CASE BRIEF NO. 2019-0056


“Under Section 112 of the Tax Code, only the administrative claim for refund of input value-added tax must be filed within the two (2)-year prescriptive period, not judicial claim.


CASE: Steag State Power, Inc. (formerly State Power Development Corporation), vs. Commissioner of Internal Revenue [G.R. No. 205282, January 14, 2019]

PONENTE: Justice Mario Victor F. Leonen

SUBJECT:
          A.       TAXATION LAW:
                   i.        Input VAT
                   ii.       Section 112 of the NIRC
                   iii.      Refund of Input Tax – Prescriptive Period
                   iv.      Remedies – Appeal to the Court of Tax Appeals
                   v.       Court of Tax Appeals – Jurisdiction
          B.       REMEDIAL LAW:
                   i.        Jurisdiction over the subject matter – how conferred and determined
          C.       CIVIL LAW:
                   i.        Retroactivity of Law – Interpretations of the Supreme Court

FACTS:        Steag State Power is a domestic corporation primarily engaged in power generation and sale of electricity. It is registered with the Bureau of Internal Revenue (BIR) as a value-added tax taxpayer.

Steag State Power filed before the BIR District Office administrative claims for refund of its allegedly unutilized input VAT. However, due to the Commissioner of Internal Revenue’s (Commissioner) inaction on its administrative claims, Steag State Power filed a Petition for Review on Certioraribefore the Court of Tax Appeals (CTA) on April 20, 2006 (first judicial claim), elevating its claim for refund for the taxable year 2004. Through another Petition, filed on December 27, 2006 (second judicial claim), it sought judicial recourse involving its claim for refund for the taxable year 2005. Eventually, the Petitions were consolidated.

The CTA First Division denied the Petitions. It held that its first judicial claim, were filed late, while the second judicial claim was prematurely filed.

Steag State Power filed its Motion for Reconsideration (with Motion to Submit Supplemental Evidence). The Motion was partially granted by the CTA First Division. It set the case for hearing for the presentation of Steag State Power’s presentation of supplemental evidence.

Thus, a hearing was conducted where Steag State Power filed its supplemental formal offer of evidence. It was admitted by the CTA First Division.

After said hearing, the CTA First Division issued a decision dismissing the consolidated cases for lack of jurisdiction.

On Steag State Power’s appeal, the CTA En Banc affirmed the dismissal of the cases. It denied the appeal for having been filed late.

Steag State Power filed a Motion for Reconsideration, which was denied by the CTA En Banc.  

Thus, Steag State Power filed before the Supreme Court (SC) a Petition for Review on Certiorari, assailing the CTA En Banc Decision. The SC denied the Petition for failure to show any reversible error in the challenged Decision of the CTA En Banc.

 Hence, Steag State Power filed a Motion for Reconsideration. It insists that its claims are timely. It argues that, although the claims were filed beyond the 120+30-day periods under Section 112 of the National Internal Revenue Code, as amended (Tax Code), they were nonetheless filed within the two (2)-year period under Section 229 of the same law. It contends that the timing was in accordance with Revenue Regulation No. 7-95, which establishes that appeals before the Court of Tax Appeals may be made after the 120-day period and before the lapse of the two (2)-year period.

Steag State Power further asserts that the window created in San Roque Power Corporation by BIR Ruling No. DA-489-03, which excludes from the 120+30-day periods prematurely filed judicial claims from December 10, 2003 to October 6, 2010-when Aichi Forging Company of Asia, Inc. was promulgated-should also extend to claims belatedly filed. It reasons that taxpayers were misled by CIR’s pronouncement in the BIR Ruling that they had the full two (2)-year period to file their Petitions before the Court of Tax Appeals. Even so, it contends that Aichi Forging Company of Asia, Inc. and San Roque Power Corporation cannot be applied retroactively, as doing so will impair Steag State Power’s substantive rights and deprive it of its right to a refund.

ISSUES:
A.       What is the prescriptive periods for filing refunds of Input Tax?

B.       Whether Steag State Power’s claim that it filed its judicial claims under Revenue Regulation No. 7-95, which supposedly allowed claims for refund filed after the 120-day period but before the lapse of the two (2)-year period, tenable.

