Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership

Only the administrative claim for refund or credit of unutilized input VAT must be filed within the two-year prescriptive period under Section 112(A) of the 1997 Tax Code, and the reckoning date for that period is the close of the taxable quarter when the relevant sales were made. The judicial claim, on the other hand, must be filed with the Court of Tax Appeals within 30 days from receipt of the Commissioner's denial of the claim or from the expiration of the 120-day period given to the Commissioner to act on the administrative claim, and this 30-day period is mandatory and jurisdictional.

Mindanao II Geothermal Partnership is a partnership registered with the Securities and Exchange Commission, engaged in the business of power generation and sale of electricity to the National Power Corporation, and accredited by the Department of Energy. Under Republic Act No. 9136, or the Electric Power Industry Reform Act of 2000 (EPIRA), the sale of generated power by generation companies is zero-rated for value-added tax purposes. The case involves claims for refund or credit of accumulated unutilized input VAT under Section 112(A) and Section 112(D) of the 1997 National Internal Revenue Code, as amended.

Mindanao II Geothermal Partnership (Mindanao II) is a partnership registered with the Securities and Exchange Commission, engaged in the business of power generation and sale of electricity to the National Power Corporation, and accredited by the Department of Energy. It filed its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004 on the following dates: the second quarter return was originally filed on 26 July 2004 and amended on 12 July 2005; the third quarter return was originally filed on 22 October 2004 and amended on 12 July 2005; and the fourth quarter return was originally filed on 25 January 2005 and amended on 12 July 2005.

On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for the refund or credit of accumulated unutilized creditable input taxes. In support of the administrative claim, Mindanao II alleged that it is registered with the BIR as a value-added taxpayer and all its sales are zero-rated under the EPIRA law. It further stated that for the second, third, and fourth quarters of taxable year 2004, it paid input VAT in the aggregate amount of ₱7,167,005.84, which were directly attributable to the zero-rated sales, and the input taxes had not been applied against output tax.

Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006, to act on the claim. The administrative claim, however, remained unresolved on 3 February 2006. Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in which case it would have 30 days to file an appeal to the CTA, that is, on or before 5 March 2006. Mindanao II, however, did not file an appeal within the 30-day period.

Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive period provided under Section 112(A) and that such time frame was to be reckoned from the filing of its Quarterly VAT Returns. Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR and that the two-year prescriptive period was about to expire, filed a Petition for Review with the CTA docketed as CTA Case No. 6133.

On 8 June 2007, while the application for refund or credit was pending before the CTA Second Division, the Supreme Court promulgated Atlas Consolidated Mining and Development Corporation vs. CIR (Atlas), which held that the two-year prescriptive period for the filing of a claim for an input VAT refund or credit is to be reckoned from the date of filing of the corresponding quarterly VAT return and payment of the tax. On 12 August 2008, the CTA Second Division rendered a Decision ordering the CIR to grant a refund or a tax credit certificate in the reduced amount of ₱6,791,845.24, representing unutilized input VAT incurred for the second, third, and fourth quarters of taxable year 2004. The CTA Second Division held that Mindanao II complied with the twin requisites for VAT zero-rating under the EPIRA law and satisfied the requirements for the grant of a refund/credit under Section 112 of the Tax Code. The input tax claim to the extent of ₱375,160.60 corresponding to purchases of services from Mitsubishi Corporation was disallowed for lack of substantiation by official receipts. Citing Atlas, the tax court counted from the dates when Mindanao II filed its Quarterly VAT Returns and determined that both the administrative claim filed on 6 October 2005 and the judicial claim filed on 21 July 2006 fell within the two-year prescriptive period.

On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, pointing out that prescription had already set in since the appeal to the CTA was filed only on 21 July 2006, which was way beyond the last day to appeal of 5 March 2006, relying on Section 112(D) of the 1997 Tax Code. Meanwhile, on 12 September 2008, the Supreme Court promulgated CIR vs. Mirant Pagbilao Corporation (Mirant), which fixed the reckoning date of the two-year prescriptive period for the application for refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales were made, as stated in Section 112(A). On 3 December 2008, the CTA Second Division denied the CIR's Motion for Partial Reconsideration, standing by its reliance on Atlas and on its finding that both the administrative and judicial claims of Mindanao II were timely filed.

