Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=82399:56257-1&catid=1575&Itemid=566
Timestamp: 2019-04-19 10:43:26+00:00

Document:
G.R. No. 187485, October 08, 2013 - COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SAN ROQUE POWER CORPORATION, Respondent.; G.R. No. 196113, October 08, 2013 - TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.; G.R. No. 197156, October 08, 2013 - PHILEX MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SAN ROQUE POWER CORPORATION, Respondent.
PHILEX MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the Comment to the Motion for Reconsideration filed by the Commissioner of Internal Revenue (CIR) in G.R. No. 187485, the Motion for Reconsideration filed by the CIR in G.R. No. 196113, and the Comment to the Motion for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R. No. 196113.
The CIR, on the other hand, asserts that Taganito Mining Corporation’s (Taganito) judicial claim for tax credit or refund was prematurely filed before the CTA and should be disallowed because BIR Ruling No. DA-489-03 was issued by a Deputy Commissioner, not by the Commissioner of Internal Revenue.
The decision now on appeal reflects the orthodox view that an unconstitutional act, for that matter an executive order or a municipal ordinance likewise suffering from that infirmity, cannot be the source of any legal rights or duties. Nor can it justify any official act taken under it. Its repugnancy to the fundamental law once judicially declared results in its being to all intents and purposes a mere scrap of paper. As the new Civil Code puts it: “When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws of the Constitution.” It is understandable why it should be so, the Constitution being supreme and paramount. Any legislative or executive act contrary to its terms cannot survive.
Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.
Clearly, for the operative fact doctrine to apply, there must be a “legislative or executive measure,” meaning a law or executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such executive issuance until its invalidation by the court, the effects of the law or executive issuance, when relied upon by the public in good faith, may have to be recognized as valid. In the present case, however, there is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-03.
To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that “the BIR and the CTA in actual practice did not observe and did not require refund seekers to comply with the 120+30 day periods.”4This is glaring error because an administrative practice is neither a law nor an executive issuance. Moreover, in the present case, there is even no such administrative practice by the BIR as claimed by San Roque.
In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finance’s One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) asked the BIR to rule on the propriety of the actions taken by Lazi Bay Resources Development, Inc. (LBRDI). LBRDI filed an administrative claim for refund for alleged input VAT for the four quarters of 1998. Before the lapse of 120 days from the filing of its administrative claim, LBRDI also filed a judicial claim with the CTA on 28 March 2000 as well as a supplemental judicial claim on 29 September 2000. In its Memorandum dated 13 August 2002 before the BIR, the DOF-OSS pointed out that LBRDI is “not yet on the right forum in violation of the provision of Section 112(D) of the NIRC” when it sought judicial relief before the CTA. Section 112(D) provides for the 120+30 day periods for claiming tax refunds.
The DOF-OSS itself alerted the BIR that LBRDI did not follow the 120+30 day periods. In BIR Ruling No. DA-489-03, Deputy Commissioner Jose Mario C. Buñag ruled that “a taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.” Deputy Commissioner Buñag, citing the 7 February 2002 decision of the Court of Appeals (CA) in Commissioner of Internal Revenue v. Hitachi Computer Products (Asia) Corporation5(Hitachi), stated that the claim for refund with the Commissioner could be pending simultaneously with a suit for refund filed before the CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no administrative practice by the BIR that supported simultaneous filing of claims. Prior to BIR Ruling No. DA-489-03, the BIR considered the 120+30 day periods mandatory and jurisdictional. Thus, prior to BIR Ruling No. DA-489-03, the BIR’s actual administrative practice was to contest simultaneous filing of claims at the administrative and judicial levels, until the CA declared in Hitachi that the BIR’s position was wrong. The CA’s Hitachi decision is the basis of BIR Ruling No. DA-489-03 dated 10 December 2003 allowing simultaneous filing. From then on taxpayers could rely in good faith on BIR Ruling No. DA-489-03 even though it was erroneous as this Court subsequently decided in Aichi that the 120+30 day periods were mandatory and jurisdictional.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: “x x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents.” Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no “decision” or “deemed a denial” decision of the Commissioner for the CTA to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner x x x.
San Roque’s argument must, therefore, fail. The doctrine of operative fact is an argument for the application of equity and fair play. In the present case, we applied the doctrine of operative fact when we recognized simultaneous filing during the period between 10 December 2003, when BIR Ruling No. DA-489-03 was issued, and 6 October 2010, when this Court promulgated Aichi declaring the 120+30 day periods mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-03.
Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or ruling issued by the Commissioner that is relied upon by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or ruling, will not suffice because such a mere administrative practice may not be uniformly and consistently applied. An administrative practice, if not formalized as a rule or ruling, will not be known to the general public and can be availed of only by those with informal contacts with the government agency.
Since the law has already prescribed in Section 246 of the Tax Code how the doctrine of operative fact should be applied, there can be no invocation of the doctrine of operative fact other than what the law has specifically provided in Section 246. In the present case, the rule or ruling subject of the operative fact doctrine is BIR Ruling No. DA-489-03 dated 10 December 2003. Prior to this date, there is no such rule or ruling calling for the application of the operative fact doctrine in Section 246. Section 246, being an exemption to statutory taxation, must be applied strictly against the taxpayer claiming such exemption.
San Roque insists that this Court should not decide the present case in violation of the rulings of the CTA; otherwise, there will be adverse effects on the national economy. In effect, San Roque’s doomsday scenario is a protest against this Court’s power of appellate review. San Roque cites cases decided by the CTA to underscore that the CTA did not treat the 120+30 day periods as mandatory and jurisdictional. However, CTA or CA rulings are not the executive issuances covered by Section 246 of the Tax Code, which adopts the operative fact doctrine. CTA or CA decisions are specific rulings applicable only to the parties to the case and not to the general public. CTA or CA decisions, unlike those of this Court, do not form part of the law of the land. Decisions of lower courts do not have any value as precedents. Obviously, decisions of lower courts are not binding on this Court. To hold that CTA or CA decisions, even if reversed by this Court, should still prevail is to turn upside down our legal system and hierarchy of courts, with adverse effects far worse than the dubious doomsday scenario San Roque has conjured.
San Roque cited cases7 in its Supplemental Motion for Reconsideration to support its position that retroactive application of the doctrine in the present case will violate San Roque’s right to equal protection of the law. However, San Roque itself admits that the cited cases never mentioned the issue of premature or simultaneous filing, nor of compliance with the 120+30 day period requirement. We reiterate that “[a]ny issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as precedent.”8Therefore, the cases cited by San Roque to bolster its claim against the application of the 120+30 day period requirement do not have any value as precedents in the present case.
Leonardo-De Castro, Brion, Bersamin, Abad, and Perez, JJ., concur.
Sereno, C.J., I maintain my dissent.
Velasco, Jr, J., I dissenting. Please see dissenting opinion.
Peralta, Mendoza, Reyes, and Perlas-Bernabe, JJ., join the dissent of J. Velasco.
Del Castillo, J., I join J. Leonen’s concurring and separate dissenting opinion.
Leonen, J., see separate dissenting and concurring opinion.
9 G.R. No. 196113, Motion for Reconsideration, p. 4.
Before Us are the Motions for Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485 and the Commissioner of Internal Revenue (CIR) in G.R. No. 196113.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) thereof.
In his Resolution denying the motions at bar, Justice Carpio reiterates the Decision dated February 12, 2013. He explained that the period in Section 112 (C) must be construed as mandatory from January 1, 1998 until December 10, 2003. From December 11, 2003, the 120<30 day period is discretionary until October 5, 2010. Then, from October 6, 2010 onwards, the 120<30 day period is again mandatory.
Justice Carpio ratiocinated that under the 1997 NIRC, in the filing of judicial claims for the refund of excess input VAT or the issuance of a tax credit certificate (TCC), the observance of the 120<30 day-provided in Section 112 (C) of the 1997 Tax Code is mandatory. However, since the Bureau of Internal Revenue (BIR) issued BIR Ruling No. DA-489-03 Re: Lazi Bay Resources Development, Inc. (Lazi Bay ruling) on December 10, 2003, which provided the contrary position, taxpayers can rely on this BIR ruling until its reversal in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.2 (Aichi) promulgated on October 6, 2010. In other words, Justice Carpio is of the position that Section 112 (C) must be considered mandatory from the effectivity of the 1997 NIRC on January 1, 1998, except the period between December 10, 2003 and October 6, 2010.
Chief Justice Sereno in her Separate Dissenting Opinion, in the meantime, would advance the application of the mandatory nature of the period in Section 112 (C) from the date of promulgation of Aichi on October 6, 2010. She is of the considered view that due process and equity demands that taxpayers, who relied on the various Court of Tax Appeals (CTA) and BIR Opinions promulgated prior to Aichi allowing the discretionary treatment of the period, must be exempted from the mandatory application of Section 112 (C). Thus, Section 112 (C) is not mandatory during the period between January 1, 1998 (the date of effectivity of the 1997 NIRC) and October 6, 2010 (the date of promulgation of Aichi).
