Commissioner of Internal Revenue vs. KEPCO Ilijan Corporation

A collegial court sitting en banc, such as the Court of Tax Appeals, has no jurisdiction to annul a final and executory judgment rendered by one of its own divisions, as the laws and rules governing such court provide no such remedy, and the remedy of annulment of judgment under Rule 47 applies only to a superior court annulling the judgment of an inferior court. The proper remedy to challenge a final CTA division decision on grounds of extrinsic fraud or lack of jurisdiction is a petition for certiorari under Rule 65 filed as an original action before the Supreme Court.

The Commissioner of Internal Revenue (petitioner) and KEPCO Ilijan Corporation (respondent) are parties to a tax refund dispute arising from respondent's claim for unutilized input VAT on capital goods purchases and importations for the first and second quarters of calendar year 2000, related to its production and sale of electricity to the National Power Corporation. The Court of Tax Appeals was created under Republic Act No. 1125 and its jurisdiction expanded under Republic Act No. 9282, which elevated the CTA to the level of a collegiate court with special jurisdiction. The CTA operates in divisions and also sits en banc, but neither the statutes governing it nor its Revised Rules provide for a remedy of annulment of judgment by the en banc of a division's final decision.

KEPCO Ilijan Corporation is an entity engaged in the production and sale of electricity to the National Power Corporation. For the first and second quarters of calendar year 2000, respondent filed its quarterly value-added tax returns with the Bureau of Internal Revenue, along with an Application for Zero Rated Sales for the same year, which the BIR duly approved. Thereafter, respondent filed a claim for refund in the amount of P449,569,448.73, representing input tax incurred from its importation and domestic purchases of capital goods and services preparatory to its production and sales of electricity.

Petitioner, the Commissioner of Internal Revenue, did not act upon respondent's claim for refund or issuance of a tax credit certificate. Consequently, respondent filed a Petition for Review with the CTA on March 21, 2002, and an Amended Petition for Review on September 12, 2003. In her Answer, petitioner raised several affirmative defenses, including that respondent was not entitled to the refund, that the petition was prematurely filed for failure to exhaust administrative remedies, that respondent failed to show that taxes were erroneously or illegally collected, and that respondent had no cause of action. After the issues were joined, trial on the merits ensued.

Respondent filed its Memorandum on September 1, 2008. Petitioner, however, failed to file the required Memorandum despite notice, prompting the CTA First Division to issue a Resolution on September 12, 2008 submitting the case for decision. On September 11, 2009, the CTA First Division rendered a Decision granting respondent a refund of P443,447,184.50, representing unutilized input VAT paid on its domestic purchases and importation of capital goods for the first and second quarters of 2000, after deducting amounts pertaining to non-capital goods and unsubstantiated input VAT. No motion for reconsideration was filed by petitioner, and the Decision became final and executory on October 10, 2009, with a corresponding Entry of Judgment issued on that date. A Writ of Execution was issued on February 16, 2010 directing the BIR to refund the said amount to respondent.

Petitioner alleges that she learned of the Decision and the subsequent issuance of the writ only on March 7, 2011, when the Office of the Deputy Commissioner for Legal and Inspection Group received a Memorandum from the Appellate Division of the National Office recommending the issuance of a Tax Credit Certificate in favor of respondent. On April 11, 2011, petitioner filed a petition for annulment of judgment with the CTA En Banc, seeking to annul the CTA First Division Decision, the Entry of Judgment, and the Writ of Execution, and to compel the CTA First Division to reopen the case to allow petitioner to submit her memoranda. The CTA En Banc dismissed the petition on July 27, 2011, and denied the motion for reconsideration on November 15, 2011, on the ground that it had no jurisdiction to entertain annulment of judgments.

• Jurisdiction of CTA En Banc: Petitioner argued that the CTA En Banc has jurisdiction to take cognizance of a petition for annulment of judgment.
• Extrinsic Fraud: Petitioner maintained that the negligence committed by her counsel was gross, palpable, and constituted total abandonment of petitioner's cause, which is tantamount to extrinsic fraud.
• Jurisdiction of CTA First Division: Petitioner argued that the CTA First Division had no jurisdiction over the original petition filed by respondent, claiming that the reglementary periods for judicial remedies involving administrative claims for refund of excess unutilized input VAT under the NIRC are jurisdictional and were not complied with.
• Laches: Petitioner contended that she is not barred by laches from assailing the jurisdiction of the CTA First Division over the petition filed by respondent.

• Lack of Jurisdiction for Annulment: Respondent argued that petitioner is not lawfully entitled to the annulment of judgment on the ground that the CTA En Banc is bereft of jurisdiction to entertain annulment of judgments, as the Rules of Court, RA No. 9282, and the Revised Rules of the Court of Tax Appeals do not expressly provide a remedy for annulment of judgments.

• Jurisdiction to Annul: Whether the CTA En Banc has jurisdiction to take cognizance of a petition for annulment of judgment seeking to annul a final and executory decision of the CTA First Division.
• Proper Remedy: Whether the proper remedy available to petitioner was a petition for certiorari under Rule 65 filed directly with the Supreme Court rather than a petition for annulment of judgment before the CTA En Banc.
• Timeliness: Whether petitioner's failure to avail of the correct remedy within the reglementary period rendered the CTA First Division's decision truly final and executory.

