Commissioner of Internal Revenue vs. Philex Mining Corporation

A VAT-registered taxpayer's claim for refund or tax credit of unutilized input VAT attributable to zero-rated sales is not defeated by the absence of subsidiary sales and purchase journals or monthly VAT declarations, because Section 112(A) of the Tax Code does not make these accounting and filing requirements conditions for entitlement; the input tax must instead be substantiated by VAT invoices or official receipts issued in accordance with Sections 113 and 237.

Philex Mining Corporation is a domestic corporation engaged in the mining business, including the exploration and operation of mining properties and the commercial production, marketing, and exportation of mineral products. It is a VAT-registered taxpayer with a duly approved Application for Zero-Rate effective April 12, 1998. Under the Tax Code, a VAT-registered person whose sales are zero-rated or effectively zero-rated may apply for a tax credit certificate or refund of creditable input tax attributable to such sales, subject to the requisites in Section 112(A), while Section 110(A) requires creditable input tax to be evidenced by a VAT invoice or official receipt issued in accordance with Sections 113 and 237.

Philex Mining Corporation is a domestic corporation engaged in the mining business, including the exploration and operation of mining properties and the commercial production, marketing, and exportation of mineral products. It is a VAT-registered taxpayer with a duly approved Application for Zero-Rate effective April 12, 1998. During the second and third quarters of TY 2010, Philex Mining sold and shipped mineral products to Pan Pacific Copper Co., Ltd., Louise Dreyfus Commodities Metals Suisse SA, and Heraeus Ltd.

On February 13, 2012, Philex Mining filed amended quarterly VAT returns for the second and third quarters to reflect excess input tax arising from its zero-rated sales. On June 7, 2012 and June 22, 2012, it filed claims for refund of P45,048,921.68 and P51,464,383.81 with the Department of Finance's One-Stop Shop Center (DOF-OSS), attaching to Claimant Information Sheet Nos. 62442 and 22002 the letters dated May 4, 2012 containing a list of documents to support its claims.

Philex Mining thereafter filed two separate petitions for review before the CTA Division on October 9, 2012 (CTA Case No. 8553) and October 25, 2012 (CTA Case No. 8562). The CTA granted the motions to consolidate the two cases and to commission an Independent Certified Public Accountant (ICPA) on February 14, 2013, and trial ensued. The CTA Division examined the documentary evidence and the ICPA report and found that Philex Mining timely filed its administrative and judicial claims within the periods under Sections 112(A) and (C) of the Tax Code, attached the required documents, and sufficiently proved entitlement to a refund for unutilized input VAT attributable to its zero-rated sales for the second and third quarters of TY 2010, but in the reduced amount of P51,734,898.99.

The CIR challenged the claim, moving for reconsideration on the grounds that the judicial claim was premature, that Philex Mining did not submit the required checklist of documents to the DOF-OSS, and that it failed to comply with the accounting requirements by not keeping subsidiary sales and purchase journals and not filing monthly VAT declarations. The CTA found that Philex Mining had timely filed its claims, submitted complete documents, and sufficiently proved payment of creditable input VAT for the second and third quarters of TY 2010. It determined the existence of valid creditable input VAT by examining the official receipts, quarterly VAT returns, import entry declarations, and the ICPA report, and concluded that Philex Mining incurred input taxes in connection with its zero-rated sales and that those input taxes were not applied against any output tax liability.

• Subsidiary Journals and Monthly VAT Declarations as Conditions Sine Qua Non: The CIR argued that Section 4.113-3 of RR No. 16-2005 required Philex Mining to keep, preserve, and maintain subsidiary sales and purchase journals, and that Section 114(A) of the Tax Code, as implemented by Section 4.114-1 of RR No. 16-2005, required it to file monthly VAT declarations; prior compliance with these requirements was a condition sine qua non for claiming unutilized zero-rated input VAT.
• Purpose of the Requirements: The CIR maintained that the subsidiary journals and monthly VAT declarations assist the CIR and the courts in determining whether the taxpayer incurred input taxes in connection with its zero-rated sales and whether those input taxes were not applied against any output tax liability.
• Burden to Prove Compliance: The CIR argued that Philex Mining failed to prove compliance with these requirements and that it was Philex Mining's obligation to prove such compliance.
• Reliance on Case Law: The CIR relied on Western Mindanao Power Corp. vs. Commissioner of Internal Revenue, Bonifacio Water Corp. vs. Commissioner of Internal Revenue, Sitel Phils. Corp. vs. Commissioner of Internal Revenue, and Taganito Mining Corp. vs. Commissioner of Internal Revenue to support the position that accounting requirements form part of the requirements for refund or tax credit.