C.       Whether the 2-year prescriptive period in Section 112 applies to judicial claim.

D.      Whether the appeal of Steag State Power was filed within the prescriptive period.

E.       Whether Steag State Power is correct in claiming that BIR Ruling No. DA-489-03 should cover both prematurely and belatedly filed claims for tax refund.

F.       Whether Aichi Forging Company of Asia, Inc. and San Roque Power Corporation should be applied prospectively.

RULING:
A.       Section 112 of the NIRC provides:

SECTION 112. Refunds or Tax Credits of Input Tax. – xxx

(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 Subsections (A) and (B) 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 one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

A plain reading of the above provision reveals that a taxpayer may appeal the Commissioner’s denial or inaction only within 30 days when the decision that denies the claim is received, or when the 120-day period given to the Commissioner to decide on the claim expires.

In Aichi Forging Company of Asia, Inc. [646 Phil. 710 (2010)], this Court applied the plain text of the law and declared that the observance of the 120+30-day periods is crucial in filing an appeal before the Court of Tax Appeals. This Court also declared that, following Commissioner of Internal Revenue v. Mirant Pagbilao Corporation [586 Phil. 712 (2008)], claims for refund or tax credit of excess input tax are governed not by Section 229, but by Section 112 of the Tax Code.

These doctrines were reiterated in San Roque Power Corporation [703 Phil. 310 (2013)], where the SC stressed that Section 112, in providing the 120+30 day periods to appeal before the CTA, “must be applied exactly as worded since it is clear, plain, and unequivocal.”

B.       Steag State Power’s claim that it filed its judicial claims under Revenue Regulation No. 7-95, which supposedly allowed claims for refund filed after the 120-day period but before the lapse of the two (2)-year period, is untenable.

First, Steag State Power’s judicial claims were filed on April 20, 2006 and December 27, 2006; hence, they were governed by the Tax Code, which clearly provided: (1) 120 days for the Commissioner to act on a taxpayer’s claim; and (2) 30 days for the taxpayer to appeal either from the Commissioner’s decision or from the expiration of the 120-day period in case of the Commissioner’s inaction.

Moreover, Revenue Regulation No. 16-2005,not Revenue Regulation No. 7-95, was the prevailing rule when Steag State Power filed its judicial claims. Its Section 4.112-1 faithfully reflected Section 112 of the Tax Code, as amended by Republic Act No. 9337:

SEC. 4.112-1. Claims for Refund/Tax Credit Certificate of Input Tax. – xxx
(d) Period within which refund or tax credit certificate/refund of input taxes shall be made

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.

In case of full or partial denial of the claim for tax credit certificate/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of said denial, otherwise the decision shall become final. However, if no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal Revenue after the one hundred twenty (120) day period from the date of submission of the application with complete documents, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120-day period.

It is misleading for Steag State Power to raise its supposed reliance in good faith on Revenue Regulation No. 7-95, when the rule had already been superseded and revoked by the time it filed its judicial claims.


C.       Under Section 112 of the Tax Code, only the administrative claim for refund of input value-added tax must be filed within the two (2)-year prescriptive period, the judicial claim need not be.

Section 112(A) states that:

(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT ­ registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.

In Aichi Forging Company of Asia, Inc. and San Roque Power Corporation, the phrase “within two (2) years … apply for the issuance of a tax credit certificate or refund” refers to administrative claims for refund or credit filed with the Commissioner of Internal Revenue, not to appeals made before the Court of Tax Appeals.

This is apparent in Section 112(D), Paragraph 1 of the Tax Code, which gives the Commissioner [120] days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) within which he or she can decide on the claim. On the other hand, Section 112(D), Paragraph 2 provides a 30-day period within which one may appeal a judicial claim before the Court of Tax Appeals.

Reading together Subsections (A) and (D), San Roque Power Corporation declared that the 30-day period does not have to fall within the two (2)-year prescriptive period, as long as the administrative claim is filed within the two (2)-year prescriptive period.


D.      The right to appeal before the Court of Tax Appeals, being a statutory right, can be invoked only under the requisites provided by law. Section 11 of Republic Act No. 1125,or the Court of Tax Appeals Charter, provides a 30-day period of appeal either from receipt of the Commissioner’s adverse decision or from the lapse of the period fixed by law for action. Thus:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue … may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

(B) Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. (Emphasis supplied)

In turn, Section 7(a)(2) of the Court of Tax Appeals Charter, as amended, reads:

Sec. 7. Jurisdiction. – The CTA shall exercise:

(a)      Exclusive appellate jurisdiction to review by appeal, as herein provided:

xxx
(A)     (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial.