On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for Review. The CIR argued that the judicial claim of Mindanao II was filed beyond the 30-day period fixed by Section 112(D) and that Mindanao II erroneously fixed the date of filing of the return as the reckoning date for the two-year prescriptive period under Section 112(A), invoking the recently promulgated Mirant. On 11 November 2009, the CTA En Banc rendered its Decision denying the CIR's Petition for Review, holding that the CTA Second Division correctly applied the Atlas ruling, which remained the controlling doctrine, and that Mirant, being a new doctrine, should not apply retroactively to Mindanao II who had relied on the old doctrine of Atlas. As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc held that this was a requirement only when the CIR actually denies the taxpayer's claim, but in cases of CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is seasonably filed as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of filing of the return. The CIR filed a Motion for Partial Reconsideration, which was denied for lack of merit.

• Lack of Jurisdiction: The CIR argued that the CTA Second Division lacked jurisdiction to take cognizance of the case because the judicial claim was filed beyond the 30-day period fixed by Section 112(D) of the 1997 Tax Code.

• Misplaced Reliance on Atlas: The CIR contended that the CTA's reliance on the Atlas ruling was misplaced because Atlas involves Section 230 of the 1977 Tax Code, which contemplates recovery of tax payments erroneously or illegally collected, whereas this case deals with claims for tax refund or credit of unutilized input VAT covered by Section 112 of the 1997 Tax Code.

• Non-Applicability of Atlas Doctrine: The CIR further contended that Mindanao II cannot claim good faith reliance on the Atlas doctrine since the case was decided only on 8 June 2007, two years after Mindanao II filed its claim for refund or credit with the CIR and one year after it filed a Petition for Review with the CTA on 21 July 2006.

• Retroactive Application of Mirant: The CIR proposed that the Court's ruling in Mirant should apply to this case despite the fact that it was promulgated after Mindanao II had filed its administrative claim, arguing that Mirant can be applied retroactively since it merely interprets Section 112, a provision that was already effective when Mindanao II filed its claims.

• Mandatory Nature of 30-Day Period: The CIR posited that the 30-day period to appeal is mandatory and jurisdictional.

• Doctrine of Stare Decisis: Mindanao II countered that Atlas, decided by the Third Division of this Court, could not have been superseded by Mirant, a Second Division Decision, since a doctrine laid down by the Supreme Court in a Division may be modified or reversed only through a decision of the Court sitting en banc.

• Prevailing CTA Rule: Mindanao II further contended that when it filed its Petition for Review, the prevailing rule in the CTA reckons the two-year prescriptive period from the date of the filing of the VAT return.

• Non-Retroactivity of Judicial Rulings: Mindanao II assailed the CIR's reliance on the Mirant doctrine, stating that it cannot be applied retroactively to this case lest it violate the rule that a judicial ruling cannot be given retroactive effect if it will impair vested rights.

• Directory Nature of 30-Day Period: Mindanao II contended that the requirement of judicial recourse within 30 days is only directory and permissive, as indicated by the use of the word "may" in Section 112(D).

• Two-Year Prescriptive Period: Whether the two-year prescriptive period under Section 112(A) of the 1997 Tax Code applies to both the administrative and judicial claims for refund or credit of unutilized input VAT, and whether the reckoning date is the close of the taxable quarter when the relevant sales were made.

• 120+30 Day Period: Whether the 30-day period to appeal to the CTA under Section 112(D) applies to cases of inaction by the CIR, and whether it is mandatory and jurisdictional.

• Application of BIR Ruling No. DA-489-03: Whether the exception to the mandatory and jurisdictional nature of the 120+30 day period under BIR Ruling No. DA-489-03 applies to late filing of a judicial claim.

