Commissioner of Internal Revenue vs. United Cadiz Sugar Farmers Association Multi-Purpose Cooperative

A duly registered agricultural cooperative that produces the sugar it sells is exempt from VAT on its sale of refined sugar, and that exemption necessarily includes exemption from the advance payment of VAT upon withdrawal of the refined sugar from the refinery or mill.

The Commissioner of Internal Revenue is empowered by law to act on and approve claims for tax refunds or credits. Respondent United Cadiz Sugar Farmers Association Multi-Purpose Cooperative is a multi-purpose cooperative holding a Certificate of Registration issued by the Cooperative Development Authority on January 14, 2004. The governing framework includes Section 109(1) of the National Internal Revenue Code on VAT-exempt sales by agricultural cooperatives, Articles 61 and 62 of Republic Act No. 6938 on cooperative tax treatment, and revenue regulations governing advance payment of VAT on refined sugar and issuance of Certificates of Tax Exemption.

Respondent United Cadiz Sugar Farmers Association Multi-Purpose Cooperative is a multi-purpose cooperative registered with the Cooperative Development Authority on January 14, 2004. Pursuant to Revenue Regulations No. 20-2001, the Bureau of Internal Revenue issued in its favor BIR Ruling No. RR12-08-2004, also known as the Certificate of Tax Exemption.

In November 2007, BIR Regional Director Rodita B. Galanto of BIR Region 12-Bacolod City required the cooperative to pay value-added tax in advance before her office would issue the Authorization Allowing Release of Refined Sugar from the sugar refinery or mill, the first time such payment was demanded. By letter dated January 9, 2008, the cooperative confirmed with the BIR whether it was exempt from VAT under Section 109(1) of the National Internal Revenue Code. In BIR Ruling No. ECCP-015-08 dated January 25, 2008, the Commissioner, through then Assistant Commissioner James H. Roldan, ruled favorably that the cooperative is considered as the actual producer of its members' sugarcane production because it primarily provided fertilizers, capital, technology transfer and farm management, and confirmed that its sale of produce to members and non-members is exempt from VAT. Regional Director Galanto thereafter no longer required advance VAT and began issuing authorizations allowing withdrawal of refined sugar.

In November 2008, notwithstanding that ruling, Regional Director Galanto again demanded advance VAT. Unable to withdraw its refined sugar for its operations, the cooperative paid advance VAT under protest. On November 11, 2009, it filed an administrative claim for refund asserting exemption under Article 61 of Republic Act No. 6938 and Section 109(1) of the NIRC, followed on November 16, 2009 by a judicial claim for refund before the CTA Division. At trial it presented its Certificates of Registration and Good Standing from the CDA, Certificate of Tax Exemption and BIR Ruling No. ECCP-015-08, together with its Summary of VAT Payments Under Protest, Certificates of Advance Payment, official receipts and payment forms covering payments from November 15, 2007 to February 13, 2009.

The CTA Division found the cooperative exempt from VAT and the P3,469,734.00 advance VAT on 34,017 LKG bags of refined sugar illegally or erroneously collected. The CTA en banc sustained that finding, sustained the timeliness of both claims within the two-year period under Sections 204(C) and 229 of the NIRC, and on reconsideration added that exemption from VAT on sales includes exemption from advance VAT, that the challenge to the Certificate of Good Standing was waived for belatedness, and that monthly VAT declarations were not essential for a tax-exempt cooperative to prove refund.

• Scope of Exemption: Petitioner argued that the exemption under the Cooperative Code and the NIRC, on which the Certificate of Tax Exemption and BIR Ruling No. ECCP-015-08 were based, only covers VAT on the sale of produced sugar and does not include exemption from advance VAT upon withdrawal of refined sugar from the mill.
• Good Standing and Period Covered: Petitioner maintained that RR No. 13-2008 requires an agricultural producer cooperative to be in good standing before availing of exemption from advance VAT, and that respondent failed to prove such standing during November 15, 2007 to February 15, 2009 because its certificate of good standing was acquired only on August 25, 2009.
• Documentary Requirements: Petitioner argued that additional documentary submissions, including monthly VAT declarations and quarterly VAT returns, were essential to the claim for refund.
• Revocation of Rulings: Petitioner insisted, citing Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., that the BIR rulings anchoring the exemption were revoked when it filed an Answer to the judicial claim for refund before the CTA Division.