• Jurisdiction to Annul: No. The CTA En Banc has no jurisdiction to annul a final and executory judgment of its own division, as neither the statutes creating the CTA nor its Revised Rules provide for such a remedy, and the principle of immutability of final judgments forbids it.
• Proper Remedy: Yes. The proper remedy was a petition for certiorari under Rule 65, an original action cognizable by the Supreme Court, not by the CTA En Banc, since the grounds invoked — deprivation of due process through counsel's gross negligence and lack of jurisdiction of the CTA First Division — fall within the scope of certiorari.
• Timeliness: Yes. By the time the petition for review was filed with the Supreme Court on December 9, 2011, more than sixty days had passed since petitioner's alleged discovery of the adverse ruling on March 7, 2011, rendering the CTA First Division's decision final and executory.

• Jurisdiction to Annul: Annulment of judgment under Rule 47 of the Rules of Court is an extraordinary remedy based on extrinsic fraud and lack of jurisdiction, involving the exercise of original jurisdiction expressly conferred on the Court of Appeals by BP Blg. 129, Section 9(2). It implies power by a superior court over a subordinate one. However, the laws creating and expanding the CTA's jurisdiction (RA Nos. 1125 and 9282) and the Revised Rules of the CTA do not provide for a scenario in which the CTA en banc is asked to annul a decision of one of its divisions. Among collegial courts, divisions are not separate and distinct courts but are divisions of one and the same court; there is no hierarchy of courts within the Supreme Court and the Court of Appeals. The Supreme Court sitting en banc is not an appellate court vis-à-vis its divisions. Similarly, the CTA en banc is not an appellate court over its divisions. Allowing the en banc to annul a division's final judgment would be tantamount to allowing a court to annul its own judgment and acknowledging a hierarchy within such court, betraying the principle that judgments must attain finality. The silence of the Rules on this matter is attributable to the need to preserve these principles. A direct petition for annulment to the Supreme Court is likewise unavailing because RA No. 9282, Section 1 puts the CTA on the same level as the Court of Appeals, whose final judgments may not be annulled before the Supreme Court, and annulment of judgment is not among the cases over which the Supreme Court exercises original jurisdiction under the Constitution.

• Proper Remedy: Since the petitioner invoked the gross and palpable negligence of her counsel as tantamount to deprivation of due process and day in court, and also invoked lack of jurisdiction of the CTA First Division, the proper remedy was a petition for certiorari under Rule 65. Certiorari is available when there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law. A certiorari petition is not a continuation of the appellate process but a separate action focused on jurisdictional defects, and thus cannot be filed in the same tribunal whose actions are being assailed but is instead cognizable by a higher tribunal — in the case of the CTA, the Supreme Court. The petition could have been filed directly with the Supreme Court even without a motion for reconsideration, as the case falls under recognized exceptions to that requirement, including deprivation of due process and urgency. The petitioner mistakenly filed a petition for annulment of judgment with the CTA En Banc instead, which was legally and procedurally infirm.

• Timeliness: Petitioner's failure to avail of the correct remedy and her mistaken filing of the wrong action were fatal. By the time the petition for review was filed with the Supreme Court on December 9, 2011, more than sixty days had passed since petitioner's alleged discovery on March 7, 2011 of the adverse ruling. The negligence of counsel binds the client, and there were also lapses on the part of petitioner and her responsible subordinates in supervising counsel and monitoring the progress of the case. Service upon counsel of record at his given address is service to the client, and clients should take the initiative of periodically checking the progress of their cases. The Court found it harder to justify relaxation of the rules when the litigant itself suffers from inexcusable neglect.

• Immutability of Final Judgments — A court's judgment, once final, is immutable. A court that can revisit its own final judgments leaves the door open to possible endless reversals or modifications, which is anathema to a stable legal system. The Court relied on this principle to hold that the CTA En Banc cannot annul a final and executory judgment of its own division.

• No Hierarchy Within a Collegial Court — Divisions of a collegial court are not separate and distinct courts but are divisions of one and the same court. There is no hierarchy of courts within the Supreme Court and the Court of Appeals, and the same principle applies to the CTA. The en banc is not an appellate court vis-à-vis its divisions and exercises no appellate jurisdiction over them. This principle bars the en banc from annulling a division's final judgment.

• Annulment of Judgment (Rule 47) — Annulment of judgment is an extraordinary remedy equitable in character, permitted only in exceptional cases, based on the grounds of extrinsic fraud and lack of jurisdiction. It is an original action independent of the case whose judgment is sought to be annulled, and it implies power by a superior court over a subordinate one. The Rules of Court provide for annulment by the Court of Appeals of RTC judgments, and by the RTC of MTC/MCTC judgments, but are silent as to whether a collegial court sitting en banc may annul a final judgment of its own division.