Under the CTA Charter, the Commissioner’s inaction on a claim for refund is considered a “denial” of the claim, which may be appealed before the Court of Tax Appeals within 30 days from the expiration of the period fixed by law for action.

Here, since Steag State Power filed its judicial claims way beyond the 30-day period to appeal, the Court of Tax Appeals lost its jurisdiction over the Petitions. Jurisdiction over the subject matter is fundamental for a court to act on a given controversy. Moreover, it “cannot be waived … and is not dependent on the consent or objection or the acts or omissions” [Nippon Express (Philippine) Corporation v. Commissioner of Internal Revenue, 706 Phil. 442 (2013)] of any or both parties. Contrary to Steag State Power’s stance, the CTA is not precluded to pass on this issue motu proprio, regardless of any purported stipulation made by the parties.


E.       Steag State Power is wrong in claiming that BIR Ruling No. DA-489-03 should cover both prematurely and belatedly filed claims for tax refund. BIR Ruling No. DA-489-03 expressly states that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the Court of Tax Appeals by way of Petition for Review.”

There is nothing in the same BIR Ruling that states, expressly or impliedly, that late filings of judicial claims are acceptable.

Similarly, in Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership [724 Phil. 534 (2014)] it was held that the rule cannot be properly invoked because it contemplates premature filing, not late filing. This Court further emphasized that late filing, or beyond the 30-day period, is absolutely prohibited, even when BIR Ruling No. DA-489-03 was in force.

F.       Likewise, this Court rejects Steag State Power’s claim that Aichi Forging Company of Asia, Inc. and San Roque Power Corporation should be applied prospectively because it would be unjust to the other claimants who relied on the old rule, under which both administrative and judicial claims should be filed before the lapse of the two (2)-year period.

Interpretations of law made by courts “necessarily always have a retroactive effect”. This Court, in construing the law, merely declares what a particular provision has always meant. It does not create new legal obligations.

A claim for unutilized input value-added tax is in the nature of a tax exemption. Thus, strict adherence to the conditions prescribed by the law is required of the taxpayer [Applied Food Ingredients Company, Inc. v. Commissioner of Internal Revenue, 720 Phil. 782, 789 (2013)]. Refunds need to be proven and their application raised in the right manner as required by law. Here, noncompliance with the 120+30-day periods is fatal to the taxpayer’s judicial claim.

Related Case Briefs:
a)       Aichi Forging Company of Asia, Inc. vs. CIR, 646 Phil. 710 (2010)
b)       CIR vs. Mirant Pagbilao Corporation, 586 Phil. 712 (2008)
c)       San Roque Power Corporation vs. CIR, 703 Phil. 310 (2013)
d)       Nippon Express (Philippine) Corporation v. CIR, 706 Phil. 442 (2013)
f)       CIR v. Mindanao II Geothermal Partnership, 724 Phil. 534 (2014)
g)       Applied Food Ingredients Company, Inc. v. CIR, 720 Phil. 782 (2013)
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THINGS DECIDED:

A.       A plain reading of Section 112 (D) of the Tax Code reveals that a taxpayer may appeal the Commissioner’s denial or inaction only within 30 days when the decision that denies the claim is received, or when the 120-day period given to the Commissioner to decide on the claim expires.

B.       Under Section 112 of the Tax Code, only the administrative claim for refund of input value-added tax must be filed within the two (2)-year prescriptive period, the judicial claim need not be.

C.       The phrase “within two (2) years … apply for the issuance of a tax credit certificate or refund” refers to administrative claims for refund or credit filed with the Commissioner of Internal Revenue, not to appeals made before the Court of Tax Appeals.

D.      Jurisdiction over the subject matter is fundamental for a court to act on a given controversy. Moreover, it “cannot be waived … and is not dependent on the consent or objection or the acts or omissions”.

E.       Interpretations of law made by courts “necessarily always have a retroactive effect”. This Court, in construing the law, merely declares what a particular provision has always meant. It does not create new legal obligations.

F.       A claim for unutilized input value-added tax is in the nature of a tax exemption. Thus, strict adherence to the conditions prescribed by the law is required of the taxpayer.

Stand by things decided’ ~ Stare Decisis


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