• Two-Year Prescriptive Period: Only the administrative claim must be filed within the two-year prescriptive period under Section 112(A), and the reckoning date is the close of the taxable quarter when the relevant sales were made. Mindanao II's administrative claims for the second, third, and fourth quarters of 2004 were all timely filed.

• 120+30 Day Period: The 30-day period to appeal applies not only to instances of actual denial by the CIR but also to cases of inaction. The 30-day period is mandatory and jurisdictional. Mindanao II's judicial claims were filed out of time, having been filed 138 days after the lapse of the 30-day period on 5 March 2006.

• Application of BIR Ruling No. DA-489-03: The exception under BIR Ruling No. DA-489-03 does not apply because it contemplates premature filing, not late filing. Mindanao II's situation is one of late filing, which is absolutely prohibited even during the time when the BIR ruling was in force.

• Two-Year Prescriptive Period: The Court relied on Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc. (Aichi), which held that the phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund" in Section 112(A) refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. Applying the two-year period to judicial claims would render nugatory Section 112(D), which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The Court also relied on Commissioner of Internal Revenue vs. San Roque Power Corporation (San Roque), which delineated the scope and effectivity of the Atlas and Mirant doctrines. The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. Since Mindanao II filed its administrative claims on 6 October 2005, the case falls within the period prior to Atlas and Mirant, and the proper reckoning date is the close of the taxable quarter when the relevant sales were made. For the second quarter, the prescriptive period ran from 30 June 2004 to 30 June 2006; for the third quarter, from 30 September 2004 to 30 September 2006; and for the fourth quarter, from 31 December 2004 to 31 December 2006. All administrative claims filed on 6 October 2005 were timely.

• 120+30 Day Period: Section 112(D) speaks of two periods: the 120-day waiting period for the CIR to act on the administrative claim, and the 30-day period for interposing an appeal with the CTA. The Court rejected the CTA En Banc's interpretation that the word "or" in Section 112(D) gives the taxpayer two options, one of which does not require compliance with the 30-day period. Citing San Roque, the Court held that the taxpayer can file the appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR. In this case, the CIR had 120 days, or until 3 February 2006, to act on the claim. Mindanao II could treat the inaction as a denial and appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006. Mindanao II filed its Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period. The judicial claim was therefore filed late.

• Application of BIR Ruling No. DA-489-03: The Court addressed whether the exception under BIR Ruling No. DA-489-03 applies. San Roque provides that BIR Ruling No. DA-489-03 is a general interpretative rule that allows premature filing of a judicial claim, meaning non-exhaustion of the 120-day period. Taxpayers can rely on it from its issuance on 10 December 2003 until its reversal by this Court in Aichi on 6 October 2010. However, the BIR ruling is limited to premature filing and does not extend to late filing of a judicial claim. The Court found that Mindanao II's situation is similar to that of Philex Mining Corporation in San Roque, which filed its claim 426 days after the lapse of the 30-day period and could not avail itself of the benefit of the BIR ruling. Mindanao II filed its judicial claim 138 days after the lapse of the 30-day period, which is a case of late filing, not premature filing. Thus, the BIR ruling cannot be properly invoked.

• Verba Legis Doctrine — Where the language of a statute is clear, plain, and unequivocal, it should be applied exactly as worded. The Court applied this doctrine in interpreting Section 112(A) and Section 112(D) of the 1997 Tax Code, holding that the two-year prescriptive period for filing an administrative claim is reckoned from the close of the taxable quarter when the relevant sales were made, and that the 30-day period to appeal to the CTA applies whether there is a denial or inaction on the part of the CIR.

• Mandatory and Jurisdictional Nature of the 30-Day Appeal Period — The 30-day period to appeal to the CTA under Section 112(D) is both mandatory and jurisdictional. The word "may" in the provision simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period; it does not make the 120+30 day periods optional.

• Exception for Premature Filing under BIR Ruling No. DA-489-03 — BIR Ruling No. DA-489-03 dated 10 December 2003, which declares that the taxpayer-claimant need not wait for the lapse of the 120-day period before seeking judicial relief with the CTA, is a general interpretative rule that allows premature filing of a judicial claim. Taxpayers can rely on it from its issuance until its reversal by this Court in Aichi on 6 October 2010. However, the exception is limited to premature filing and does not extend to late filing of a judicial claim.