Justice Leonen, on the other hand, states in his Separate Opinion the observation that the strict and mandatory application of the 120<30 day-period must be reckoned from the date of the effectivity of the 1997 NIRC. He posits that the construction made by this Court in Aichi should be read into and considered part of Section 112 (C) from the moment it became effective on January 1, 1998.
In my previous Dissent, I submitted that for judicial claims for refund/credit of input VAT filed from January 1, 1996 (effectivity of Revenue Regulation No. [RR] 7-95) up to October 31, 2005 (prior to effectivity of RR 16-2005), the Court may treat the period provided for the filing of judicial claims as permissible provided that both the administrative and judicial claims are filed within two (2) years from the close of the relevant taxable quarter. Then, for judicial claims filed from November 1, 2005 (date of effectivity of RR 16-2005) and thereafter, the prescriptive period under Section 112 (C) is mandatory.
I explained that RR 7-95 was clear that both the administrative and judicial claims must be filed within 2 years from the close of the relevant taxable quarters. Hence, taxpayers were led to believe that the 120<30 day-period (or 60<30 as the case may be) is immaterial provided that the 2-year prescriptive period is observed. RR 7-95 remained in effect even after the effectivity of the 1997 NIRC on January 1, 1998, as shown by the various issuances of the Secretary of Finance, BIR (RMC 42-03, RMC 49-03, BIR Ruling No. DA-489-03), and the decisions of the CTA, which have mostly been affirmed by this Court.
It was only on November 1, 2005, when RR 16-2005 took effect, that the import of Section 112 (C) was clarified and the standing rule enunciated in RR 07-95 was effectively repealed.
Hence, the discretionary treatment of the 120<30 day-period in Section 112 (C) must be allowed during the period from January 1, 1996 until October 31, 2005 in recognition of the prevailing rule laid down in RR 7-95, as exemplified by the ruling in BIR Ruling No. DA-489-03, that allowed the simultaneous filing of administrative and judicial claims for the refund of excess VAT. Thereafter, or from November 1, 2005 onwards, the 120<30 day period must be strictly applied and is mandatory pursuant to the letter of Section 112 (C), as correctly implemented by RR 16-2005 and recognized in Aichi.
It is the contention of movant San Roque, which filed its judicial claim for VAT refund on April 10, 2003, or 13 days after filing its administrative claim, that the prevailing rule and practice observed by the BIR and the CTA at the time it filed its judicial claim sanctioned the discretionary treatment of Section 112 (C) of the 1997 NIRC. Hence, the relaxation of the strict and mandatory application of the said provision must not, as argued, be reckoned from the issuance of Lazi Bay in December 2003 but from the time that the BIR set in black and white the rule mandating the strict and mandatory observance of the 120<30 day period in said Section 112 (C).
On this point, I agree with the movant San Roque and vote to grant its Motion for Reconsideration.
Meanwhile, Section 4 of the 1977 NIRC, as amended, specified the provisions that must be contained in rules and regulations, not just in rulings of the BIR. Among other things, the 1977 NIRC required that “[t]he conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and conduct of legal actions and proceedings”6 must be defined in a revenue regulation, not just an issuance of the BIR. Certainly, therefore, the specification of the details regarding the observance of the prescriptive period for the filing of judicial claims is within the power of the Secretary of Finance, not the CIR.
SEC. 244. The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code.
Given the limited power vested on the CIR in relation to the rule-making power reposed on the Secretary of Finance, the CIR cannot amend and reverse a revenue regulation by the mere expedience of issuing a ruling. Thus, if this Court is bent on upholding the effectivity of BIR Ruling No. DA-489-03 in Lazi Bay, it must be taken as an application of a rule already laid down and specified by the Secretary of Finance in RR 7-95, and not as an isolated application that deviated from an un-interpreted provision of law.
The fact that then Deputy Commissioner for Legal & Inspection Group Jose Mario Buñag, instead of the CIR, issued BIR Ruling No. DA-489-03 is yet another proof that it is not to be construed as a departure from a rule or provision of law but an application of a rule already laid down in RR 7-95 and prevailing at the time of its issuance. Section 7 of the 1997 NIRC specifically prohibits the delegation of the power “to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau.”8 Hence, the Lazi Bay ruling can only be taken as an indication of a prevailing rule laid down by the Secretary of Finance and affirmed and resonated in the Revenue Memorandum Circulars (RMCs) issued by the CIR himself, such as RMC No. 42-03 and RMC 49-03.
