the CTA. The CTA
found that Eastern has a valid claim for the refund/credit of the unapplied input
taxes, declaring it entitled to a tax refund of P16,229,100.00.

The CIR filed a motion for reconsideration of the CTA’s decision. Subsequently, it
filed a supplemental motion for reconsideration. The CTA denied the CIR’s
motion for reconsideration. The CIR then elevated the case to the CA, who
affirmed the CTA ruling and likewise denied the subsequent motion for
reconsideration. Hence, the present petition.

The CIR posits that, applying Section 104(A) of the Tax Code on apportionment
of tax credits, Eastern is entitled to a tax refund of only a portion of the amount
claimed. Since the VAT returns clearly reflected income from exempt sales, the
CIR asserts that this constitutes as an admission on Eastern’s part that it engaged
in transactions not subject to VAT. Hence, the proportionate allocation of the tax
credit to VAT and non-VAT transactions provided in Section 104(A) of the Tax
Code should apply.

Eastern objects to the arguments raised in the petition, alleging that these have
not been raised in the Answer filed by the CIR before the CTA and was only
raised. In fact, the CIR only raised the applicability of Section 104(A) of the Tax
Code in his supplemental motion for reconsideration of the CTA’s ruling. Eastern
claims that for the CIR to raise such an issue now would constitute a violation of
its right to due process; following settled rules of procedure and fair play, the CIR
should not be allowed at the appeal level to change his theory of the case.

Eastern further argues that there is no evidence on record that would evidently
show that respondent is also engaged in other transactions that are not subject to
VAT.

Issue:
Whether or not the rule in Section 104(A) of the Tax Code on the apportionment
of tax credits can be applied in appreciating Eastern’s claim for tax refund,
considering that the matter was raised by the CIR only when he sought
reconsideration of the CTA ruling

Held:
Yes. The question of the applicability of Section 104(A) of the Tax Code was
already raised but the tax court did not rule on it. This failure should not be taken
against the CIR. The mere declaration of exempt sales in the VAT returns,
whether based on Section 103 of the Tax Code or some other special law, should
have prompted for the application of Section 104 (A) of the Tax Code to Eastern’s
claim.

The general rule is that appeals can only raise questions of law or fact that (a)
were raised in the court below, and (b) are within the issues framed by the parties
therein (People v. Echegaray, G.R. No. 117472). An issue which was neither
averred in the pleadings nor raised during trial in the court below cannot be
raised for the first time on appeal.

The rule against raising new issues on appeal is not without exceptions; it is a
procedural rule that the Court may relax when compelling reasons so warrant or
when justice requires it. What constitutes good and sufficient cause that would
merit suspension of the rules is discretionary upon the courts (CIR v. Mirant
Pagbilao Corporation, G.R. No. 159593). Another exception is when the question
involves matters of public importance.

“Taxes are the lifeblood of the government.” For this reason, the right of taxation
cannot easily be surrendered; statutes granting tax exemptions are considered as
a derogation of the sovereign authority and are strictly construed against the
person or entity claiming the exemption. Claims for tax refunds, when based on
statutes granting tax exemption or tax refund, partake of the nature of an
exemption; thus, the rule of strict interpretation against the taxpayer-claimant
similarly applies (CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75).

The taxpayer is charged with the heavy burden of proving that he has complied
with and satisfied all the statutory and administrative requirements to be entitled
to the tax refund. This burden cannot be offset by the non-observance of
procedural technicalities by the government’s tax agents when the non-
observance of the remedial measure addressing it does not in any manner
prejudice the taxpayer’s due process rights.

Lapses in the literal observance of a rule of procedure may be overlooked when

they have not prejudiced the adverse party and especially when they are more
consistent with upholding settled principles in taxation.

FORT BONIFACIO DEVELOPMENT CORPORATION v. CIR, ET. AL., G.R. No. 173425, January 22,
2013

Taxation; Transitional input tax credit; Prior payment of taxes is not a prerequisite before a
taxpayer could avail of the transitional input tax credit. To reiterate, prior payment of taxes is
not necessary before a taxpayer could avail of the 8% transitional input tax credit. This position
is solidly supported by law and jurisprudence, viz:
First. Section 105 of the old National Internal Revenue Code (NIRC) clearly provides that for a
taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is
to file a beginning inventory with the Bureau of Internal Revenue (BIR). It was never mentioned
in Section 105 that prior payment of taxes is a requirement.
Second. Since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to
require it now would be tantamount to judicial legislation which, to state the obvious, is not
allowed.
Third. A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior
payment of taxes is not required before a taxpayer could avail of transitional input tax credit. As
we have declared in our September 4, 2012 Decision, “[t]ax credit is not synonymous to tax
refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the
taxing authority. Tax credit, on the other hand, is an amount subtracted directly from one’s
total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to
encourage investment.”

