Cagayan Valley Drug Corporation vs. Commissioner of Internal Revenue

A corporate president may sign the verification and certification against forum shopping without a board resolution, and the belated submission of such resolution constitutes substantial compliance with the rules. Furthermore, a taxpayer's net loss in a taxable year does not bar the grant of a tax credit for the 20% sales discounts extended to senior citizens under RA 7432, since prior tax payments are not required for the existence or grant of the credit, only for its availment or use.

Petitioner Cagayan Valley Drug Corporation is a domestic corporation duly licensed as a retailer of medicine and pharmaceutical products, operating two drugstores under the name "Mercury Drug." In 1995, it granted 20% sales discounts to qualified senior citizens pursuant to Republic Act No. 7432, which grants privileges to senior citizens and provides that private establishments may claim the cost of such discounts as a tax credit. The petitioner treated these discounts as deductions from gross sales in compliance with Revenue Regulation No. 2-94, rather than as tax credits as provided by Section 4 of RA 7432.

Petitioner Cagayan Valley Drug Corporation, a corporation organized under Philippine laws, is a duly licensed retailer of medicine and pharmaceutical products operating two drugstores in Tuguegarao, Cagayan, and Roxas, Isabela, under the name "Mercury Drug." In 1995, petitioner granted 20% sales discounts to qualified senior citizens on purchases of medicine pursuant to Republic Act No. 7432 and its implementing rules and regulations. In compliance with Revenue Regulation No. 2-94, petitioner treated these discounts as deductions from gross sales to arrive at net sales, instead of treating them as tax credits as provided by Section 4 of RA 7432.

On December 27, 1996, petitioner filed with the Bureau of Internal Revenue a claim for tax refund/tax credit of the full amount of the 20% sales discount it granted to senior citizens for 1995, allegedly totaling PhP 123,083, in accordance with Section 4 of RA 7432. The BIR's inaction on the claim compelled petitioner to file a petition for review before the Court of Tax Appeals on March 18, 1998, docketed as C.T.A. Case No. 5581, to forestall the two-year prescriptive period under Section 230 of the 1977 Tax Code. Petitioner amended its petition on March 31, 2000.

The CTA sustained petitioner's contention that the 20% sales discounts should be treated as tax credit and not as deductions from gross sales, reiterating its consistent holdings that RR 2-94 is an invalid administrative interpretation of the law. However, the CTA dismissed the action for refund or tax credit on account of petitioner's net loss in 1995, reasoning that if no tax has been paid or no amount is due and collectible from the taxpayer, then a tax credit is unavailing. The CTA found that petitioner did not pay any tax by virtue of its net loss position in 1995.

Aggrieved, petitioner elevated the matter to the Court of Appeals, docketed as CA-G.R. SP No. 59778. On August 31, 2000, the CA dismissed the petition on procedural grounds, holding that the person who signed the verification and certification of absence of forum shopping, Jacinto J. Concepcion, President of petitioner, failed to adduce proof that he was duly authorized by the board of directors to do so. The CA anchored its disposition on the ruling in Premium Marble Resources, Inc. vs. Court of Appeals that "[i]n the absence of an authority from the Board of Directors, no person, not even the officers of the corporation, can validly bind the corporation."

• Authority of the President to Sign Verification: Petitioner argued that its president, Jacinto J. Concepcion, could validly sign the verification and certification against forum shopping without the approval of its Board of Directors, given that the president is in a position to verify the truthfulness and correctness of the allegations in the petition.
• Entitlement to Tax Credit Despite Net Loss: Petitioner maintained that the CTA committed reversible error in denying its claim for refund or tax credit, as the net loss suffered in 1995 does not preclude the grant of a tax credit for the 20% sales discounts extended to qualified senior citizens under RA 7432.

• Defective Verification and Certification: Respondent, through the CA's ruling, argued that the verification and certification against forum shopping signed by petitioner's president was defective because he failed to adduce proof that he was duly authorized by the board of directors, relying on Premium Marble Resources, Inc. vs. Court of Appeals.
• Tax Credit Unavailing Due to Net Loss: Respondent contended that the tax credit could not be extended to petitioner on account of its net loss in 1995, as no tax had been paid and no amount was due and collectible from the taxpayer, making the tax credit unavailing.