• VAT Exemption: Respondent asserted exemption from advance VAT based on Article 61 of R.A. No. 6938 and Section 109(1) of the NIRC, as confirmed by its Certificate of Tax Exemption and BIR Ruling No. ECCP-015-08 recognizing it as actual producer with direct participation in sugarcane production.
• Certificate of Good Standing: Respondent pointed out that a certificate of good standing is renewed and issued annually by the CDA, so the August 25, 2009 certificate showed continued good standing since original registration, with no evidence of revocation of registration or standing.
• Non-Retroactivity of Revocation: Respondent countered that even if filing of an answer revoked prior favorable rulings under Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., the recognized exception under Section 246 of the NIRC on non-retroactivity of rulings protects rights acquired prior to revocation.

• Timeliness and Jurisdiction: Whether both the administrative and judicial claims for refund of advance VAT allegedly illegally collected from November 15, 2007 to February 13, 2009 were timely filed within the two-year period under Sections 204(C) and 229 of the NIRC.
• VAT Exemption of Cooperative Sale: Whether respondent's sale of refined sugar is VAT-exempt as a sale by a duly registered agricultural cooperative of its own produce under Section 109(1) of the NIRC.
• Advance VAT Upon Withdrawal: Whether exemption from VAT on the sale of refined sugar includes exemption from the requirement of advance payment of VAT upon withdrawal of refined sugar from the refinery or mill.
• Additional Regulatory Requirements: Whether tax regulations may impose additional documentary requirements, such as a certificate of good standing and monthly VAT declarations, beyond Section 109(1) of the NIRC as conditions for the exemption.
• Revocation of Favorable Rulings: Whether the Certificate of Tax Exemption and BIR Ruling No. ECCP-015-08 were revoked by petitioner's filing of an Answer so as to defeat the refund claim.

• Timeliness and Jurisdiction: Yes. Both claims were filed within the two-year reglementary period under Sections 204(C) and 229 of the NIRC, so the CTA correctly exercised jurisdiction although the judicial claim followed the administrative claim by only five days.
• VAT Exemption of Cooperative Sale: Yes. Respondent satisfied both requisites under Section 109(1) of the NIRC, being CDA-registered and BIR-confirmed as producer of the sugar sold, whether to members or non-members.
• Advance VAT Upon Withdrawal: Yes. The VAT paid in advance upon withdrawal is the same VAT on the subsequent sale; if the sale is VAT-exempt there is no VAT to prepay and no output tax against which to credit it.
• Additional Regulatory Requirements: No. Regulations implementing Sections 61-62 of the Cooperative Code and Section 109(1) of the NIRC cannot engraft additional requirements not contemplated by the legislature.
• Revocation of Favorable Rulings: No. Even treating the Answer as revocation, Section 246 of the NIRC bars retroactive application to prejudice the taxpayer for prior transactions.