FACTS:
Petitioner was a real estate developer that bought from the national government a parcel of
land that used to be the Fort Bonifacio military reservation. At the time of the said sale there
was as yet no VAT imposed so Petitioner did not pay any VAT on its purchase. Subsequently,
Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale for VAT
purposes (because the VAT had already been imposed in the interim), Petitioner claimed
transitional input VAT corresponding to its inventory of land. The BIR disallowed the claim of
presumptive input VAT and thereby assessed Petitioner for deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its
nature as a real estate dealer and if so (i) is the transitional input VAT applied only to the
improvements on the real property or is it applied on the value of the entire real property and
(ii) should there have been a previous tax payment for the transitional input VAT to be
creditable?
RULING:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the
improvements but on the value of the entire real property and regardless of whether there was
in fact actual payment on the purchase of the real property or not.
The amendments to the VAT law do not show any intention to make those in the real estate
business subject to a different treatment from those engaged in the sale of other goods or
properties or in any other commercial trade or business. On the scope of the basis for
determining the available transitional input VAT, the CIR has no power to limit the meaning and
coverage of the term "goods" in Section 105 of the Tax Code without statutory authority or
basis. The transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory of
goods, materials and supplies
Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc., G.R. No. 184823, 06
October 2010
24NOV
[DEL CASTILLO, J.]
 
FACTS
Respondent Aichi filed a claim for refund/credit of input VAT for the period July 1, 2002
to September 30, 2002, 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.On even date, respondent filed a Petition for Review with the
CTA for the refund/credit of the same input VAT.  The CTA partially granted the petition.
In a Motion for Reconsideration, petitioner argued that the simultaneous filing of the
administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC
and a prior filing of an administrative claim is a “condition precedent” before a judicial
claim can be filed. The CTA En Banc affirmed the division ruling.
 
ISSUE
Whether the respondent’s judicial and administrative claims for tax refund/credit were
filed within the two-year prescriptive period as provided in Sections 112(A) and 229 of
the NIRC.

 
HELD
NO.
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, respondent’s administrative claim was timely filed.

The filing of the judicial claim was premature. However, notwithstanding the timely filing
of the administrative claim, [the Supreme Court is] constrained to deny respondent’s
claim for tax refund/credit for having been filed in violation of Section 112(D). 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 taxpayer’s 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. The premature filing of respondent’s claim for refund/credit of
input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was
acquired by the CTA.

CIR v. AICHI FORGING COMPANY OF ASIA, INC. G.R. No. 184823 October 6, 2010
Del Castillo, J.

Doctrine:
– The CIR has 120 days, from the date of the submission of the complete documents within
which to grant or deny the claim for refund/credit of input vat. In case of full or
partial denial by the CIR, the taxpayer’s 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.

– 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 indebitirequiring 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 between the Civil Code and the Administrative Code of 1987, it is the latter that must
prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.
– The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or
refund” under Subsection (A) of Section 112 of the NIRC refers to applications for refund/credit
filed with the CIR and not to appeals made to the CTA.
Facts:

Petitioner filed a claim of refund/credit of input vat in relation to its zero-rated sales from July
1, 2002 to September 30, 2002.

The CTA 2nd Division partially granted respondent’s claim for refund/credit.

Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and the
judicial claims were filed beyond the two-year 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. He cited as basis Article 13 of the Civil Code, 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. According to the petitioner, a prior filing of an administrative claim is a
“condition precedent” before a judicial claim can be filed.

The CTA denied the MPR thus the case was elevated to the CTA En Banc for review. The
decision was affirmed.

Thus the case was elevated to the Supreme Court.

Respondent 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. In support thereof, respondent
cited Commissioner of Internal Revenue v. Victorias Milling Co., Inc. [130 Phil 12 (1968)] where
it was ruled that “if 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 two-year
period without awaiting the
decision of the CIR.”
Issues:
1. Whether or not the claim for refund was filed within the prescribed period
2. Whether or not the simultaneous filing of the administrative and the judicial claims
contravenes Section 229 of the NIRC, which requires the prior filing of anadministrative claim,
and violates the doctrine of exhaustion of administrative remedies

Held:
1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation
(G.R. No. 172129, September 12, 2008), the two-year period should be reckoned from the close
of the taxable quarter when the sales were made.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No. 162155,
August 28, 2007, 531 SCRA 436), we said that as between the Civil Code, which provides that a
year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is
composed of 12 calendar months, it is the latter that must prevail being the more recent law,
following the legal maxim, Lex posteriori derogat priori.
Thus, 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,
respondent’s administrative claim was timely filed.

2. Yes. We find the filing of the judicial claim with the CTA premature.
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 taxpayer’s 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.
Subsection (A) of Section 112 of the NIRC states that “any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales.” The phrase “within two (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.
The case of Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. is inapplicable as the
tax provision involved in that case is Section 306, now Section
229 of the NIRC. Section 229 does not apply to refunds/credits of input VAT.
The premature filing of respondent’s claim for refund/credit of input VAT before the CTA
warrants a dismissal inasmuch as no jurisdiction was acquiredcps by the CTA.
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.