• Verification and Certification Against Forum Shopping: Whether the corporate president's signing of the verification and certification against forum shopping, without proof of board authorization, substantially complies with Sections 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure.
• Entitlement to Tax Credit Despite Net Loss: Whether the CTA committed reversible error in denying petitioner's claim for tax credit on the ground that petitioner suffered a net loss in 1995.

• Verification and Certification Against Forum Shopping: Yes. The petitioner substantially complied with Sections 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure, as the requisite board resolution was submitted albeit belatedly, the president is in a position to verify the truthfulness of the allegations, and the president signed the complaint at the inception of the claim.
• Entitlement to Tax Credit Despite Net Loss: Yes. The CTA erred in denying the tax credit on the ground of net loss, as Section 4(a) of RA 7432 grants the tax credit without qualification, and prior tax payments are not required for the existence or grant of such credit.

• Verification and Certification Against Forum Shopping: The Court found that the CA erroneously relied on Premium Marble Resources, Inc. vs. Court of Appeals, as that case involved a dispute over which of two sets of officers had authority to file a suit, not the authority of a corporate president to sign a verification and certification. The Court noted that Sections 4 and 5, Rule 7 are silent as to who the authorized signatory should be for a juridical person. While Section 23, in relation to Section 25 of the Corporation Code, provides that all corporate powers are exercised by the board of directors, the Court has recognized in a slew of cases the authority of certain corporate officers to sign the verification and certification without need of a board resolution, including the Chairperson of the Board, the President, the General Manager or Acting General Manager, the Personnel Officer, and an Employment Specialist in a labor case. The rationale is that these officers are "in a position to verify the truthfulness and correctness of the allegations in the petition." The Court applied its ruling in Lepanto Consolidated Mining Company vs. WMC Resources International Pty. Ltd. and held that the President of petitioner is in such a position. The belated submission of the board resolution, the president's position, and his signing of the complaint at the inception of the claim constituted substantial compliance with the rules.
• Entitlement to Tax Credit Despite Net Loss: The Court held that the issue was not new, having been resolved in Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, where the Court ruled that private drug companies are entitled to a tax credit for the 20% sales discounts granted to qualified senior citizens under RA 7432 and nullified Sections 2.i and 4 of RR 2-94. The Court quoted Section 4(a) of RA 7432, which provides that private establishments may claim the cost of the discount as tax credit, without any qualification. The Court explained, citing Central Luzon, that while a tax liability is essential to the availment or use of any tax credit, prior tax payments are not required for the existence or grant of such credit. The Tax Code is replete with provisions granting tax credits even though no taxes have been previously paid. Thus, petitioner's net loss in 1995 does not make the tax credit unavailable. Since the CTA did not disallow the PhP 123,083 sales discounts claimed, the Court granted them as tax credit in favor of petitioner.

• Substantial Compliance with Verification and Certification Requirements — The rules on verification and certification against forum shopping under Sections 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure are silent as to who the authorized signatory should be for a juridical person. The Court has recognized the authority of certain corporate officers — the Chairperson of the Board, the President, the General Manager or Acting General Manager, the Personnel Officer, and an Employment Specialist in a labor case — to sign the verification and certification without need of a board resolution, on the rationale that these officers are "in a position to verify the truthfulness and correctness of the allegations in the petition." In this case, the Court applied this doctrine, holding that the belated submission of the board resolution, combined with the president's position and his signing of the complaint at the inception of the claim, constituted substantial compliance.
• Tax Credit for Senior Citizen Discounts Under RA 7432 — Section 4(a) of RA 7432 grants private establishments a tax credit for the 20% sales discounts extended to qualified senior citizens, without qualification. A taxpayer's net loss in a taxable year does not preclude the grant of the tax credit, as prior tax payments are not required for the existence or grant of the credit, only for its availment or use. The Court applied this doctrine, citing Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, to hold that petitioner was entitled to the tax credit despite its net loss in 1995.

