G.R. Nos. 219630-31

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT

There appears to be no dispute as to the two-year prescriptive period. As determined by the CTA Division, TMC filed its administrative claim for the four quarters of 2008 within two years from the close of the taxable quarters in question.

The controversy lies in the 120+30 day period, with the CIR insisting that the 120-day period had not commenced at all because TMC did not submit the complete documents as listed in RMO No. 53-98.

The Court already settled in Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue19 (Total Gas) that it is the taxpayer who ultimately determines when complete documents have been submitted for the purpose of commencing and continuing the running of the 120-day period:

In Total Gas, taxpayer Total Gas filed its administrative claim for refund of its unutilized input VAT for the first two quarters of 2007, inclusive of supporting documents, on May 15, 2008. It submitted additional supporting documents to the BIR on August 28, 2008. Since Total Gas did not receive any notice from the BIR that its submitted documents were in any way inadequate, the Court found that Total Gas had submitted complete documents in support of its claim on August 28, 2008, and started counting the 120-day period from said date.

In the instant case, TMC filed its administrative claim for refund of its excess input VAT for all four quarters of 2008, with the attached supporting documents, on December 1, 2009. TMC did not state any intention of filing additional documents and it had, in fact, made no further submission of supporting documents. Consequently, TMC is deemed to have already submitted its complete documents together with its administrative claim on December 1, 2009. Similar to Total Gas, the BIR did not give any notice to TMC that it lacked supporting documents and/or that TMC needed to submit additional documents. As the Court also declared in Total Gas, such written notice from the taxing authority is essential. Hence, the 120-day period for the BIR to act on the administrative claim of TMC commenced to run on December 1, 2009, and expired on March 31, 2010. Given the inaction of the BIR by the end of the period, TMC had 30 days from March 31, 2010, or until April 30, 2010, to file its judicial claim. TMC then timely filed its petition for review with the CTA on April 21, 2010.

The CIR cannot invoke RMO No. 53-98 to challenge the completeness of the supporting documents submitted by TMC. Again, in Total Gas, the Court had already rejected using the list of documents in RMO No. 53-98 as the benchmark for determining whether the taxpayer submitted complete documents in support of its claim for tax refund/credit. It reasoned as follows:

There is no showing in the present case that an audit had been conducted by the BIR against TMC for RMO No. 53-98 to apply. It is worth reiterating that TMC did not receive any written notice from the BIR requiring it to submit additional supporting documents to comply with RMO No. 53-98. Thus, per jurisprudence, the noncompliance by TMC with all the requirements listed in RMO No. 53-98 should not be taken against it and should not be fatal to its claim for tax refund/credit; more so in this case, wherein the CTA Division and En Banc found, based on the evidence presented during trial, that TMC was able to substantiate its claim.

The tax credit/refund of input VAT on depreciable capital goods attributable to zero-rated sales, with aggregate monthly acquisition cost of more than P1 Million, is subject to amortization.

In its petition, docketed as G.R. Nos. 219635-36, TMC asserts that the CTA En Banc committed reversible error in affirming the CTA Division ruling that the refund granted to a 100% zero-rated taxpayer of its input tax on depreciable goods amounting to more than P1 Million is subject to amortization. It questions the application by the CTA Division and En Banc of only Sec. 110(A) of the Tax Code of 1997, as amended, asserting that Sec. 110 of the said Code, including paragraphs (B) and (C) thereof, should be applied as a whole. TMC differentiates between "creditable input tax" governed by Sec. 110(A) and "input tax credit" attributable to zero-rated sales referred to in the proviso in Sec. 110(B). "Creditable income tax" in Sec. 110(A) is the input tax on purchases which can be credited against output VAT. In contrast, the proviso in Sec. 110(B) pertains to any input tax attributable to zero-rated sales which may be refunded or credited by the zero-rated taxpayer at its option. It is the submission of TMC herein that the provisions on depreciation and amortization of the Tax Code of 1997, as amended, as well as of Revenue Regulations (RR) No. 16-2005,22 as amended,23 cover only creditable input tax, and not input tax attributable to zero-rated sales being claimed for tax refund/credit; so that the application by the CTA of the said provisions to the latter constitutes judicial legislation.