Indeed, RR 7-95 prevails over a mere BIR Ruling. Note that a revenue regulation is published before its effectivity so that taxpayers are notified of its effects and the consequences of the failure to abide thereby. This is not so with respect to BIR Rulings. Instead, the rulings are addressed and transmitted to the parties who applied for the issuance of the BIR’s opinion; other taxpayers are not notified by publication in a newspaper of general circulation of its import and consequence. Unless they conduct a thorough and in-depth investigation, they will not be informed of the opinion of the BIR as embodied in the ruling. As between RR 7-95, a revenue regulation and the BIR ruling in Lazi Bay, therefore, reliance on the former is more in accord with due process.
Q-17: If a claim submitted to the Court of Tax Appeals for judicial determination is denied by the CTA due to lack of documentary support, should the corresponding claim pending at the BIR offices be also denied?
Clearly, the period referred to by the CIR in issuing RMC 49-03 is the period laid down in Section 112 (C)11 of the 1997 NIRC, as interpreted and enforced by RR 7-95, i.e., “the two (2) year period from the date of filing of the VAT return for the taxable quarter.”12 Hence, taxpayers were allowed to treat the 120-day period as non-compulsory and merely discretionary so long as the 2-year period is observed and complied.
Hence, the prevailing rule even after the effectivity of the 1997 NIRC was to treat the 120<30-day period as non-mandatory since RR 7-95 was not affected and remained in effect.
Also worthy of note is that the provision that RR 7-95 interpreted and enforced virtually remained the same; Section 106(d) of the 1977 NIRC, as amended, was substantially adopted and re-enacted by Section 112 (C) of the 1997 NIRC.14 It is a hornbook rule that when the legislature reenacts a law that has been construed by an executive agency using substantially the same language, it is an indication of the adoption by the legislature of the prior construction by the agency.15 The almost verbatim reproduction of Section 106(D) of the 1977 NIRC by Section 112(C) of the 1997 NIRC is therefore an implied recognition by the legislature of the propriety of the interpretation made by the Secretary of Finance of the proper prescriptive period in filing judicial claims for input VAT refund/issuance of TCCs.
On 4 August 2000, Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. The claim involved P25,023,471.84 representing excess input VAT attributable to Hitachi’s zero-rated export sales for the four taxable quarters of 1999.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing of the word "zero-rated" on invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law.
It is, therefore, inaccurate to state that before the issuance of BIR Ruling DA-489-03 in Lazi Bay on 10 December 2003, there was no administrative practice, rule or ruling rule followed by the BIR that supported simultaneous filing of claims and that prior to the Lazi Bay ruling, the BIR considered the 120<30 day period mandatory. Rather, the Lazi Bay ruling is one of the outcomes and tangible evidence of such practice, as made concrete by RR 7-95, that allowed the simultaneous filing of claims.
Similarly, as pointed out by movant, the fact that this Court, like the CTA and the BIR, has passed upon the issue of the prescriptive period for filing the judicial claim sub silencio is also a glaring evidence of the sanctioned rule and practice that allowed for the discretionary and non-mandatory treatment of the 120<30 day period in Section 112(C) of the 1997 NIRC.
Case was decided on the merits. CIR and CTA said nothing about prematurity of judicial claim or CTA’s lack of jurisdiction.
CTA EB explicitly noted that the judicial claim was filed long after the lapse of the 120<30 day period under Sec. 112. However, no mention was made about the prescription or the CTA’s lack of jurisdiction. The case was decided on the merits.
Case was resolved on the merits. No one raised the issue of violation of Sec. 112 or the CTA’s lack of jurisdiction.
Although CTA Decisions are not binding legal precedents, their factual recitals are nothing less than indelible records of, and incontrovertible proof as to, the manner in which both the BIR and the CTA regarded the 120<30 day period, and the manner in which they actually handled administrative and judicial claims for refund/tax credit during the period in question. And the narrations of facts and case antecedents culled from the CTA En Banc Decisions establish that the BIR and CTA, by their very actuations in the period between 1996 and 2005, did in fact permit, tolerate and encourage taxpayers to file their refund/tax credit claims without regard to the 120<30 day period in Section 112.
It is also necessary to point out that the February 12, 2013 Decision in these consolidated cases, in contrast, cited only one solitary decision rendered by the Court of Appeals (CA), not the CTA, as supposed proof that the BIR, in the years between 1998 and 2003, allegedly took the position that the 120<30 day period was mandatory and jurisdictional.
While sheer number of cases is not always determinative of an issue, in this particular case, the large number of CTA EB Decisions containing factual recitals which prove that the BIR and the CTA did not observe the 120<30 day period most certainly carry far more weight than a single solitary CA case allegedly showing the opposite.
