Commissioner of Internal Revenue vs. Nippon Express (Phils.) Corporation

A motion to withdraw an appeal filed after promulgation of a decision should be denied where a massive discrepancy exists between the administrative and judicial determinations of the refund amount, as this prejudices government interest, and the government cannot be estopped by the mistakes, errors, or omissions of its agents in matters of taxation.

Nippon Express (Phils.) Corporation is a domestic corporation engaged in international and domestic freight forwarding, cargo handling, warehousing, and related services, and is a VAT-registered entity with the BIR. The Commissioner of Internal Revenue is the head of the BIR, responsible for the assessment and collection of national internal revenue taxes. The dispute concerns Nippon's claim for refund of unutilized input VAT attributable to its zero-rated sales for taxable year 2002, and the procedural question of whether the CTA properly allowed Nippon to withdraw its judicial claim after the BIR had administratively issued a Tax Credit Certificate in a substantially higher amount than what the CTA had judicially determined.

Nippon Express (Phils.) Corporation is a domestic corporation engaged in international and domestic air and sea freight and cargo forwarding, hauling, carrying, handling, distributing, loading, and unloading of general cargoes, and the operation of container depots, warehousing, storage, hauling, and packing facilities. It is a VAT-registered entity with Tax Identification No. VAT Registration No. 004-669-434-000. For the year 2002, Nippon filed its quarterly VAT returns on April 25, 2002, July 25, 2002, October 25, 2002, and January 27, 2003. It maintained that during this period it incurred input VAT attributable to its zero-rated sales in the amount of ₱28,405,167.60, from which only ₱3,760,660.74 was applied as tax credit, thus reflecting a refundable excess input VAT of ₱24,644,506.86.

On April 22, 2004, Nippon filed an administrative claim for refund of its unutilized input VAT in the amount of ₱24,644,506.86 for the year 2002 before the BIR. A day later, on April 23, 2004, it filed a judicial claim for tax refund by way of petition for review before the CTA, docketed as CTA Case No. 6967. The CIR opposed the claim, asserting that the amounts claimed were not properly documented and should therefore be denied.

After a full-blown hearing, the CTA Third Division rendered a Decision on August 10, 2011, partially granting Nippon's claim and ordering the CIR to issue a tax credit certificate in the reduced amount of ₱2,614,296.84. The CTA Division found that while Nippon timely filed its administrative and judicial claims within the two-year prescriptive period, it failed to prove that the recipients of its services — mostly PEZA-registered enterprises — were non-residents "doing business outside the Philippines." Accordingly, Nippon's purported sales therefrom could not qualify as zero-rated sales, necessitating the reduction in the refund amount.

Before receiving notice of the August 10, 2011 Decision — which Nippon claimed occurred on August 16, 2011 — it filed a motion to withdraw on August 12, 2011, stating that the BIR, acting on its administrative claim, had already issued a Tax Credit Certificate in the amount of ₱21,675,128.91 on July 27, 2011. The CIR moved for reconsideration of the August 10, 2011 Decision and filed a comment/opposition to the motion to withdraw, arguing that the CTA Division had already resolved the factual issue after trial, that the issuance of the July 27, 2011 Tax Credit Certificate was bereft of factual and legal bases and prejudicial to the government, and that the motion to withdraw was tantamount to abandonment of Nippon's motion for reconsideration. Nippon likewise sought reconsideration, praying that the CTA Division set aside its August 10, 2011 Decision and order the CIR to issue a tax credit certificate in the full amount of ₱24,644,506.86, or in the alternative, grant its motion to withdraw.

In a Resolution dated July 31, 2012, the CTA Division granted Nippon's motion to withdraw and considered the case closed and terminated, finding that pursuant to Revenue Memorandum Circular No. 49-03, Nippon correctly availed of the proper remedy notwithstanding the promulgation of the August 10, 2011 Decision. The CTA Division exercised its discretionary authority under Section 3, Rule 50 of the Rules of Court, considering Nippon's proffered reasons: that the parties had arrived at a reasonable settlement of the issues, that further legal and related costs would be avoided, and that the court's time and resources would be saved. The CIR elevated the case to the CTA En Banc, which affirmed the CTA Division's Resolution in a Decision dated December 18, 2013, debunking the CIR's assertions that Nippon failed to comply with RMC No. 49-03 requirements and observing that the CIR did not deny the existence and issuance of the July 27, 2011 Tax Credit Certificate. The CIR's motion for partial reconsideration was denied in a Resolution dated June 10, 2014.