SAN ROQUE POWER CORPORATION VS CIR GR 180345, November 25, 2009

FACTS:
Petitioner entered into a Power Purpose Agreement with NAPOCOR. Petitioner will design,
construct, install, complete and test the power station, NPC shall purchase all the electricity
generated by the power plant. Petitioner applied as zero rated status from BIR from September
27, 1998-2002. Petitioner filed with BIR separate administrative claims for refund for unutilized
input VAT paid for the period of Jan- March 2002, April-June 2002, July-Sept 2002 and Oct-Dec
2002.
Respondent failed to act on the request for tax refund or credit of the petitioner, which
prompted the latter to file on April 5, 2004 with CTA Division, before it could be barred by
prescription. CTA division denied the petition, En Banc affirmed it because it did not present
any records of zero-rated or effectively zero-rated transactions.

ISSUE:
W/N petitioner is entitled to refund or tax credit representing zero-rated or effectively zero-
rated sales.

HELD:
Yes, the evidence presented by the petitioner shows compliance with the requirements for
refund or credit of VAT.
Based on the evidences presented petitioner complied with the abovementioned requirements,
first, petitioner had adequately proved that it is a VAT-registered taxpayer when it presented
Certificate of Registration. Second, it is unquestionable that petitioner is engaged in providing
electricity for NPC, an activity which is subject to zero-rate. Third, petitioner offered as evidence
VAT invoices and official receipts. Fourth, the input taxes claimed, which consisted of local
purchases and importations made in 2002, are not transitional taxes. Fifth, the audit report
affirms that the input VAT claimed for tax refund or credit is net of the input VAT that was
already offset against output VAT. Next, the VAT paid by petitioner to local purchases is not
transitional input tax. The requirement that to be entitled to tax refund for zero-rated sales, the
foreign exchange proceeds must have duly accounted for per BSP rule does not apply where
the sale of electricity did not involve any foreign currency. Lastly, the claim for VAT refund was
filed within 2 years after the close of the taxable quarter when sales were made.
The main issue here is the compliance with 6th requirement, the existence of zero rated or
effectively zero rated transaction to which creditable input tax may be attributed. NIRC does
not limit the definition of "sale" to commercial transactions in the normal course of business,
rather it extends the term to transactions that are "deemed" sale, The fact that it was not
transferred through a commercial sale or in the normal course of business does not deflect
from the fact that such transaction is deemed as a sale under the law.

Petitioner was able to positively show that it was able to accumulate excess input taxes on
various importations and local, which were attributable to a transfer of electricity in favor of
NPC. The fact that it had filed its claim for refund or credit during the quarter when the transfer
of electricity had taken place, instead of at the close of the said quarter does not make
petitioner any less entitled to its claim. Given the special circumstances of this case, wherein
petitioner was incorporated for the sole purpose of constructing or operating a power plant
that will transfer all the electricity it generates to NPC, there is no danger that petitioner would
try to fraudulently claim input tax paid on purchases that will be attributed to sale transactions
that are not zero-rated. Substantial justice, equity and fair play are on the side of the petitioner.
Technicalities and legalisms, however, exalted, should not be misused by the government to
keep money not belonging to it, thereby enriching itself at the expense of its law abiding
citizens.

Note:
To claim refund or tax credit under Section 112(A), petitioner must comply with the following
criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or
effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not
transitional input taxes; (5) the input taxes have not been applied against output taxes during
and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or
effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B);
and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly
accounted for in accordance with BSP rules and regulations; (8) where there are both zero-
rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be
directly and entirely attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and (9) the claim is filed within two years after the close
of the taxable quarter when such sales were made.
SAN ROQUE POWER CORPORATION, Petitioner, v. COMMISSIONER
OF INTERNAL REVENUE, Respondent. G.R. No. 203249, July 23, 2018

FACTS
San Roque Power Corporation is a VAT-registered taxpayer which was granted by the
BIR a zero-rating on its sales of electricity to National Power Corporation (NPC)
effective 14 January 2004, up to 31

On 22 December 2005 and 27 February 2006, the petitioner filed two separate
administrative claims for refund of its alleged unutilized input tax for the period 1
January 2004 up to 31 March 2004, and 1 April
December 2004.

Due to the inaction of respondent CIR, the petitioner filed petitions for review before the
CTA:
(1) on 30
2004 up to 31 December 2004, respectively.
March 2006, for its unutilized input VAT for the period 1 January 2004 to 31 March
2004;

and (2) on 20 June 2006, for the unutilized input VAT for the period 1 April 2004
to 31 December 2004.

ISSUE: W/N the administrative and judicial claim of VAT refund is filed within the 120-30
day.