CIR v. Ironcon Builders & Development Corp., G.R. No. 180042, February 8, 2010.
Mirant Sual Corporation (formerly, Southern Energy Philippines, Inc.) v. CIR, G.R. No. 167315, February 10, 2010.
Hitachi Global Storage Technologies Phils. Corp. v. CIR, G.R. No. 174212, October 20, 2010.
Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) v. CIR, G.R. No. 172378, January 17, 2011.
Intel Technology Philippines, Inc. v. CIR, G.R. No. 172613, February 13, 2013 [This is an unsigned Resolution of the Court’s Second Division].
An examination of the narration of facts in each case of the above-listed cases shows that each case pertains to a judicial claim for refund of excess unutilized input VAT pursuant to Section 112 of the 1997 NIRC, and these judicial claims were all filed with the CTA within the period starting from January 1, 1998 to December 10, 2003, the so-called period of strict enforcement of the 120<30 day period according to this Court’s February 12, 2013 Decision in the present consolidated cases. Without exception, each of the above-listed judicial claims did not comply with the 120<30 day period requirement. But in every instance and notwithstanding that the narrations of facts very clearly and unmistakably showed that these claims failed to comply with the aforesaid requirement, this Court nonetheless either granted those judicial claims or else denied them on grounds other than such non-compliance. Notably, in every single occasion, the Court let pass said non-compliance sans comment.
What is more, seven (7) of the foregoing Decisions and two (2) Resolutions mentioned above were promulgated after Aichi was promulgated on October 6, 2010, yet unlike San Roque, those nine judicial claims were not subjected to the Aichi ruling and the retroactive application of the Court’s new interpretation. In other words, even in the post-Aichi scenario, the Court still refrained from denying outright these claims for their failure to strictly comply with the 120<30 day period in recognition and cognizance of the prevailing practice after the effectivity of the 1997 NIRC and pre-RR 16-2005 that allowed the discretionary treatment of the period.
The mandatory application of the 120<30 day period was set in black and white only after the effectivity of RR 16-2005.
In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with subparagraph (a) above.
Since, similar to RR 7-95, RR 16-2005 was promulgated pursuant to Sections 244 and 245 of the 1997 Tax Code,22 it embodies a legislative rule that deserves the deference and respect due the law it implements. For this reason, from the effectivity of RR 16-2005 on November 1, 2005, all taxpayers are bound to strictly observe the 120<30 day period provided in Section 112 (C) and there was no need to wait for the promulgation of a decision like Aichi in view of the existence of a clear legislative rule that finally repealed all other rulings that may have clouded the mandatory nature of the 120<30 day period.
The Court finds the questioned revenue regulation to be legislative in nature. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. Court of Appeals, the Court recognized that the application of Section 277 calls for none other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.
In line with the prospective application of RR 16-2005, no one can argue with the February 12, 2013 Decision where it declared that “[t]his court is applying Mirant and Aichi prospectively,” on account of its sound basis in hornbook doctrine, law and jurisprudence, apart from being fully justified by considerations of fairness and equity. However, the Decision immediately departed from the doctrinal norm of prospectivity by retroactively applying the new interpretation thus causing the denial of San Roque’s claim, while in the same breath announcing that the Court shall apply Mirant and Aichi prospectively. We can avoid such jarring dissonance by applying the new Doctrine from the moment when the strict application of the period had been put in ink by RR 16-2005.
The Decision of February 12, 2013 and the Resolution employ retroactivity to backdate the Court’s new interpretation of the 120<30 day period under Section 112. This is a dangerous precedent. The retroactivity of application of a new judicial interpretation must be seen for what it is – a corrective tool that must be used in a very controlled, restricted manner and only for very necessary, limited situations and occasions. It is not a tool to be employed lightly; extreme need therefor must be first established. For it is capable of destroying established contractual rights and relationships and causing drastic, massive damage.
Respondent deferentially submits that fairness and evenhandedness will opt for a prospective application of the new interpretation, given the unalterable fact that taxpayers had taken their cue from the policies, and procedures of the tax agency and the tax court, (which policies, issuances and procedures enjoyed what amounts to the tacit approval of the High Court), and had filed their claims accordingly, and now are in no position to undo what had been done years before.
Thus, if, as the Decision declares, “[t]axpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law,” there is more reason to maintain that refund seekers should not be prejudiced, penalized nor castigated for having taken guidance from the policies, pronouncements, issuances and actuations of the BIR and the CTA, which actuations have direct bearing on a difficult question of law.