• Factual Issue Already Resolved: The CIR argued that the CTA Division had already resolved the factual issue pertaining to Nippon's entitlement to a tax credit certificate, which after trial was proven to be only in the amount of ₱2,614,296.84.
• Invalid Tax Credit Certificate: The CIR asserted that the issuance of the July 27, 2011 Tax Credit Certificate was bereft of factual and legal bases and prejudicial to the interest of the government.
• Withdrawal as Abandonment: The CIR claimed that Nippon's motion to withdraw was tantamount to withdrawal and abandonment of its motion for reconsideration filed in the same case.

• Reasonable Settlement: Nippon maintained that the parties had already arrived at a reasonable settlement of the issues.
• Avoidance of Further Costs: Nippon argued that further legal and related costs would be avoided by the withdrawal.
• Judicial Economy: Nippon contended that the court's time and resources would be saved.
• Proper Remedy Under RMC No. 49-03: Nippon maintained that pursuant to RMC No. 49-03, it correctly availed of the proper remedy notwithstanding the promulgation of the August 10, 2011 Decision.

• Propriety of Withdrawal: Whether the CTA properly granted Nippon's motion to withdraw its petition for review filed after promulgation of the CTA Division's Decision.
• Prescription of Administrative Claim: Whether Nippon's administrative claim for the first taxable quarter of 2002 was barred by prescription.

• Propriety of Withdrawal: No. The CTA committed reversible error in granting the motion to withdraw, as the massive discrepancy of ₱19,060,832.07 between the administrative and judicial determinations of the refund amount should have raised a red flag, and the withdrawal would greatly prejudice the interest of the government and the public.
• Prescription of Administrative Claim: Yes, the claim was time-barred. Nippon's administrative claim for the first taxable quarter of 2002, which closed on March 31, 2002, was filed on April 22, 2004, beyond the two-year prescriptive period under Section 112(A) of the NIRC of 1997. The Court may motu proprio order dismissal on the ground of prescription if the pleadings or evidence on record so show.

• Propriety of Withdrawal: The Revised Rules of the Court of Tax Appeals lack provisions governing withdrawal of pending appeals, so the Rules of Court apply suppletorily under Section 3, Rule 1 of the RRCTA. Section 3, Rule 50 of the Rules of Court provides that withdrawal of appeals after the filing of the appellee's brief may be allowed in the discretion of the court. However, the attendant circumstances should have prompted the CTA to deny the motion. First, the August 10, 2011 Decision was rendered after a full-blown hearing in which the parties ventilated their claims, and the findings resulted from an exhaustive study of the pleadings and a judicious evaluation of the evidence. Second, jurisdiction once acquired is not lost upon the instance of the parties but continues until the case is terminated, as held in Reyes vs. Commission on Elections. Third, the CTA Division had already determined that Nippon was entitled to only ₱2,614,296.84, while the BIR's July 27, 2011 Tax Credit Certificate granted ₱21,675,128.91 — a discrepancy of ₱19,060,832.07 that should have raised a red flag. The interest of the government and the public would be greatly prejudiced by the erroneous grant of refund at a substantial amount. Fourth, the CIR is not estopped from assailing the validity of the Tax Credit Certificate issued by her subordinates, because in matters of taxation the government cannot be estopped by the mistakes, errors, or omissions of its agents.
• Prescription of Administrative Claim: Section 112(A) of the NIRC of 1997 provides that a 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. Nippon's first taxable quarter of 2002 closed on March 31, 2002, but the administrative claim was filed only on April 22, 2004, beyond the two-year prescriptive period. Although prescription was not raised as an issue, it is well-settled that if the pleadings or evidence on record show that the claim is barred by prescription, the Court may motu proprio order its dismissal on that ground.

