Applied Food Ingredients Company, Inc. vs. Commissioner of Internal Revenue

The 120-day waiting period for the Commissioner of Internal Revenue to decide on an administrative claim for refund of input tax, followed by the 30-day period to appeal to the Court of Tax Appeals, are mandatory and jurisdictional requirements under Section 112 of the National Internal Revenue Code of 1997; failure to observe the 120-day period before filing a judicial claim deprives the Court of Tax Appeals of jurisdiction.

Applied Food Ingredients Company, Inc., a VAT-registered importer and exporter of food ingredients, paid aggregate input taxes of P9,528,565.85 from September 1998 to December 2000 for imported goods. These goods were subsequently exported between April 1, 2000 and December 31, 2000, generating export sales of P114,577,937.24, which the petitioner claimed were zero-rated sales under the National Internal Revenue Code.

• Petitioner Applied Food Ingredients Company, Inc. is a VAT-registered taxpayer engaged in the importation and exportation of food ingredients, registered with the BIR Regional District Office No. 43 in Pasig City.
• From September 1998 to December 31, 2000, petitioner paid aggregate input taxes amounting to P9,528,565.85 for its importation of food ingredients, as reported in its Quarterly VAT Returns.
• The imported food ingredients were subsequently exported between April 1, 2000 and December 31, 2000, generating export sales of P114,577,937.24, with proceeds inwardly remitted to petitioner's dollar accounts with Equitable Bank Corporation and Australia New Zealand Bank-Philippine Branch.
• Petitioner claimed these export sales were zero-rated under Section 106(A)(2)(a)(1) of the National Internal Revenue Code of 1997.
• Petitioner alleged that the accumulated input taxes had not been applied against any output tax.
• On March 26, 2002, petitioner filed an application for tax credit certificate in the amount of P5,385,208.32, and on June 28, 2002, filed another application for P4,143,357.53.
• On July 24, 2002, petitioner filed a Petition for Review with the Court of Tax Appeals due to respondent's inaction on the administrative claims.
• The Commissioner of Internal Revenue alleged in his Answer that the request was still under examination, taxes paid are presumed to have been made in accordance with law, and petitioner must prove compliance with Sections 204(C) and 229 of the Tax Code.
• The CTA First Division denied the claim on June 13, 2007 for failure to comply with invoicing requirements under Section 113 in relation to Section 237 of the NIRC and Section 4.108-1 of Revenue Regulations No. 7-95, noting the export sales invoices did not bear the word "zero-rated," "TIN-VAT," and the BIR permit number.
• The CTA En Banc affirmed the denial on June 4, 2008 on the same grounds.

• Petitioner claimed entitlement to a tax credit certificate or refund of P9,528,565.85 representing creditable input taxes incurred from September 1, 1998 to December 31, 2000, which were attributable to zero-rated sales from April 1, 2000 to December 31, 2000.
• Petitioner argued that it had complied with the two-year prescriptive period for filing the administrative claim under Section 112(A) of the NIRC.
• Petitioner contended that the export sales qualified as zero-rated sales under Section 106(A)(2)(a)(1) of the NIRC of 1997.

• The Commissioner of Internal Revenue alleged that the request for tax credit certificate was still under examination by the BIR examiners.
• Respondent asserted that taxes paid and collected are presumed to have been made in accordance with law and regulations, hence not refundable.
• Respondent argued that petitioner's allegation of erroneous or excessive payment does not ipso facto warrant refund or credit; petitioner must prove compliance with the governing rules for tax recovery or refund under Sections 204(C) and 229 of the Tax Code.
• Respondent maintained that petitioner failed to comply with the invoicing requirements prescribed under Section 113 in relation to Section 237 of the NIRC and Section 4.108-1 of Revenue Regulations No. 7-95.

• Procedural Issues:
  • Whether the Court of Tax Appeals acquired jurisdiction over the judicial claim for refund given that petitioner filed the petition on July 24, 2002 without waiting for the 120-day period for the Commissioner to decide on the administrative claims filed on March 26, 2002 and June 28, 2002 to lapse.
• Substantive Issues:
  • Whether petitioner is entitled to the issuance of a tax credit certificate or refund of input taxes attributable to zero-rated sales.