Article 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
This Court is, therefore, duty-bound to actively refrain from actions that may be perceived as elevating strict adherence to procedural rules and technicalities over and above the taxpayer’s clear, substantive legal right to the refund sought. We must remain cognizant of the taxpayer’s good faith compliance with procedures approved and sanctioned by the BIR and the CTA and accepted by this Court, and avoid creating obstacles to defeat the taxpayer’s substantive right to refunds.
Consistent with the principle of operative fact and the basic notions of fairness and equity, the strict and mandatory application of Section 112 (C) must be reckoned from the day the rule was set clarified and set in black and white—on the effectivity of RR 16-2005 on November 1, 2005. In net effect, all claims for refund of input VAT filed and commenced after November 1, 2005 must strictly observe the period provided in Section 112(C) of the 1997 Tax Code. Since San Roque filed its judicial claim in April 2003, or more than two (2) years before the effectivity of RR 16-2005, its claim for input VAT should be granted regardless of its failure to take into account the period provided in Section 112 (C).
The non-mandatory treatment of the 120<30 day period prior to November 1, 2005 should hold especially true for taxpayers like movant San Roque, that had filed its judicial claim within the 120 days, and not after the lapse of the period.
The prematurity in filing, unlike the late filing, of the judicial claim cannot serve to deprive the CTA of its jurisdiction as it is axiomatic that the jurisdiction of courts is determined by law.27 The discretion is, therefore, with the CTA to dismiss without prejudice, upon proper motion, a judicial claim prematurely filed by a taxpayer. This Court cannot, contrary to RA 1125 which vested upon the CTA its jurisdiction, declare the immediate deprivation of such jurisdiction to consider and evaluate the legitimacy of a taxpayer’s claim on the feeble ground that the taxpayer has failed to patiently await the lapse of the period given to the CIR to act.
At most, the prematurity of the filing of the judicial claim for the refund of VAT is a ground for the dismissal without prejudice of the claim that can be waived by the BIR and disregarded by the CTA, if the tribunal is inclined to rule on the substantial aspect of the claim. It is not for this Court to pre-empt the decision of the CTA on the exercise of the jurisdiction it has been conferred by law.
We cannot, therefore, deny the movant’s claim for refund solely based on the prematurity of its judicial filing, which in the first place has been instigated by the taxpayer’s good faith reliance on a revenue regulation issued by the Secretary of Finance, the practice observed by the BIR and the CTA, and the silent tolerance by this Court.
While, indeed, the lifeblood of our country is the taxes due from the taxpayers, the heart of this nation beats in rhyme with justice and fairness that deplore the sacrifice of a substantial right in the altars of procedure. Let us therefore look into the merits of the movant’s rights and give credit to its good faith passing over of the period provided in Section 112 (C) of the 1997 NIRC.
Hence, all claims for input VAT refund/issuance of TCC filed after November 1, 2005 must strictly observe the 120<30 day period provided in Section 112 (C) of the 1997 NIRC. Meanwhile, all judicial claims filed prior to the same date are allowed to rely on the practice sanctioned by RR 7-95, as exemplified by BIR Ruling No. DA-489-03 in Lazi Bay.
For all the foregoing, I vote to GRANT the Motion for Reconsideration filed by San Roque Power Corporation in G.R. No. 187485, and DENY the Motion for Reconsideration of the Commissioner of Internal Revenue in G.R. No. 196113.
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.
13 Emphasis and underscoring supplied.
d) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with sub-paragraphs (a) and (b) hereof.
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.
30 Emphasis and underscoring supplied.
We undermine the operative value of the rule of law whenever we reward clearly erroneous administrative interpretation of statutes. We open the legal order to undeserved inconsistencies, and worse, we make the Commissioner of Internal Revenue vulnerable to pressure.
Inconsistency in the administrative implementation of clear statutory provisions and vulnerability of our revenue officials to rent-seeking behavior drive investors away from our markets.
Properly denying an irregular application for a tax refund would mean more funds that can be used for the social good. The beneficiaries of a social good may be too atomized that they may not have the resources to compel our tax officials to deny an improper application of refund of taxes made. In my view, this is the compelling rationale behind the principle that tax statutes are strictly construed against the taxpayer. Our legal order equalizes opportunities through its general principles.
I reiterate my concurrence with the interpretation of Section 112 (C) of the National Internal Revenue Code of 19971 (referred here as the 1997 Tax Code) that the 120+30 day period is mandatory and jurisdictional. It has been that way since 1997, and doubts as to what it clearly said only arose due to inconsistent issuances of the Bureau of Internal Revenue.