• Subsidiary Journals and Monthly VAT Declarations as Requirements for Refund: Whether tax declarations and subsidiary journals form part of the requirements of law for the grant of tax credit or refund, and whether it is the taxpayer's obligation to prove compliance therewith.
• Review of CTA Factual Findings: Whether the CIR's claim that Philex Mining failed to prove its creditable input tax attributable to its zero-rated sales may be entertained in a Petition for Review on Certiorari under Rule 45.

• Subsidiary Journals and Monthly VAT Declarations as Requirements for Refund: No. Section 112(A) of the Tax Code does not make the keeping of subsidiary sales and purchase journals or the filing of monthly VAT declarations conditions for refund or tax credit; creditable input tax must be substantiated by VAT invoices or official receipts under Section 110(A), Sections 113 and 237.
• Review of CTA Factual Findings: No. The allegation that Philex Mining failed to prove its creditable input tax involves a factual, evidentiary issue not reviewable in a Rule 45 petition; CTA factual findings are generally final, binding, and conclusive absent the recognized exceptions.

• Subsidiary Journals and Monthly VAT Declarations as Requirements for Refund: Section 112(A) of the Tax Code allows a VAT-registered person whose sales are zero-rated or effectively zero-rated to apply for a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, subject to the following requisites: (1) the taxpayer must be VAT-registered; (2) the taxpayer must be engaged in zero-rated or effectively zero-rated sales; (3) the claim must be filed within two years after the close of the taxable quarter when the sales were made; (4) the creditable input tax due or paid must be attributable to such sales, except transitional input tax, to the extent not applied against output tax; and (5) for zero-rated sales under Section 106(A)(2)(a)(1), the acceptable foreign currency exchange proceeds must have been duly accounted for under BSP rules. The dispute hinged on the fourth requisite. The CIR argued that Section 4.113-3 of RR No. 16-2005 required subsidiary sales and purchase journals and that Section 114(A) of the Tax Code, implemented by Section 4.114-1 of RR No. 16-2005, required monthly VAT declarations, with prior compliance as a condition sine qua non. The Court rejected this. Applying the plain-meaning rule, it held that Section 110(A) requires creditable input tax to be evidenced by a VAT invoice or official receipt issued in accordance with Sections 113 and 237, and that Sections 4.110-8 and 4.113-1(A) and (B) of RR No. 16-2005 enumerate the documents and information needed to substantiate input tax on importation of goods other than capital goods and on domestic purchases of services. Failure to comply with invoicing requirements is a sufficient ground to deny the claim, but subsidiary journals do not affect the character of an invoice or receipt as a VAT invoice or official receipt. Although subsidiary journals may be sources of information for the CIR in making assessments, their submission is not indispensable to substantiate input taxes. The law does not require them, and courts may not enlarge the scope of a statute by imposing conditions not provided by the legislature. The Court distinguished Western Mindanao Power Corp. vs. Commissioner of Internal Revenue, Bonifacio Water Corp. vs. Commissioner of Internal Revenue, and Sitel Phils. Corp. vs. Commissioner of Internal Revenue: in those cases the issue was limited to non-compliance with invoicing requirements, so the statements on accounting requirements were obiter dictum. Taganito Mining Corp. vs. Commissioner of Internal Revenue was also inapplicable because it involved input VAT on importation of dump trucks as capital goods, where the subsidiary ledger was needed to prove proper amortization; Philex Mining's claim concerned goods other than capital goods and domestic purchases of services, and the CTA had determined the valid input VAT from official receipts, quarterly VAT returns, import entry declarations, and the ICPA report. As for monthly VAT declarations, nothing in Section 112(A) or RR No. 16-2005 made prior filing a condition precedent to refund; Section 114(A) requires monthly payment, but non-compliance does not result in denial of the claim and may only give rise to penalties, provided the taxpayer sufficiently shows that the VAT was paid. The CTA found that Philex Mining sufficiently proved payment of creditable input VAT. While tax refunds are construed strictissimi juris against the taxpayer, tax statutes are construed strictly against the taxing authority and liberally in favor of the taxpayer, and taxes are not presumed beyond what the statute expressly declares. The CTA therefore did not err.
• Review of CTA Factual Findings: The CIR's allegation that Philex Mining failed to prove its creditable input tax attributable to its zero-rated sales necessarily involved a factual issue and was evidentiary in nature, which cannot be entertained in a Petition for Review on Certiorari under Rule 45 where only questions of law may generally be raised. The Court is not a trier of facts and is not duty-bound to examine trial documents to test the truthfulness of their contents. The factual findings of the CTA, which is dedicated exclusively to the study and consideration of tax problems and has developed expertise on the subject, are generally regarded as final, binding, and conclusive. They will not be reviewed or disturbed on appeal unless a party shows that they are not supported by evidence, that the judgment is premised on a misapprehension of facts, or that the lower courts overlooked certain relevant facts which, if considered, would justify a different conclusion. No cogent reason to depart from this principle was shown.