HELD:
To reiterate, the 120-day and 30-day periods, as held in the case
of Aichi, are mandatory and jurisdictional. Thus, noncompliance with the mandatory
120+30-day period renders the petition before the CTA void. The ruling in said case as
to the mandatory and jurisdictional character of said periods was reiterated in San
Roque and a host of succeeding similar cases.
Significantly, a taxpayer can file a judicial claim only within thirty (30) days from the
expiration of the 120-day period if the Commissioner does not act within the 120-day
period. The taxpayer cannot file such judicial claim prior to the lapse of the 120-day
period, unless the CIR partially or wholly denies the claim within such period. The
taxpayer-claimant must strictly comply with the mandatory period by filing an appeal to
the CTA within thirty days from such inaction; otherwise, the court cannot validly acquire
jurisdiction over it.
In this case, the petitioner timely filed its administrative claims for refund/credit of its
unutilized input VAT for the first quarter of 2004, and for the second to fourth quarters of
the same year, on 22 December 2005 and 27 February 2006, respectively, or within the
two-year prescriptive period. Counted from such dates of submission of the claims (with
supporting documents), the CIR had 120 dhr until 13 April 2006, with respect to the first
administrative claim, and until 27 June 2006, on the second administrative claim, to
decide.

However, the petitioner, without waiting for the full expiration of the 120-day periods and
without any decision by the CIR, immediately filed its petitions for review with the CTA
on 30 March 2006, or a mere ninety-eight (98) days for the first administrative claim;
and on 20 June 2006, or only one hundred thirteen (113) days for the second
administrative claim, from the submission of the said claims. In other words, the judicial
claims of the petitioner were prematurely filed as correctly found by the CTA En Banc.

M
ATLAS CONSOLIDATED MINING v. CIR

FACTS: Petitioner corporation is engaged in the business of mining, production, and sale of
various mineral products, such as gold, pyrite, and copper concentrates. It is a VAT- registered
taxpayer.
Petitioner corporation filed with the BIR the application for the refund/credit of its input VAT on
its purchases of capital goods and on its zero-rated sales. When its application for refund/credit
remained unresolved by the BIR, petitioner filed a Petition for Review with the CTA.
Tax treatment of goods brought into the export processing zones is only consistent with the

Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority.

Hence, actual export of goods and services from the Philippines to a foreign country
must be free of VAT, while those destined for use or consumption within the Philippines shall
be imposed with 10% VAT.

Export processing zones are to be managed as a separate customs territory from the
rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign
territory.

For this reason, sales by persons from the Philippine customs territory to those inside
the export processing zones are already taxed as exports.

3. NO. For a judicial claim for refund to prosper, however, respondent must not only prove that
it is a VAT registered entity and that it filed its claims within the prescriptive period. It must
substantiate the input VAT paid by purchase invoices or official receipts. This respondent failed
to do. Petitioner corporation failed to present together with its application the required
supporting documents, whether before the BIR or the CTA.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant
of organic or statute law and should not be permitted to stand on vague implications.
The CTA denied the claims on the grounds that for zero-rating to
 apply, 70% of the company's sales must consists of exports, that the same were not filed
within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed
only on April 20, 1994), and that petitioner failed to submit substantial evidence to
support its claim for refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the
following: sales to PASAR and PHILPOS within the Export Processing Zone Authority
(EPZA) as zero-rated export sales; the 2-year prescriptive period should be counted from the
date of filing of the last adjustment return which was April 15, 1993, and not on every
end of the applicable quarters; and that the certification of the independent CPA attesting to
the correctness of the contents of the summary of suppliers’ invoices or receipts
examined, evaluated and audited by said CPA should substantiate its claims.

ISSUES:
1. Whether or not the claims were filed within the 2-year prescriptive period
2. Whether or not the claims for refund/credit of input VAT of petitioner corporation
have sufficient legal bases
3. Whether or not petitioner

HELD:

1.YES. The filing of a quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive at
a net taxable income, should be treated as advances or portions of the annual income tax due,
to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now
Section 69) which provides for the filing of adjustment returns and final payment of income tax.
Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of
the Tax Code should be computed from the time of filing the Adjustment Return or Annual
Income Tax Return and final payment of income tax.

2. YES. Section 106(b)(2), in relation to Section 100(a)(2) of the Tax Code of 1977, as amended,
allowed the refund/credit of input VAT on export sales to enterprises operating within export
processing zones and registered with the EPZA, since such export sales were deemed to be
effectively zero-rated sales.
sufficiently established the factual bases for its
applications for refund/credit of input VAT