• Government Not Estopped by Errors of Its Agents — In matters of taxation, the government cannot be estopped by the mistakes, errors, or omissions of its agents, for upon taxation depends the ability of the government to serve the people for whose benefit taxes are collected. The CIR is not estopped from assailing the validity of a Tax Credit Certificate issued by her subordinates in the BIR, even where the certificate was issued while the judicial claim was pending.
• Jurisdiction Once Acquired Is Not Lost — Jurisdiction, once acquired by a court, is not lost upon the instance of the parties but continues until the case is terminated. A unilateral withdrawal of a petition by a party cannot divest the court of jurisdiction once it has already acted on the petition.
• Discretionary Authority to Allow Withdrawal of Appeal — Under Section 3, Rule 50 of the Rules of Court, an appeal may be withdrawn as of right at any time before the filing of the appellee's brief; thereafter, the withdrawal may be allowed in the discretion of the court. This discretion must be exercised judiciously, considering the attendant circumstances, particularly where government interest and public welfare are at stake and where a decision has already been promulgated after a full-blown hearing.
• Motu Proprio Dismissal on Prescription — If the pleadings or evidence on record show that a claim is barred by prescription, the Court may motu proprio order its dismissal on that ground, even if prescription was not raised as an issue by the parties.

• "It is a well-settled rule that the government cannot be estopped by the mistakes, errors or omissions of its agents. It has been specifically held that estoppel does not apply to the government, especially on matters of taxation." — This passage articulates the doctrine that the government is not estopped by its agents' errors in tax matters, a principle central to the Court's ruling that the CIR could assail the BIR-issued Tax Credit Certificate.
• "jurisdiction, once acquired, is not lost upon the instance of the parties, but continues until the case is terminated." — This formulation from Reyes vs. Commission on Elections supports the principle that a court retains jurisdiction over a case even after a party unilaterally moves to withdraw, particularly after the court has already acted on the petition.
• "the massive discrepancy alone between the administrative and judicial determinations of the amount to be refunded to Nippon should have already raised a red flag to the CTA Division." — This passage identifies the key factual circumstance that should have prompted the CTA to deny the motion to withdraw, highlighting the Court's concern for protecting government interest in tax refund proceedings.

• Reyes vs. Commission on Elections, G.R. No. 207264, October 22, 2013 — Cited for the principle that jurisdiction, once acquired, is not lost upon the instance of the parties but continues until the case is terminated. The Court in that case only noted, and did not grant, a motion to withdraw filed after it had already acted on the petition.
• Visayas Geothermal Power Company vs. CIR, G.R. No. 197525, June 4, 2014 — Cited for the doctrine that the government cannot be estopped by the mistakes, errors, or omissions of its agents, especially in matters of taxation, as taxes are the lifeblood of the government.
• CIR vs. San Roque Power Corporation, G.R. Nos. 187485, 196113, and 197156, February 12, 2013 — Cited for the interpretation of Section 112(A) of the NIRC, clarifying that the two-year prescriptive period is a grace period in favor of the taxpayer, who may avail of the full period before the right to apply for a tax refund or credit is barred.
• China Banking Corporation vs. CIR, G.R. No. 172509, February 4, 2015 — Cited for the proposition that the Court may motu proprio order dismissal on the ground of prescription if the pleadings or evidence on record show the claim is barred.

• Section 3, Rule 1, Revised Rules of the Court of Tax Appeals — Provides that the Rules of Court shall apply suppletorily to the RRCTA, allowing Rule 50 of the Rules of Court to govern the procedure for withdrawal of pending appeals before the CTA, which the RRCTA itself does not address.
• Section 3, Rule 50, Rules of Court — Governs withdrawal of appeals: an appeal may be withdrawn as of right at any time before the filing of the appellee's brief; thereafter, the withdrawal may be allowed in the discretion of the court. The Court held that this discretion should not have been exercised in Nippon's favor given the attendant circumstances.
• Section 112(A), National Internal Revenue Code of 1997 — Provides that a 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 attributable to such sales. Applied to determine that Nippon's administrative claim for the first taxable quarter of 2002, which closed on March 31, 2002, was filed beyond the prescriptive period on April 22, 2004.
• Revenue Memorandum Circular No. 49-03, dated August 15, 2003 — Referenced by the CTA in granting the motion to withdraw; the CTA En Banc found that RMC No. 49-03 did not expressly require a taxpayer to inform the BIR of its assent nor prescribe a definite period for filing a motion to withdraw.

Sereno, C.J. (Chairperson), Leonardo-De Castro, Bersamin, and Perez, JJ., concurred.