• Plain Meaning Rule / Verba Legis — When the words of a statute are clear, plain, and free from ambiguity, they must be given their literal meaning and applied without attempted interpretation. The maxim verba legis non est recedendum means that from the words of a statute there should be no departure, and every part must be interpreted with reference to the context and the general intent of the whole enactment. The Court applied this to Section 112(A) and Section 110 of the Tax Code, refusing to read into them a requirement that subsidiary journals or monthly VAT declarations be complied with as conditions for refund or tax credit.
• Invoicing Requirements as Substantiation of Input VAT — Under Section 110(A) of the Tax Code, creditable input tax must be evidenced by a VAT invoice or official receipt issued in accordance with Sections 113 and 237. Failure to comply with the invoicing requirements is a sufficient ground to deny a claim for refund or tax credit because only a VAT invoice or official receipt can give rise to input tax; without input tax, there is nothing to refund. The Court applied this by recognizing that Philex Mining's claim was supported by import entry declarations, official receipts, quarterly VAT returns, and the ICPA report, and no invoicing defect was the basis of denial.
• Accounting Requirements Not Indispensable to Substantiate Input Tax for Non-Capital Goods and Services — Subsidiary sales and purchase journals are repositories of day-to-day sales and purchases and may be sources of information for the CIR in making assessments, but their submission is not indispensable to substantiate input taxes. Section 4.113-3 of RR No. 16-2005 does not make the keeping of subsidiary journals a condition precedent to a claim for refund or tax credit for input tax on importation of goods other than capital goods and domestic purchases of services. The Court applied this by holding that Philex Mining's failure to maintain subsidiary journals did not defeat its refund claim.
• Monthly VAT Declarations Not a Condition Precedent to Refund — Section 114(A) of the Tax Code, as implemented by Section 4.114-1 of RR No. 16-2005, requires VAT-registered persons to pay VAT on a monthly basis, but neither the Tax Code nor the relevant revenue regulations provide denial of the refund claim as a consequence of non-compliance. Failure to file monthly VAT declarations may give rise to penalties but does not affect entitlement to a refund as long as the taxpayer sufficiently shows that the VAT was paid. The Court applied this by upholding the refund despite the alleged non-filing of monthly VAT declarations.
• Obiter Dictum — An obiter dictum is an opinion expressed by a court upon a question of law not necessary to the decision of the case before it, or a remark made by the way, incidentally or collaterally, and not directly upon the question before the court. It is not binding as a precedent. The Court applied this by characterizing as obiter dictum the statements in Western Mindanao Power Corp. vs. Commissioner of Internal Revenue, Bonifacio Water Corp. vs. Commissioner of Internal Revenue, and Sitel Phils. Corp. vs. Commissioner of Internal Revenue that accounting requirements must be complied with, because in those cases the issue was limited to non-compliance with invoicing requirements.
• Construction of Tax Refund and Tax Statutes — Tax refunds are in the nature of tax exemptions and are construed strictissimi juris against the taxpayer, but tax statutes are construed strictly against the taxing authority and liberally in favor of the taxpayer, because taxes, being burdens, are not to be presumed beyond what the statute expressly and clearly declares. The Court applied this by refusing to impose conditions or limitations on the refund that were not provided in the law.
• Finality of CTA Factual Findings — The factual findings of the CTA, which is dedicated exclusively to the study and consideration of tax problems and has developed expertise on the subject, are generally final, binding, and conclusive upon the Supreme Court. They are not reviewed or disturbed on appeal unless the party shows that they are not supported by evidence, that the judgment is premised on a misapprehension of facts, or that the lower courts overlooked certain relevant facts which, if considered, would justify a different conclusion. The Court applied this by declining to entertain the CIR's factual challenge to Philex Mining's proof of creditable input tax.