Tax treatment of goods brought into the export processing zones is only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT, while those destined for use or
consumption within the Philippines shall be imposed with 10% VAT. Export processing zones
are to be managed as a separate customs territory from the rest of the Philippines and, thus,
for tax purposes, are effectively considered as foreign territory. For this reason, sales by
persons from the Philippine customs territory to those inside the export processing zones are
already taxed as exports.
3. NO. For a judicial claim for refund to prosper, however, respondent must not only prove that
it is a VAT registered entity and that it filed its claims within the prescriptive period. It must
substantiate the input VAT paid by purchase invoices or official receipts. This respondent failed
to do. Petitioner corporation failed to present together with its application the required
supporting documents, whether before the BIR or the CTA.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant
of organic or statute law and should not be permitted to stand on vague implications.
Kepco v. CIR G.R. No. 179961 January 31, 2011
THE FACT
X -------------------------------------------------------------------------------------- X
Promulgated: January 31, 2011
DECISION
Petitioner Kepco Philippines Corporation (Kepco) is a domestic corporation duly organized and
existing under and by virtue of the laws of the Republic of the Philippines. It is a value-added
tax (VAT) registered taxpayer engaged in the production and sale of electricity as an
independent power producer. It sells its electricity to the National Power Corporation (NPC).
Kepco filed with respondent Commissioner of Internal Revenue (CIR) an application for effective
zero-rating of its sales of electricity to the NPC.
Kepco alleged that for the taxable year 1999, it incurred input VAT in the amount of
P10,527,202.54 on its domestic purchases of goods and services that were used in its
production and sale of electricity to NPC for the same period.
Thus, on January 29, 2001, Kepco filed an administrative claim for refund corresponding to its
reported unutilized input VAT for the four quarters of 1999 in the amount of P10,527,202.54.
Thereafter, on April 24, 2001, Kepco filed a petition for review before the CTA pursuant to
Section 112(A) of the 1997 National Internal Revenue Code (NIRC), which grants refund of
unutilized input taxes attributable to zero-rated or effectively zero-rated sales.
On August 31, 2005, the CTA Second Division rendered a decision[3] denying Kepco’s claim for
refund for failure to properly substantiate its effectively zero-rated sales for the taxable year
1999 in the total amount of P860,340,488.96, with the alleged input VAT of P10,527,202.54
directly attributable thereto. The tax court held that Kepco failed to comply with the invoicing
requirements in clear violation of Section 4.108-1 of Revenue Regulations (R.R.) No. 7-95,
implementing Section 108(B)(3) in conjunction with Section 113 of the 1997 NIRC.
In view of the denial of its motion for reconsideration, Kepco filed an appeal via petition for
review before the CTA En Banc, on the ground that the CTA Second Division erred in not
considering the amount of P10,514,023.92 as refundable tax credit and in failing to appreciate
that it was exclusively selling electricity to NPC, a tax exempt entity.
On May 17, 2007, the CTA En Banc dismissed the petition, reasoning out that Kepco’s failure to
comply with the requirement of imprinting the words “zero-rated” on its official receipts
resulted in non-entitlement to the benefit of VAT zero-rating and denial of its claim for refund
of input tax.
Kepco filed a motion for reconsideration of the decision but it was denied for lack of merit by
the CTA En Banc in its Resolution[6] dated September 28, 2007.
Hence this petition.
ISSUE:
WON Kepco’s failure to imprint the words “zero-rated” on its official receipts issued to NPC
justifies an outright denial of its claim for refund of unutilized input tax credits.
RULING:
Kepco contends that the provisions of the 1997 Tax Code, specifically Section 113 in relation to
Section 237, do not mention the mandatory requirement of imprinting the words “zero-rated”
to purchases covering zero-rated transactions. The only provision which requires the imprinting
of the word “zero-rated” on VAT invoice or official receipt is Section 4.108-1 of R.R. No. 7-95.
Kepco argues that the condition imposed by the said administrative issuance should not be
controlling over Section 113 of the 1997 Tax Code, “considering the long-settled rule that
administrative rules and regulations cannot expand the letter and spirit of the law they seek to
enforce.”
Kepco further argues that there is no law or regulation which imposes automatic denial of
taxpayer’s refund claim for failure to comply with the invoicing requirements. According to
Kepco, although it agrees with the CTA ruling that administrative issuances, like BIR regulations,
requiring an imprinting of “zero-rated” on zero-rating transactions should be strictly complied
with, it opposes the outright denial of refund claim for non-compliance thereof. It insists that
such automatic denial is too harsh a penalty and runs counter to the doctrine of solutio indebiti
under Article 2154 of the New Civil Code.
The CIR, in his Comment,[9] counters that Kepco is not entitled to a tax refund because it was
not able to substantiate the amount ofP10,514,023.92 representing zero-rated transactions for
failure to submit VAT official receipts and invoices imprinted with the wordings “zero-rated” in
violation of Section 4.108-1 of R.R. 7-95.
The petition is bereft of merit.
There is no doubt that NPC is an entity with a special charter and exempt from payment of all
forms of taxes, including VAT. As such, services rendered by any VAT-registered person/entity,
like Kepco, to NPC are effectively subject to zero percent (0%) rate.
For the effective zero rating of such services, however, the VAT-registered taxpayer must
comply with invoicing requirements under Sections 113 and 237 of the 1997 NIRC as
implemented by Section 4.108-1 of R.R. No. 7-95.
Section 4.108-1. Invoicing Requirements. – All VAT-registered persons shall, for every sale or
lease of goods or properties or services, issue duly registered receipts or sales or commercial
invoices which must show:
xxxxxxxxxxxxxxxxxxxxxxxxxxx
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales;
xxxxxxxxxxxxxxxxxxxxxxxxxxxx
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their
invoices or receipts and this shall be considered as "VAT Invoice." All purchases covered by
invoices other than "VAT Invoice" shall not give rise to any input tax.
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Note: Zero-Rated Sales must be indicated in the invoice/receipt.