I, however, reiterate my dissent with respect to the application of this doctrinal interpretation as We resolved the Motions for Reconsideration of the February 12, 2013 Decision of this Court filed by San Roque Power Corporation in G.R. No. 187485, and the Commissioner of Internal Revenue in G.R. No. 196113.
In my view, the text of Section 112 (C) is clear. It puts all taxpayers on notice. The interpretations made through Revenue Regulation or by Opinion by a Deputy Commissioner of the Bureau of Internal Revenue contrary to the provisions of the law are clearly ultra vires and should not be countenanced. If We sanction these acts, it undermines the operative value of the statute as written. It rewards erroneous interpretation and unduly grants discretion to the Commissioner of Internal Revenue, which may be abused given the pressure from million-peso claims for tax refunds.
There is no room for any other interpretation of the text except that resort to an appeal with the Court of Tax Appeals is made (a) only after the 120-day period from the date of submission of complete documents to support the refund or tax credit certificate with the Commissioner of Internal Revenue or (b) within the 120-day period from the time the claim has been denied or only partially granted.
In the Decision, the majority considered the issuance by the Bureau of Internal Revenue of Ruling No. DA-489-03 dated December 10, 2003 in Re: Lazi Bay Resources Development, Inc. This opinion, rendered by a Deputy Commissioner, stated that the taxpayer need not wait for the lapse of the 120-day period before seeking judicial relief. The majority deemed it equitable to except, from the strict compliance with the 120+30-day mandatory and jurisdictional periods, judicial claims filed within the period from December 10, 2003, when Bureau of Internal Revenue Ruling No. DA-489-03 was issued, to October 6, 2010, when the doctrine in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.2 was adopted. The main ponencia still maintains that the taxpayers cannot be faulted for relying on the Bureau’s declaration.
In its Motion for Reconsideration, San Roque argues that by the ‘operative fact’ principle, due recognition should be given to the fact that even prior to the issuance of Bureau of Internal Revenue Ruling No. DA-489-03, including the time when its administrative and judicial claims for refund were filed on March 28, 2003 and April 10, 2003, respectively, the Bureau and the Court of Tax Appeals in actual practice neither observed nor demanded compliance with the 120+30-day period. Thus, in the spirit of justice, fairness and equity, San Roque insists that the rule on the mandatory and jurisdictional nature of the 120+30-day period should only be applied prospectively.
On the other hand, the Commissioner of Internal Revenue argues that the Bureau of Internal Revenue Ruling No. DA-489-03 is not a valid issuance authorized under Section 4 of the 1997 Tax Code because a deputy commissioner issued it.
I maintain my position that the Aichi doctrine3 as confirmed in San Roque should be applied to all undecided Value Added Tax or VAT refund cases, regardless of the period when the claim for refund was made.
When this Court interprets law, it declares what a particular provision has always meant. We do not create new legal obligations. We do not have the power to legislate. Interpretations of law made by courts necessarily always have a “retroactive” effect.
Once We determine that a previous interpretation of the law is erroneous, We cannot, at the same time, continue to give effect to such erroneous interpretation because Ours is the duty to uphold the true meaning of the law.
A construction placed upon the law by the Commissioner, even if it has been followed for years, if found to be contrary to law, must be abandoned. To say that such interpretation established by the administrative agency has effect would be to say that this Court has the power to control or suspend the effectivity of laws. We cannot hold ourselves hostage to an erroneous interpretation. To say that equity should be considered because it has been relied upon by taxpayers would mean to underestimate or, worse, make the ordinary beneficiaries of the use of our taxes invisible. We cannot use equity only to favor large taxpayers.
We cannot justify such course of action.
Sec. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
However, the Commissioner of Internal Revenue cannot legislate guidelines contrary to the law it is tasked to implement. Hence, its interpretation is not conclusive and will be ignored if judicially found to be erroneous.
Vested right is “some right or interest in the property which has become fixed and established, and is no longer open to doubt or controversy."
There are no vested rights in procedure. Taxpayers do not have vested rights over tax refunds. Refunds need to be proven and its application raised in the right manner as required by statute. Only after a final determination of the right to refund and its amount does it become a vested right for the taxpayer.
Where the taxpayer acted in bad faith.
This provision should only apply when there is a valid interpretation made by the Commissioner of Internal Revenue. In the present case, the Bureau of Internal Revenue Ruling No. DA-489-03 is ultra vires and was not validly issued since it was promulgated by a Deputy Commissioner.