• "While the tax law requires mandatory compliance with the keeping of subsidiary journals and the filing of monthly value-added tax (VAT) declarations, the Court will not deny the request for refund on the sole basis that the taxpayer failed to comply with these requirements when the law does not provide for its compliance by the taxpayer to be entitled for refund. The Court may not construe a statute that is free from doubt; neither can we impose conditions or limitations when none is provided for." — This passage states the core holding: non-compliance with subsidiary journals and monthly VAT declarations does not justify outright denial of the refund because the law does not make those requirements conditions for entitlement.
• "The language used in Section 110 is plain, clear, and unambiguous. To be creditable, the input taxes must be evidenced by validly issued invoices and/or official receipts containing the information enumerated in Sections 113 and 237. The law does not require that subsidiary journals where the sales and purchases (and the output taxes and their corresponding input taxes) were recorded, are also kept. Indeed, courts may not, in the guise of interpretation, enlarge the scope of a statute and include therein situations not provided nor intended by the lawmakers." — This is the ratio on subsidiary journals: the controlling substantiation requirement is the VAT invoice or official receipt, not the subsidiary journals.
• "Similarly, there was nothing in Section 112 (A) and RR No. 16-2005 that require prior filing of monthly VAT declarations as a condition precedent to the entitlement for refund. While admittedly, Section 114 (A) of the Tax Code, as implemented by Section 4.114-1 of RR No. 16-2005, requires the taxpayer to pay VAT on a monthly basis, the Tax Code and relevant revenue regulations do not provide denial of the claim as a consequence of non-compliance." — This passage defines the treatment of monthly VAT declarations: they are required for monthly payment, but non-filing does not result in denial of the refund claim.
• "In the foregoing cases, the issue was limited to non-compliance with the invoicing requirements. The Court's statement that accounting requirements must be complied with in addition to the invoicing requirements to entitle the claimant for refund or credit is, at best, merely an obiter dictum that is not binding as a precedent." — This passage explains why the earlier statements in Western Mindanao Power Corp., Bonifacio, and Sitel on accounting requirements do not control the present case.

• Western Mindanao Power Corp. vs. Commissioner of Internal Revenue, 687 Phil. 328 (2012) — Cited by the CIR for the rule that a taxpayer claiming a refund must comply with the invoicing and accounting requirements mandated by the NIRC and implementing revenue regulations. The Court clarified that the taxpayer's failure to maintain subsidiary journals was not raised as an issue in that case; the denial was based on the official receipts' failure to contain the word "zero-rated," so the statement on accounting requirements was obiter dictum.
• Bonifacio Water Corp. vs. Commissioner of Internal Revenue, 714 Phil. 413 (2013) — Cited as reiterating the invoicing-and-accounting-compliance rule. The issue there was the taxpayer's use of an unauthorized name on official receipts; the absence of official receipts issued in its approved name was tantamount to non-compliance with substantiation requirements. The Court again treated the accounting-requirements statement as obiter dictum.
• Sitel Phils. Corp. vs. Commissioner of Internal Revenue, 805 Phil. 464 (2017) — Cited as the most recent reiteration of the rule. The invoices and official receipts there were not imprinted with the taxpayer's TIN followed by the word "VAT," so they could not give rise to creditable input VAT. The Court held that the accounting-requirements statement was likewise obiter dictum because the issue was limited to invoicing requirements.
• Taganito Mining Corp. vs. Commissioner of Internal Revenue, 748 Phil. 774 (2014) — Distinguished. The claim there involved input VAT on the importation of dump trucks alleged to be capital goods, and the subsidiary ledger was required to prove proper amortization of the input tax over the estimated useful life of the capital goods. Because Philex Mining's claim concerned goods other than capital goods and domestic purchases of services, the subsidiary journals were not indispensable.
• Commissioner of Internal Revenue vs. American Express International, Inc., 500 Phil. 586 (2005) — Cited for the principle that the Court may not construe a statute that is free from doubt or impose conditions or limitations when none are provided by law.
• Eastern Telecommunications Phils., Inc. vs. Commissioner of Internal Revenue, 693 Phil. 464 (2012) — Cited for the rule that failure to comply with invoicing requirements is sufficient ground to deny a claim for refund or tax credit.
• Microsoft Phils., Inc. vs. Commissioner of Internal Revenue, 662 Phil. 762 (2011) — Cited for the principle that only a VAT invoice or official receipt can give rise to input tax from a domestic purchase of goods or services.
• Villanueva, Jr. vs. CA, 429 Phil. 194 (2002) and Delta Motors Corp. vs. CA, G.R. No. 121075, July 24, 1997, 342 Phil. 173 (1997) — Cited for the definition of obiter dictum as an opinion on a question of law not necessary to the decision and not binding as precedent.