Indeed, it is the duty of Kepco to comply with the requirements, including the imprinting of the
words “zero-rated” in its VAT official receipts and invoices in order for its sales of electricity to
NPC to qualify for zero-rating.
It must be emphasized that the requirement of imprinting the word “zero-rated” on the
invoices or receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En
[13]
The imprinting of “zero-rated” is necessary to distinguish sales subject to 10% VAT, those that
are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue
to properly implement and enforce the other provisions of the 1997 NIRC on VAT, namely:
Banc, citing Tropitek International, Inc. v. Commissioner of Internal Revenue.
Philippines Corporation v. Commissioner of Internal Revenue,[14] the CTA En Banc explained
the rationale behind such requirement in this wise:
1. 2. 3. 4.
Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)]; Exempt transactions [Sec. 109] in relation to
Sec. 112(A); Tax Credits [Sec. 110]; and
Refunds or tax credits of input tax [Sec. 112]
xxx
Records disclose, as correctly found by the CTA that Kepco failed to substantiate the
claimed zero-rated sales of P10,514,023.92. The wordings “zero-rated sales” were not
imprinted on the VAT official receipts presented by Kepco for taxable year 1999, in clear
violation of Section 4.108-1 of R.R. No. 7-95 and the condition imposed under its approved
Application/Certificate for Zero-rate as well.
Thus, for Kepco’s failure to substantiate its effectively zero-rated sales for the taxable year
1999, the claimed P10,527,202.54 input VAT cannot be refunded.
This Court has consistently held that failure to print the word “zero-rated” on the invoices or
receipts is fatal to a claim for refund or credit of input VAT on zero-rated sales.
Contrary to Kepco’s view, the denial of its claim for refund of input tax is not a harsh penalty.
The invoicing requirement is reasonable and must be strictly complied with, as it is the only way
to determine the veracity of its claim.
Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are
in the nature of a claim for exemption and the law is construed in strictissimi juris against the
taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are
[23]
also strictissimiscrutinized and must be duly proven.
WHEREFORE, the petition is DENIED.
Commissioner of Internal Revenue v. Eastern
Telecommunications Philippines G.R. No. 163835 July 7, 2010
Brion, J.

Doctrine:
Lapses in the literal observance of a rule of procedure may be overlooked when they have not
prejudiced the adverse party and especially when they are more consistent with upholding
settled principles in taxation.
The burden of strict compliance with statutory and administrative requirements by the person
claiming for a tax refund cannot be offset by the non-observance of procedural technicalities by
the government’s tax agents when the non-observance of the remedial measure addressing it
does not in any manner prejudice the taxpayer’s due process rights.