• "In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case." — This passage enumerates the corporate officers recognized by the Court as authorized to sign the verification and certification against forum shopping without a board resolution, forming the basis for the Court's finding of substantial compliance in this case.
• "While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed." — This passage, quoted from Central Luzon, articulates the controlling doctrine that a taxpayer's net loss does not bar the grant of a tax credit under RA 7432, distinguishing between the existence of the credit and its availment.
• "The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner unavailable." — This sentence states the core ruling on the substantive issue, directly resolving the question of whether a net loss precludes the grant of a tax credit for senior citizen discounts.

• Premium Marble Resources, Inc. vs. Court of Appeals, G.R. No. 96551, November 4, 1996, 264 SCRA 11 — Distinguished. The Court found this case not applicable because it involved a dispute over which of two sets of officers had authority to file a suit, not the authority of a corporate president to sign a verification and certification.
• Mactan-Cebu International Airport Authority vs. CA, G.R. No. 139495, November 27, 2000, 346 SCRA 126 — Followed. Recognized the authority of a general manager or acting general manager to sign the verification and certificate against forum shopping.
• Pfizer vs. Galan, G.R. No. 143389, May 25, 2001, 358 SCRA 240 — Followed. Upheld the validity of a verification signed by an "employment specialist" who had not presented proof of her authority to represent the company.
• Novelty Philippines, Inc. vs. CA, G.R. No. 146125, September 17, 2003, 411 SCRA 211 — Followed. Ruled that a personnel officer who signed the petition but did not attach the authority from the company is authorized to sign the verification and non-forum shopping certificate.
• Lepanto Consolidated Mining Company vs. WMC Resources International Pty. Ltd., G.R. No. 153885, September 24, 2003, 412 SCRA 101 — Followed. Ruled that the Chairperson of the Board and President of the Company can sign the verification and certificate against non-forum shopping even without the submission of the board's authorization; applied directly to the instant case.
• Philippine Airlines vs. Flight Attendants and Stewards Association of the Philippines, G.R. No. 143088, January 24, 2006, 479 SCRA 605 — Distinguished. Ruled that only individuals vested with authority by a valid board resolution may sign the certificate of non-forum shopping, but the Court noted that appending the board resolution is the better procedure.
• Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, G.R. No. 159647, April 15, 2005, 456 SCRA 414 — Controlling precedent. Held that private drug companies are entitled to a tax credit for the 20% sales discounts granted to qualified senior citizens under RA 7432 and nullified Sections 2.i and 4 of RR 2-94; also ruled that net loss does not bar the grant of the tax credit.
• Bicolandia Drug Corporation (formerly Elmas Drug Corporation) vs. Commissioner of Internal Revenue, G.R. No. 142299, June 22, 2006, 492 SCRA 159 — Followed. Ruled that the petitioner therein is entitled to a tax credit of the "cost" or the full 20% sales discounts granted pursuant to RA 7432.
• Commissioner of Internal Revenue vs. Bicolandia Drug Corporation, G.R. No. 148083, July 21, 2006, 496 SCRA 176 — Followed. Ruled that the respondent drug company was entitled to a tax credit and struck down RR 2-94 as null and void for failing to conform with the law it sought to implement.

• Section 4(a), Republic Act No. 7432 — The provision granting senior citizens a 20% discount on purchases of medicines and providing that private establishments may claim the cost as tax credit. The Court applied this provision to hold that petitioner was entitled to the tax credit for the full 20% sales discounts extended to qualified senior citizens in 1995.
• Sections 4 and 5, Rule 7, 1997 Rules of Civil Procedure — The rules on verification and certification against forum shopping. The Court applied these provisions to determine that the petitioner substantially complied with the requirements, despite the belated submission of the board resolution.
• Sections 23 and 25, Corporation Code — The provisions stating that all corporate powers are exercised by the board of directors. The Court cited these provisions to explain the general rule on corporate authority, while recognizing exceptions for certain corporate officers to sign verification and certification.
• Section 230, 1977 Tax Code (now Section 229, RA 8424) — The provision on the two-year prescriptive period for filing claims for refund or tax credit. The Court noted that petitioner filed its petition before the CTA to forestall this prescriptive period.

• Quisumbing, J. (Chairperson)
• Carpio, J.
• Carpio Morales, J.
• Tinga, J.