FACTS

BIR Regional Director Rodita B. Galanto of BIR Region 12 - Bacolod City required UCSFA-
MPC to pay the value-added tax (VAT) in advance before her office could issue the
Authorization Allowing Release of Refined Sugar (AARRS) from the sugar refinery/mill in
November 2007. This was the first time the Cooperative was compelled to do so. This prompted
the cooperative to check with the BIR to see if it was exempt from paying VAT under Section
109(1) of the National Internal Revenue Code (NIRC).

The BIR responded positively to UCSFA-inquiry. MPC's The CIR ruled in BIR Ruling No.
ECCP-015-08 that the cooperative "is considered the actual producer of the members' sugarcane
production, because it primarily provided various inputs (fertilizers), capital, technology transfer,
and farm management."

As a result, the CIR confirmed that UCSFA-sales MPC's of produce to members and non-
members are VAT-free.

As a result, Regional Director Galanto stopped requiring UCSFA-MPC to pay VAT in advance
and began issuing AARRS in its favor, allowing the cooperative to withdraw its refined sugar
from the refinery. However, despite the administrative legal opinion, Regional Director Galanto
demanded advance VAT payment from UCSFA-MPC in November 2008. UCSFA-MPC was
forced to pay advance VAT due to its inability to withdraw refined sugar from the refinery/mill
for its operations.

On November 11, 2009, UCSFA-MPC filed an administrative claim for refund with the BIR,
claiming tax exemption under Republic Act No. (RA) 6938, also known as the Cooperative Code
of the Philippines (Cooperative Code), and Section 109(1) of the NIRC.

It also filed a judicial claim for refund with the CTA division on November 16, 2009. To
substantiate its claim, UCSFA-MPC presented, among other documents, its Certificates of
Registration and Good Standing issued by the CDA; Certificate of Tax Exemption and BIR
Ruling No. ECCP-015-08 issued by the BIR; and its Summary of VAT Payments Under Protest,
Certificates of Advance Payment, official receipts, and payment forms.
ISSUES

1. Whether or not the exemption from VAT on sale of refined sugar by an agricultural
cooperative includes the exemption from the requirement of advance payment thereof.

2. Whether or not UCSFA-MPC has the right to claim for a refund for the amounts it had paid
from November 15, 2007 to February 13, 2009.

RULING

1. The CTA en banc ruled that the cooperative is not required to pay advance VAT. It also ruled
that the exemption from paying VAT on sales must include the exemption from paying advance
VAT.

According to RR Nos. 6-2007 and 13-2008, VAT on the sale of refined sugar, which is normally
payable within a month of the actual sale of refined sugar, must be paid in advance before the
sugar owner can even withdraw the refined sugar from the sugar refinery/mill. Any advance
VAT paid by refined sugar sellers is deductible from their output tax on the actual gross selling
price of refined sugar.

As a result, once the cooperative has demonstrated that it has met the requirements of Section
109(1) of the NIRC for VAT exemption on its sale of refined sugar, its exemption from the
advance payment of VAT should be granted and recognized automatically. On these grounds, we
reject the CIR's contention that RR No. 13-2008 requires the submission of a certificate of good
standing as a condition for a cooperative's exemption from the requirement of VAT advance
payment. Similarly, the petitioner's argument that the submission of monthly VAT declarations
and quarterly VAT returns is required for a tax refund claim must fail.

2. Being exempt from VAT on the sale of refined sugar and the requirement of advance payment
of VAT, the amounts that UCSFA-MPC had paid from November 15, 2007 to February 13,
2009, were illegally and erroneously collected. Accordingly, a refund is in order. Thus, the
petition of the CIR has been denied and accordingly AFFIRM the June 5, 2013 decision and the
October 30, 2013 resolution of the CTA en banc in CTA EB No. 846.