Facts:
Eastern filed with the CIR a written application for refund or credit of unapplied input taxes it
paid on the imported equipment purchased during 1995 and 1996 amounting to
P22,013,134.00. To toll the running of the two-year prescriptive period under the same
provision, Eastern filed an appeal with the CTA. The CTA found that Eastern has a valid claim for
the refund/credit of the unapplied input taxes, declaring it entitled to a tax refund of
P16,229,100.00.
The CIR filed a motion for reconsideration of the CTA’s decision. Subsequently, it filed a
supplemental motion for reconsideration. The CTA denied the CIR’s motion for reconsideration.
The CIR then elevated the case to the CA, who affirmed the CTA ruling and likewise denied the
subsequent motion for reconsideration. Hence, the present petition.
The CIR posits that, applying Section 104(A) of the Tax Code on apportionment of tax credits,
Eastern is entitled to a tax refund of only a portion of the amount claimed. Since the VAT
returns clearly reflected income from exempt sales, the CIR asserts that this constitutes as an
admission on Eastern’s part that it engaged in transactions not subject to VAT. Hence, the
proportionate allocation of the tax credit to VAT and non-VAT transactions provided in Section
104(A) of the Tax Code should apply.
Eastern objects to the arguments raised in the petition, alleging that these have not been raised
in the Answer filed by the CIR before the CTA and was only raised. In fact, the CIR only raised
the applicability of Section 104(A) of the Tax Code in his supplemental motion for
reconsideration of the CTA’s ruling. Eastern claims that for the CIR to raise such an issue now
would constitute a violation of its right to due process; following settled rules of procedure and
fair play, the CIR should not be allowed at the appeal level to change his theory of the case.
Eastern further argues that there is no evidence on record that would evidently show that
respondent is also engaged in other transactions that are not subject to VAT.
Issue:
Whether or not the rule in Section 104(A) of the Tax Code on the apportionment of tax credits
can be
applied in appreciating Eastern’s claim for tax refund, considering that the matter was raised by
the CIR only when he sought reconsideration of the CTA ruling
Held:
Yes. The question of the applicability of Section 104(A) of the Tax Code was already raised but
the tax court did not rule on it. This failure should not be taken against the CIR. The mere
declaration of exempt sales in the VAT returns, whether based on Section 103 of the Tax Code
or some other special law, should have prompted for the application of Section 104 (A) of the
Tax Code to Eastern’s claim.
The general rule is that appeals can only raise questions of law or fact that (a) were raised in
the court below, and (b) are within the issues framed by the parties therein (People v.
Echegaray, G.R. No. 117472). An issue which was neither averred in the pleadings nor raised
during trial in the court below cannot be raised for the first time on appeal.
The rule against raising new issues on appeal is not without exceptions; it is a procedural rule
that the Court may relax when compelling reasons so warrant or when justice requires it. What
constitutes good and sufficient cause that would merit suspension of the rules is discretionary
upon the courts (CIR v. Mirant Pagbilao Corporation, G.R. No. 159593). Another exception is
when the question involves matters of public importance.
“Taxes are the lifeblood of the government.” For this reason, the right of taxation cannot easily
be surrendered; statutes granting tax exemptions are considered as a derogation of the
sovereign authority and are strictly construed against the person or entity claiming the
exemption. Claims for tax refunds, when based on statutes granting tax exemption or tax
refund, partake of the nature of an exemption; thus, the rule of strict interpretation against the
taxpayer-claimant similarly applies (CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75).
The taxpayer is charged with the heavy burden of proving that he has complied with and
satisfied all the statutory and administrative requirements to be entitled to the tax refund. This
burden cannot be offset by the non-observance of procedural technicalities by the
government’s tax agents when the non- observance of the remedial measure addressing it does
not in any manner prejudice the taxpayer’s due process rights.
Lapses in the literal observance of a rule of procedure may be overlooked when they have not
prejudiced the adverse party and especially when they are more consistent with upholding
settled principles in taxation

COMISSIONER OF INTERNAL REVENUE vs. EASTERN TELECOMMUNICATIONS

G.R. No. 163835, July 7, 2010 BRION, J.
TOPIC: CONSTRUCTION AND INTERPRETATION OF THE DIFFERENT TYPES OF
LAW (TAXATION – TAX EXEMPTION)
FACTS:
 Eastern filed with the CIR a written application for refund or credit of unapplied input taxes it
paid on the imported equipment purchased during 1995 and 1996 amounting to
P22,013,134.00. To toll the running of the two-year prescriptive period under the same
provision, Eastern filed an appeal with the CTA. The CTA found that Eastern has a valid claim for
the refund/credit of the unapplied input taxes, declaring it entitled to a tax refund of
P16,229,100.00.
 The CIR filed a motion for reconsideration of the CTA’s decision. Subsequently, it filed a
supplemental motion for reconsideration. The CTA denied the CIR’s motion for reconsideration.
The CIR then elevated the case to the CA, who affirmed the CTA ruling and likewise denied the
subsequent motion for reconsideration. Hence, the present petition.
 The CIR posits that, applying Section 104(A) of the Tax Code on apportionment of tax credits,
Eastern is entitled to a tax refund of only a portion of the amount claimed. Since the VAT
returns clearly reflected income from exempt sales, the CIR asserts that this constitutes as an
admission on Eastern’s part that it engaged in transactions not subject to VAT. Hence, the
proportionate allocation of the tax credit to VAT and non-VAT transactions provided in Section
104(A) of the Tax Code should apply.
 Eastern objects to the arguments raised in the petition, alleging that these have not been
raised in the Answer filed by the CIR before the CTA and was only raised. In fact, the CIR only
raised the applicability of Section 104(A) of the Tax Code in his supplemental motion for
reconsideration of the CTA’s ruling. Eastern claims that for the CIR to raise such an issue now
would constitute a violation of its right to due process; following settled rules of procedure and
fair play, the CIR should not be allowed at the appeal level to change his theory of the case.
ISSUE:
WON the rule in Section 104(A) of the Tax Code on the apportionment of tax credits can be
applied in appreciating Eastern’s claim for tax refund, considering that the matter was raised by
the CIR only when he sought reconsideration of the CTA ruling.
RULING:
The Court ruled in the positive, stating that the question of the applicability of Section 104(A) of
the Tax Code was already raised but the tax court did not rule on it. This failure should not be
taken against the CIR. The mere declaration of exempt sales in the VAT returns, whether based
on Section 103 of the Tax Code or some other special law, should have prompted for the
application of Section 104 (A) of the Tax Code to Eastern’s claim.
For next meeting:

1. CIR v. Team Energy Corporation, G.R. No. 230412, March 27, 2019
2. CIR v. Negros Consolidated Farmers Multi-Purpose Cooperative, G.R. No. 212735,
December 5, 2018
3. Contex Corporation v. CIR, G.R. No. 151135, July 2, 2004
4. CIR v. Philippine Health Care Providers, Inc., G.R. No. 168129, April 24, 2007
5. CIR v. Cebu Toyo Corporation, G.R. No. 149073, February 16, 2005
6. Coral Bay Nickel Corporation v. CIR, G.R. No. 190506, June 13, 2016
7. CIR v. Eastern Telecommunications Philippines, Inc., G.R. No. 163835, July 7, 2010
8. Sitel Philippines Corporation v. CIR, G.R. No. 201326, February 8, 2017
9. Fort Bonifacio Development Corporation v. CIR, G.R. No. 173425, September 4, 2012
10. San Roque Power Corporation v. CIR, G.R. No. 180345, November 25, 2009
11. CIR v. Aichi Forging Company of Asia, G.R. No. 184823, October 6, 2010
12. CIR v. San Roque Power Corporation, G.R. No. 187485, February 12, 2013
13. San Roque Power Corporation v. CIR, G.R. No. 203249, July 23, 2018
14. CIR v. Mirant Pagbilao Corporation, G.R. No. 172129, September 12, 2008
15. Atlas Consolidated Mining v. CIR, G.R. No. 141104, June 8, 2007
16. Kepco Philippines Corporation v. CIR, G.R. No. 179961, January 31, 2011
SAN ROQUE POWER CORPORATION VS CIR GR 180345, November 25, 2009
FACTS:
Petitioner entered into a Power Purpose Agreement with NAPOCOR. Petitioner will design,
construct, install, complete and test the power station, NPC shall purchase all the electricity
generated by the power plant. Petitioner applied as zero rated status from BIR from September
27, 1998-2002. Petitioner filed with BIR separate administrative claims for refund for unutilized
input VAT paid for the period of Jan- March 2002, April-June 2002, July-Sept 2002 and Oct-Dec
2002.
Respondent failed to act on the request for tax refund or credit of the petitioner, which
prompted the latter to file on April 5, 2004 with CTA Division, before it could be barred by
prescription. CTA division denied the petition, En Banc affirmed it because it did not present
any records of zero-rated or effectively zero-rated transactions.
ISSUE:
W/N petitioner is entitled to refund or tax credit representing zero-rated or effectively zero-
rated sales.
HELD:
Yes, the evidence presented by the petitioner shows compliance with the requirements for
refund or credit of VAT.
Based on the evidences presented petitioner complied with the abovementioned requirements,
first, petitioner had adequately proved that it is a VAT-registered taxpayer when it presented
Certificate of Registration. Second, it is unquestionable that petitioner is engaged in providing
electricity for NPC, an activity which is subject to zero-rate. Third, petitioner offered as evidence
VAT invoices and official receipts. Fourth, the input taxes claimed, which consisted of local
purchases and importations made in 2002, are not transitional taxes. Fifth, the audit report
affirms that the input VAT claimed for tax refund or credit is net of the input VAT that was
already offset against output VAT. Next, the VAT paid by petitioner to local purchases is not
transitional input tax. The requirement that to be entitled to tax refund for zero-rated sales, the
foreign exchange proceeds must have duly accounted for per BSP rule does not apply where
the sale of electricity did not involve any foreign currency. Lastly, the claim for VAT refund was
filed within 2 years after the close of the taxable quarter when sales were made.
The main issue here is the compliance with 6th requirement, the existence of zero rated or
effectively zero rated transaction to which creditable input tax may be attributed. NIRC does
not limit the definition of "sale" to commercial transactions in the normal course of business,
rather it extends the term to transactions that are "deemed" sale, The fact that it was not
transferred through a commercial sale or in the normal course of business does not deflect
from the fact that such transaction is deemed as a sale under the law.
Petitioner was able to positively show that it was able to accumulate excess input taxes on
various importations and local, which were attributable to a transfer of electricity in favor of
NPC. The fact that it had filed its claim for refund or credit during the quarter when the transfer
of electricity had taken place, instead of at the close of the said quarter does not make
petitioner any less entitled to its claim. Given the special circumstances of this case, wherein
petitioner was incorporated for the sole purpose of constructing or operating a power plant
that will transfer all the electricity it generates to NPC, there is no danger that petitioner would
try to fraudulently claim input tax paid on purchases that will be attributed to sale transactions
that are not zero-rated. Substantial justice, equity and fair play are on the side of the petitioner.
Technicalities and legalisms, however, exalted, should not be misused by the government to
keep money not belonging to it, thereby enriching itself at the expense of its law abiding
citizens.
Note:
To claim refund or tax credit under Section 112(A), petitioner must comply with the following
criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or
effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not
transitional input taxes; (5) the input taxes have not been applied against output taxes during
and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or
effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B);
and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly
accounted for in accordance with BSP rules and regulations; (8) where there are both zero-
rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be
directly and entirely attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and (9) the claim is filed within two years after the close
of the taxable quarter when such sales were made.