Sec. 110 of the Tax Code of 1997, as amended, quoted in full below, provides for tax credits in general:

At the outset, it is established that the Philippine VAT system adheres to the tax credit method. The following discussion in Commissioner of Internal Revenue v. Seagate Technology (Phils.)24 is instructive on the matter:

TMC is of the mistaken notion that input VAT attributable to zero-rated sales is not creditable input VAT. Zero-rated sales or transactions are described as follows:

The tax credit method still applies to zero-rated sales; and input VAT attributable to such zero-rated sales also constitute creditable input VAT, i.e., input VAT evidenced by VAT invoice or official receipt which is creditable against output VAT. Zero-rated sales are distinct only because with tax rate set at zero percent, then no output tax shall be due on such sales. Without any output VAT against which the input VAT can be credited, the VAT-registered taxpayer is then allowed to apply for tax refund/credit of the input VAT from such sales.

In fact, Sec. 112(A) of the Tax Code of 1997, as amended, states that, "[a]ny VAT-registered person, whose sales are zero-rated or effectively zero-rated may x x x apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales x x x to the extent that such input tax has not been applied against output tax." This means that input VAT attributable to zero-rated sales may, at the option of the taxpayer, be (a) applied directly against output VAT due on other transactions, or (b) claimed as tax refund/credit. The second option is the only one available for taxpayers whose transactions are 100% zero-rated as it will not have any output VAT against which it may apply its input VAT. It may also be the more favorable option for taxpayers with mixed transactions as the refunded amount will be cash on hand, while the TCC issued may be applied to all national internal revenue taxes (not just limited to output VAT). When the taxpayer avails itself of the second option, it must prove that it has not previously availed itself of the first option. The necessary implication of all this is that input VAT attributable to zero-rated sales is still creditable input VAT, and having the second option available to the taxpayer does not change its nature.

Per the mandate of Sec. 110(A) of the Tax Code of 1997, as amended, input VAT shall be amortized when: (a) the goods purchased or imported are capital goods, i.e., used in the taxpayer's trade or business; (b) deduction for depreciation of the capital goods are allowed under the Tax Code of 1997, as amended; and (c) the aggregate acquisition cost of the depreciable capital goods for the calendar month they were purchased or imported exceeds P1 Million. Notably, the provision refers to "input tax" in general, without making any distinctions, exceptions, or exclusions.

Indeed, pursuant to the proviso in Sec. 110(B) of the Tax Code of 1997, as amended, the input VAT attributable to zero-rated sales may be credited against all other internal revenue taxes, as opposed to creditable input VAT in general which, under Sec. 110(A) of the same Code, is creditable only against output VAT. Nonetheless, this express difference pertains only to the type of taxes against which the input VAT may be credited. No other distinction between input VAT attributable to zero-rated sales and creditable input VAT can be deduced from the proviso, especially as to the amount thereof on depreciable capital goods which can be credited or refunded.

There is likewise no merit in the assertion of TMC that amortization violates the right accorded to the VAT-registered taxpayer by the proviso in Sec. 110(B) of the Tax Code of 1997, as amended, to claim, at its option, either the refund or credit of "any input tax" attributable to its zero-rated sales. It is apparent that to TMC, the word "any" is synonymous to "all" and amortization unduly limits the input tax on zero-rated sales which the taxpayer can claim as refund or credit.

The Court, in Abakada Guro Party List v. Ermita27 (Abakada), upheld the validity of such amortization of input VAT on depreciable capital goods with aggregate acquisition cost of more than P1 Million for the month of purchase or importation, as it does not deprive the taxpayer of any tax credit, but merely delays the crediting of the same by spreading it out over the amortization period. In the words of the Court in Abakada:

For the same reasons as the foregoing, TMC herein is not deprived of any of the input tax attributable to its zero-rated sales when the amount of tax refund or credit granted to it for the input VAT on depreciable capital goods attributable to its zero-rated sales, with aggregate acquisition cost exceeding P1 Million for the month of purchase or importation, is amortized for 60 months or the estimated useful life of the capital goods, whichever is shorter. Ultimately, TMC will still be able to receive the full amount of the input VAT granted as tax refund or credit by the end of the amortization period.