• Prospective Application of Reversed General Interpretative Rules — Absent fraud, bad faith, or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should apply prospectively. Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law.

• "There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of the said provision states that 'any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two 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.' The phrase 'within two (2) years x x x apply for the issuance of a tax credit certificate or refund' refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA." — This passage from Aichi, quoted in the decision, establishes the doctrine that only the administrative claim must be filed within the two-year prescriptive period under Section 112(A), not the judicial claim.

• "This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period." — This passage from San Roque, quoted in the decision, establishes that the 30-day period to appeal applies to both actual denial and inaction by the CIR, and is mandatory and jurisdictional.

• "When Section 112(C) states that 'the taxpayer affected may, within thirty (30) days from 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,' the law does not make the 120+30 day periods optional just because the law uses the word 'may.' The word 'may' simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period." — This passage from San Roque, quoted in the decision, clarifies that the use of the word "may" in Section 112(D) does not render the 30-day appeal period optional or directory.

• "Philex's situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the expiration of the 120-day period." — This passage from San Roque, quoted in the decision, establishes that the exception under BIR Ruling No. DA-489-03 is limited to premature filing and does not extend to late filing of a judicial claim.

• Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6, 2010 — Controlling precedent establishing that only the administrative claim must be filed within the two-year prescriptive period under Section 112(A), and that the 120+30 day periods under Section 112(D) are mandatory and jurisdictional.

• Commissioner of Internal Revenue vs. San Roque Power Corporation, G.R. No. 187485, February 12, 2013 — Controlling precedent that delineated the scope and effectivity of the Atlas and Mirant doctrines, established the reckoning date for the two-year prescriptive period as the close of the taxable quarter when the relevant sales were made, and clarified the mandatory and jurisdictional nature of the 30-day appeal period, including the exception for premature filing under BIR Ruling No. DA-489-03.

• Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. Nos. 141104 and 148763, June 8, 2007 — Followed only for the period from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant; held that the two-year prescriptive period for filing a claim for input VAT refund or credit is reckoned from the date of filing of the corresponding quarterly VAT return and payment of the tax.

• Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation, 586 Phil. 712 (2008) — Abandoned the Atlas doctrine and adopted the verba legis rule, applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT, with the reckoning date at the close of the taxable quarter when the relevant sales were made.

• Section 112(A), 1997 National Internal Revenue Code — Provides that any VAT-registered person whose sales are zero-rated or effectively zero-rated may, within two 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. The Court held that this two-year prescriptive period applies only to the administrative claim filed with the CIR, not to the judicial claim filed with the CTA.

• Section 112(D), 1997 National Internal Revenue Code — Provides that the Commissioner shall grant a refund or issue the tax credit certificate within 120 days from the date of submission of complete documents, and that in case of full or partial denial of the claim or failure of the Commissioner to act within the period, the taxpayer may appeal to the CTA within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period. The Court held that the 30-day period applies to both actual denial and inaction, and is mandatory and jurisdictional.

• Section 229, 1997 National Internal Revenue Code — Provides the prescriptive period for filing a judicial claim for refund of taxes "erroneously, illegally, excessively or in any manner wrongfully collected." The Court, citing San Roque, distinguished this provision from Section 112, holding that input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected, the amount paid is correct and proper.

• Section 6, Republic Act No. 9136 (Electric Power Industry Reform Act of 2000) — Provides that sales of generated power by generation companies shall be value added tax zero-rated. The Court noted that Mindanao II's sales are zero-rated under this law.

• Article VIII, Section 4(3), 1987 Constitution — Provides that no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or reversed except by the court sitting en banc. Mindanao II invoked this provision in arguing that Atlas could not have been superseded by Mirant, a Second Division Decision.

• Leonardo-De Castro, J.
• Bersamin, J.
• Villarama, Jr., J.
• Reyes, J.

N/A — The decision does not mention any dissenting opinion.