• Certiorari as Proper Remedy (Rule 65) — Certiorari is available when any tribunal exercising judicial or quasi-judicial functions has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law. It is an original or independent action that cannot be filed in the same tribunal whose actions are being assailed but is cognizable by a higher tribunal. Recognized exceptions allow filing without prior motion for reconsideration, including cases of deprivation of due process and extreme urgency.

• Negligence of Counsel Binds the Client — The negligence of counsel binds the client, and service upon counsel of record at his given address is service to the client. Clients should take the initiative of periodically checking the progress of their cases to take timely steps to protect their interests. Failure to do so leaves clients with recourse only against the consequences of their and their counsel's omissions.

• "A court that can revisit its own final judgments leaves the door open to possible endless reversals or modifications which is anathema to a stable legal system." — This passage articulates the ratio decidendi for denying the CTA En Banc jurisdiction to annul its own division's final judgment, grounding the ruling in the principle of immutability of final judgments.

• "Thus, the Revised Rules of the CTA and even the Rules of Court which apply suppletorily thereto provide for no instance in which the en banc may reverse, annul or void a final decision of a division." — This statement establishes the doctrinal finding that no procedural rule permits a collegial court's en banc to annul a final judgment of its own division, confirming the absence of jurisdiction.

• "Instead, what remained as a remedy for the petitioner was to file a petition for certiorari under Rule 65, which could have been filed as an original action before this Court and not before the CTA En Banc." — This passage identifies the correct remedy available to the petitioner, distinguishing certiorari from annulment of judgment and specifying the proper forum.

• "Not only was there an apparent negligence of counsel, which binds the client, there likewise appears to have been lapses on the part of the client — the petitioner and the petitioner's responsible subordinates — themselves." — This passage applies the doctrine that negligence of counsel binds the client and extends responsibility to the government's own failure to monitor the case, justifying the denial of relief.

• Macalalag vs. Ombudsman, 468 Phil. 918 (2004) — Cited for the definition of annulment of judgment as a recourse that presupposes the filing of a separate and original action to annul or avoid a decision in another case.
• Nudo vs. Hon. Caguioa, et al., 612 Phil. 517 (2009) — Cited for the proposition that annulment of judgment is an extraordinary remedy equitable in character, permitted only in exceptional cases.
• Land Bank of the Philippines vs. Suntay, 678 Phil. 879 (2011) — Cited for the principle that divisions of a collegial court are not separate and distinct courts but divisions of one and the same court, and that there is no hierarchy of courts within such court.
• People vs. Duca, 618 Phil. 154 (2009) — Cited for the exception that when the appellate court's decision is void for lack of due process, filing a petition for certiorari without a motion for reconsideration is justified.
• Rural Bank of Calinog (Iloilo) Inc. vs. Court of Appeals, 501 Phil. 387 (2005) — Cited for the rule that certiorari is available when proceedings amount to depriving the petitioner of his day in court, and that certiorari is not a substitute for appeal except when the decision was issued without jurisdiction or with grave abuse of discretion.
• Macondray & Co., Inc. vs. Provident Insurance Corporation, 487 Phil. 158 (2004) — Cited for the doctrines that negligence of counsel binds the client and that service upon counsel of record is service to the client.
• Rapid Manpower Consultants Inc. vs. De Guzman, G.R. No. 187418, September 28, 2015 — Cited for the enumerated exceptions to the rule requiring a motion for reconsideration prior to filing a petition for certiorari.

• Rule 47, Rules of Court — Governs annulment of judgments on the grounds of extrinsic fraud and lack of jurisdiction. The Court held that Rule 47 applies only to a superior court annulling the judgment of an inferior court and is silent on whether a collegial court en banc may annul a final judgment of its own division.
• Rule 65, Rules of Court — Governs petitions for certiorari when a tribunal has acted without or in excess of jurisdiction or with grave abuse of discretion. The Court held that this was the proper remedy for the petitioner's grievances, to be filed as an original action before the Supreme Court.
• RA No. 1125, as amended by RA No. 9282 — The law creating and expanding the jurisdiction of the Court of Tax Appeals. Section 1 of RA No. 9282 places the CTA on the same level as the Court of Appeals. Section 19 provides that decisions of the CTA may be appealed to the Supreme Court. Neither law provides for annulment of judgment by the CTA En Banc.
• BP Blg. 129, Section 9(2) — Confers original jurisdiction on the Court of Appeals for annulment of judgments. The Court noted that annulment of judgment involves the exercise of original jurisdiction expressly conferred on the Court of Appeals, implying power by a superior court over a subordinate one.
• Article VIII, Section 5, Constitution — Enumerates the cases over which the Supreme Court exercises original jurisdiction. The Court noted that annulment of judgment is not among them.
• Article VIII, Section 4(1), Constitution — Provides that the Supreme Court may sit en banc or in divisions. The Court cited this to illustrate that divisions are not separate courts but parts of one court.

Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Perez, Mendoza, Reyes, Perlas-Bernabe, Leonen, and Caguioa, JJ., concurred. Del Castillo, J., was on official leave. Jardeleza, J., took no part.