In Aichi, this Court squarely addressed the particular issue on prematurity of a judicial claim based on its reasonable interpretation of the language of the 1997 Tax Code. In that case, this Court did not defer application of the rule laid down. This Court ordered the Court of Tax Appeals to dismiss Aichi’s appeal due to the premature filing of its claim for refund/credit of input value added tax. In Aichi, the administrative and judicial claims were simultaneously filed on September 30, 2004.
The Bureau of Internal Revenue Ruling is ultra vires and invalid not only because it contravenes the law but also because it was issued beyond the scope of the authority of the deputy commissioner. In this, I agree with Justice Velasco.
Under Section 411 of the 1997 Tax Code, the power to interpret the provisions of the Code and other tax laws is under the exclusive and original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance. Pursuant to Section 712 of the Tax Code, the Commissioner of Internal Revenue may delegate his or her powers to a subordinate official except, among others, the power to issue rulings of first impression13 or to reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue. The Bureau of Internal Revenue Ruling No. DA-489-03 is a ruling of first impression, declaring for the first time in written form the permissive nature of the 120-day period stated in Section 112 (C).
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax. — (a) x x x.
(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of the application but before the lapse of the two (2) year period from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the Court of Tax Appeals.
On the contrary, it is clear from the provision cited above that the appeal to the Court of Tax Appeals may be made only after the lapse of the 60-day (now 120-day) period without action by the Commissioner of Internal Revenue on the administrative claim. A rule or regulation cannot go beyond the terms and provisions of the basic law.15 Revenue Regulation No. 07-95, therefore, cannot go beyond the provisions of the Tax Code.
Even assuming, without conceding, that Justice Velasco’s interpretation of the Revenue Regulation is correct, it will still be ultra vires in the light of the clear provisions of the law.
San Roque further argues that strict adherence to procedural rules is exacted at the expense of substantive justice considering its clear entitlement to a refund. Such contention is misguided. Again, a value added tax refund is not a refund of an excessively, illegally or erroneously collected tax. A value added tax refund claim may be made because it is specifically allowed and provided for by law, i.e., Section 110 (B)16 and Section 112 (A)17 of the National Internal Revenue Code, as amended. Similar in nature to a tax exemption, it must be construed strictly against the taxpayer. Hence, strict compliance with both substantive and procedural requirements is required for a value added tax refund claim to prosper.
Finally, San Roque’s argument that the retroactive application of the subject Decision would have detrimental effects to the flow of investments, especially foreign, into our country and hampering the growth and development of our national economy, is inaccurate.
Investment is the process of exchanging income for goods that are expected to produce earnings at a later time.19 Investments are not only composed of private investments (local or foreign). There are also public investments. Public investments include building infrastructure such as roads, ports, power, water, and telecommunication facilities.20 These kinds of investments are as important to private investors as it is to the general population. National investment is an aggregate of both public and private investments in reality.
On the other hand, public savings (from government revenue) translate to investments in public goods that benefit the majority of the population,24 such as major infrastructure projects like roads and bridges, education, police and fire protection, to name a few.
For many foreign investors eyeing developing countries as a potential investment ground, infrastructure is also a critical issue.25 According to Dwight Perkins, et al., “Countries with poor infrastructure often cannot attract investment.”26 Since the Philippines is stricter compared to other countries in the region in terms of labor standards and wages, we will be in serious trouble if our government does not have enough revenue to sustain infrastructure projects. These projects also benefit private investment in the form of reduced transaction costs.
To reiterate, tax is only one aspect of the costs of doing business. Good infrastructure translates to reduced costs in more business-related aspects, such as transportation, communication, and other utilities.
Understandably, petitioners marshall arguments in support of their needs. Justice requires that We consider them carefully but weigh this in relation to the public interest. In doing so, We should always abide by Our understanding of the concept of the rule of law and always appropriately take the longer view. All these We can do so elegantly in this case with a plain, straightforward reading of what the law has always been providing since 1997.
GRANT the Motion for Reconsideration of the Commissioner of Internal Revenue in G.R. No. 196113.
6Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, G.R. No. 90776, June 3, 1991, 198 SCRA 82, 88.
11 SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
15 CIVIL CODE, Art. 7.
(B)Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
29 The World Bank has been aggregating data for indicators of governance and institutions, and one of the things they measure is Rule of Law, which is defined as “perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.” See D. KAUFMANN, A. KRAAY, AND M. MASTRUZZI, Governance Matters VIII: Aggregate and Individual Governance Indicators 1996-2008, p. 6. (visited May 27, 2013).

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 Art. 7