• Section 112(A), National Internal Revenue Code (Tax Code), as amended — Governs refunds or tax credits of input tax for zero-rated or effectively zero-rated sales. It allows a VAT-registered person to apply for a tax credit certificate or refund of creditable input tax due or paid attributable to such sales within two years after the close of the taxable quarter, subject to the requisites enumerated in the decision. The Court held that it does not require subsidiary journals or monthly VAT declarations as conditions for entitlement.
• Section 106(A)(2)(a)(1), Tax Code — Defines export sales subject to zero percent VAT. The Court noted that Philex Mining was engaged in zero-rated export sales under this provision and that the fifth requisite under Section 112(A) required the acceptable foreign currency exchange proceeds to be accounted for under BSP rules.
• Section 110(A), Tax Code — Provides that creditable input tax must be evidenced by a VAT invoice or official receipt issued in accordance with Section 113. The Court relied on this as the controlling substantiation requirement, holding that subsidiary journals are not required.
• Section 113, Tax Code — Sets out the invoicing requirements for VAT-registered persons and the information that must appear in a VAT invoice or official receipt. The Court held that failure to comply with these invoicing requirements is sufficient to deny a refund or tax credit.
• Section 237, Tax Code — Requires the issuance of duly registered receipts or sales or commercial invoices showing the date of transaction, quantity, unit cost, description of merchandise, and nature of service, among others. The Court cited it as part of the substantiation requirements for input tax.
• Section 114(A), Tax Code — Requires every person liable to pay VAT to file a quarterly return and provides that VAT-registered persons shall pay VAT on a monthly basis. The Court held that non-filing of monthly VAT declarations does not result in denial of the refund; it may only give rise to penalties.
• Section 4.113-3, Revenue Regulations No. 16-2005 — Requires persons subject to VAT to maintain a subsidiary sales journal and subsidiary purchase journal. The Court held that this is not a condition precedent to a claim for refund or tax credit for input tax on goods other than capital goods and domestic purchases of services.
• Section 4.114-1, Revenue Regulations No. 16-2005 — Implements the filing of returns and payment of VAT, including monthly VAT declarations. The Court held that it does not provide denial of the refund claim as a consequence of non-compliance.
• Sections 4.110-8 and 4.113-1(A) and (B), Revenue Regulations No. 16-2005 — Enumerate the documents required and the information that must appear on the face of the official receipt to substantiate input tax on importation of goods other than capital goods and on domestic purchases of services. The Court relied on these provisions in identifying the applicable substantiation requirements.
• Revenue Memorandum Circular No. 42-2003 — Provides that non-compliance with invoicing requirements is a ground for denial of a claim for refund or tax credit. The Court cited it to show that the denial ground is limited to invoicing requirements.
• Rule 45, Rules of Court — Governs petitions for review on certiorari, which may generally raise only questions of law. The Court cited it in declining to entertain the CIR's factual challenge to Philex Mining's proof of creditable input tax.
• Bookkeeping Regulations, Revenue Regulations No. V-1 (As Amended), Sections 2 and 4 — Define books of accounts, the general journal, and subsidiary journals. The Court cited these to explain that subsidiary journals are repositories of sales and purchases but are not indispensable to substantiate input taxes.

Perlas-Bernabe, Senior Associate Justice (Chairperson); Gesmundo; Lazaro-Javier; and Rosario, JJ. concurred. Rosario was designated as additional Member per Special Order No. 2797 dated November 5, 2020.