• Procedural:
  • The Supreme Court held that the Court of Tax Appeals did not acquire jurisdiction over the judicial claim because petitioner failed to observe the mandatory 120-day waiting period under Section 112(D) of the NIRC.
  • The Court applied the doctrine in Commissioner of Internal Revenue v. San Roque Power Corporation, et al., ruling that the 120-day period for the Commissioner to decide and the 30-day period to appeal to the CTA are mandatory and jurisdictional.
  • Petitioner filed its judicial claim on July 24, 2002, which was exactly the 120th day from the March 26, 2002 application (and before the 120-day period lapsed for the June 28 application), thereby rendering the petition premature and without cause of action.
  • The Court emphasized that "inaction by the CIR" deemed as denial only arises after the lapse of 120 days; prior thereto, the CTA has no jurisdiction.
  • The Court noted that the old rule allowing immediate judicial recourse when the two-year prescriptive period is about to expire no longer applies after the enactment of the 30-day period under the VAT system.
• Substantive:
  • N/A

• San Roque Doctrine — Establishes that the 120-day waiting period for the Commissioner of Internal Revenue to decide on an administrative claim for refund of input VAT, and the subsequent 30-day period to file a judicial claim with the Court of Tax Appeals, are mandatory and jurisdictional under Section 112 of the NIRC of 1997. Failure to comply with these periods deprives the CTA of jurisdiction as the petition becomes premature and without cause of action.
• Strict Construction Against Taxpayer Rule — Tax refunds or credits, like tax exemptions, are strictly construed against the taxpayer who has the burden to prove strict compliance with the conditions for the grant of the refund or credit.
• Exhaustion of Administrative Remedies — The taxpayer must wait for the Commissioner to decide or for the 120-day period to lapse before filing a judicial claim; premature filing violates this doctrine.

• "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 taxpayer's petition."
• "Tax refunds or credits - just like tax exemptions - are strictly construed against taxpayers, the latter have the burden to prove strict compliance with the conditions for the grant of the tax refund or credit."
• "The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner's decision if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the 30-day period."

• Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue — Controlling precedent establishing the mandatory and jurisdictional nature of the 120+30 day periods for filing judicial claims for VAT refund.
• Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. — Cited regarding the effect of premature filing of judicial claims and the jurisdiction of the CTA.
• Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue — Explained the nature of VAT as a tax on consumption and the mechanism for recovering input VAT.
• Namuhe v. Ombudsman and Fabian v. Desierto — Cited for the principle that jurisdiction over the subject matter may be raised at any time by the parties or considered by the court motu proprio.
• Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue — Cited for the principle that the CTA, being a court of special jurisdiction, can take cognizance only of matters clearly within its jurisdiction.

• Section 112 of the National Internal Revenue Code of 1997 — Governs refunds or tax credits of input tax, specifically the two-year prescriptive period for filing administrative claims (Sec. 112-A), and the 120-day period for the Commissioner to decide and the 30-day period to appeal (Sec. 112-D).
• Section 106(A)(2)(a)(1) of the NIRC of 1997 — Provides for zero-rated sales of goods exported from the Philippines.
• Section 113 in relation to Section 237 of the NIRC of 1997 — Prescribes the invoicing requirements for VAT-registered persons.
• Section 4.108-1 of Revenue Regulations No. 7-95 — Implements the invoicing requirements for VAT purposes.
• Section 7 of Republic Act No. 1125, as amended by Republic Act No. 9282 — Defines the jurisdiction of the Court of Tax Appeals, specifically regarding appeals from decisions or inaction of the Commissioner of Internal Revenue.
• Rule 45 of the 1997 Rules of Civil Procedure — Governs petitions for review on certiorari filed with the Supreme Court.

• Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, Associate Justice Martin S. Villarama, Jr., and Associate Justice Reyes — Concurred in the majority opinion penned by Chief Justice Maria Lourdes P.A. Sereno; no separate concurring opinions were written.