Sec. 4.110-3 of RR No. 16-2005, as amended, merely fills in the details necessary for the implementation of Sec. 110(A) of the Tax Code of 1997, as amended, thus:

It is beyond dispute that Sec. 224 of the Tax Code of 1997, as amended, grants the Secretary of Finance, upon recommendation of the CIR, the authority to promulgate all needful rules and regulations for the effective enforcement of the provisions of said Code. RR No. 16-2005 and its subsequent amendments, issued by the Secretary of Finance upon the CIR's recommendation, enjoy a strong presumption of validity.29 The Court has extended the presumption of validity accorded to legislative issuances also to rules and regulations issued by administrative agencies with its pronouncement in ABAKADA GURO Party List v. Purisima30 that:

A perusal of Sec. 4.110-3 of RR No. 16-2005, as amended, shows that it is consistent with Sec. 110(A) of the Tax Code of 1997, as amended, and it does not in any way override, supplant, or modify the latter.

Having settled in the preceding paragraphs that input VAT attributable to zero-rated sales is still creditable input VAT, then the CTA Division and En Banc did not commit judicial legislation in applying the provisions of Sec. 110(A) of the Tax Code of 1997, as amended, and Sec. 4.110-3 of RR No. 16-2005, as amended, on the amortization of input VAT on depreciable capital goods attributable to its zero-rated sales, with aggregate acquisition cost exceeding P1 Million for the month of purchase or importation, to the tax refund/credit of input VAT attributable to zero-rated sales.

Lastly, the Court is well aware that with the further amendment of Sec. 110 of the Tax Code of 1997, as amended, by R.A. No. 10963,32 which took effect on January 1, 2018, the amortization of input VAT shall only be allowed until December 31, 2021; after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized. This latest amendment of the Tax Code, however, will not apply retroactively to this case which involves the question of the amount of amortized refund/credit of excess or unutilized input VAT for the calendar year 2008.

1 Rollo (G.R. Nos. 219630-31), pp. 35-60 and rollo (G.R. Nos. 219635-36), pp. 26-51; penned by Associate Justice Lovell R. Bautista, with Presiding Justice Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-Manalastas, and Ma. Belen M. Ringpis-Liban, concurring.

2 Rollo (G.R. Nos. 219630-31), pp. 62-71 and rollo (G.R. Nos. 219635-36), pp. 53-62; penned by Associate Justice Lovell R. Bautisla, with Presiding Justice Roman G. Del Rosario and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-Manalastas, concurring; Associate Justice Ma. Belen M. Ringpis-Liban, on leave.

3 Rollo (G.R. Nos. 219630-31), pp. 144-164; penned by Associate Justice Caesar A. Casanova, with Associate Justice Juanito C. Castañeda. Jr., concurring; Associate Justice Cielito N. Mindaro-Grulla, on leave.

4 Id. at 161-162.

5 Supra note 3.

6 Rollo (G.R. Nos. 219630-31), p. 159.

7 646 Phil. 710 (2010).

8 Rollo (G.R. Nos. 219630-31), p. 161.

9 Id. at 163.

10 Id. at 192-204: penned by Associate Justice Caesar A. Casanova, with Associate Justices Juanito C. Castañeda, Jr. and Cielito N. Mindaro-Grulla, concurring.

11 Supra note 1.

12 Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as of the Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which comprise a Complete Tax Docket (June 1, 1998).

13 Republic Act No. 9337, otherwise known as the Value Added Tax (VAT) Reform Act (May 24, 2005).

14 An Act Creating the Court of Tax Appeals (June 16, 1954).

15 Republic Act No. 9282, otherwise known as An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating Its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging Its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, as Amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes (March 30, 2004).

16 724 Phil. 534 (2014).

17 See Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., supra note 7, at 731-732; Commissioner of Internal Revenue v. San Roque Power Corp., 703 Phil. 310 (2013); Atlas Consolidated Mining Development Corp. v. Commissioner of Internal Revenue, 551 Phil. 519 (2007).

18 Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership, supra note 16, at 562-563.

19 774 Phil. 473 (2015).

20 Id. at 488-497.

21 Id. at 499-500, citing Commissioner of Internal Revenue v. Team Sual Corp., 739 Phil. 215 (2014).

22 Consolidated Value-Added Tax Regulations of 2005, which took effect on November 1, 2005.

23 RR No. 4-2007, dated February 7, 2007.

24 491 Phil. 317 (2005).

25 Id. at 33 1-333.

26 Id. at 334.

27 506 Phil. 1 (2005).

28 Id. at 125.

29 Spouses Dacudao v. Gonzales, 701 Phil. 96, 110 (2013).

30 584 Phil. 246 (2008).

31 Id. at 283.

32 Otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN).1âшphi1