• Timeliness and Jurisdiction: Claims for refund of advance VAT alleged to have been illegally and erroneously collected are governed by Sections 204(C) and 229 of the NIRC, requiring an administrative claim with the Commissioner before a judicial claim, both within two years from payment, with timeliness mandatory and jurisdictional. The court a quo found both the November 11, 2009 administrative claim and November 16, 2009 judicial claim filed within two years from the November 15, 2007 to February 13, 2009 payments, warranting exercise of jurisdiction.
• VAT Exemption of Cooperative Sale: While refined sugar is generally subject to VAT because refining removes it from its original state, unlike raw cane sugar, Section 109(1) of the NIRC exempts sales by agricultural cooperatives if (a) the seller is duly registered with the CDA, conclusively proved by a CDA certificate of registration, and (b) it sells exclusively to members, or to members and non-members its own produce whether original or processed, with producer status requiring ownership or lease of land tilled, incurrence of production cost, and production of cane to be refined rather than mere purchase from planters-members. Respondent presented its CDA Certificate of Registration, unobjected to as to authenticity or validity, corroborated by a Certificate of Good Standing, and BIR Ruling No. ECCP-015-08 confirming it as actual producer through inputs, capital, technology transfer and farm management with direct participation, triggering equitable estoppel against unilateral revocation to deprive it of a statutory exemption, consistent with Articles 61-62 of the Cooperative Code.
• Advance VAT Upon Withdrawal: VAT liability arises from sale, barter, exchange or lease, generally payable monthly following sale, but RR Nos. 6-2007 and 13-2008 require advance payment before withdrawal of refined sugar from the refinery, creditable against output tax on actual gross selling price. Withdrawal is not a separate VAT-imposable transaction; it merely advances the time of payment for the subsequent sale. Where the sale itself is VAT-exempt, no VAT exists to be prepaid, and requiring prepayment would be absurd since a fully exempt cooperative has no output tax against which to credit advance payments. Revenue regulations themselves recognize non-subjection to advance VAT where withdrawal is by a duly accredited and registered agricultural cooperative in good standing that is the producer and subsequently sells to members or another agricultural cooperative.
• Additional Regulatory Requirements: The belated attack on the Certificate of Good Standing, first raised in the motion for reconsideration before the CTA en banc, was deemed waived since no new issue that could have been raised with due diligence may be raised in later pleading. Under the presumption of regularity, issuance of the 2004 Certificate of Tax Exemption presupposed submission of complete requirements under RR No. 20-2001, including certificates of registration and good standing, with validity continuing while in good standing as ascertained annually by the CDA; the August 25, 2009 certificate reflected renewal, not initial compliance, and neither certificate was shown revoked. Once Section 109(1) requisites are shown, exemption from advance payment follows automatically, and monthly VAT declarations and quarterly returns are not essential for a tax-exempt cooperative.
• Revocation of Favorable Rulings: The basic rule under Section 246 of the NIRC is that modification or reversal of rulings or circulars cannot be given retroactive application if prejudicial to taxpayers, except for deliberate misstatement or omission, materially different subsequently gathered facts, or bad faith. Even considering the Answer as revocation under Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., that same authority recognizes non-retroactivity, so rights under rulings prior to revocation for the 2007-2009 payments remain protected, rendering the collections illegal and refundable.

• Strict interpretation of tax refunds and exemptions — Claims for tax refunds based on exemption statutes partake of the nature of an exemption, which being an exception to the rule is highly disfavored and strictly construed against the claimant, requiring proof of both entitlement and due observance of reglementary periods for administrative and judicial claims, with non-compliance resulting in denial.
• Requisites for VAT exemption of agricultural cooperatives under Section 109(1), NIRC — Sales are VAT-exempt when first, the seller is an agricultural cooperative duly registered with the CDA, conclusively evidenced by a CDA certificate of registration; and second, it sells exclusively to members, in which case all sales are exempt regardless of product, or to both members and non-members its own produce whether in original state or processed form, with producer status requiring ownership or lease of tilled land, incurrence of agricultural production cost, and production of cane for refining rather than mere purchase from members.
• Advance VAT as prepayment, not separate tax — VAT on refined sugar is imposed on the sale, generally payable the month following sale, but regulations require payment in advance before withdrawal from the refinery, creditable against output tax on actual sale; withdrawal merely advances payment and is not itself a separate VAT-imposable transaction, so exemption of the sale necessarily exempts the advance payment.
• Limitations on implementing regulations — Tax regulations implementing the Cooperative Code and the NIRC must be read consistently with their enabling laws and cannot enlarge, alter, restrict, or engraft additional requirements not contemplated by the legislature; a claimant satisfying statutory requisites need not submit additional documents beyond what the law requires.
• Non-retroactivity of revocation of BIR rulings — Under Section 246 of the NIRC, revocation, modification or reversal of rulings or circulars shall not be given retroactive application if prejudicial to taxpayers, except where the taxpayer deliberately misstated or omitted material facts, subsequently gathered facts are materially different, or the taxpayer acted in bad faith.
• Equitable estoppel against the government in tax administration — Where the Commissioner through an interpretative ruling confirms a taxpayer's exempt status, the Commissioner is precluded from unilaterally revoking that pronouncement to deprive the taxpayer of a clearly granted statutory exemption, the government not being allowed to deal dishonorably or capriciously with citizens where justice requires estoppel, as authorized under Section 246.
• Waiver of belatedly raised issues — No new issue that by due diligence could have been raised in previous pleadings may be raised for the first time in a motion for reconsideration; such argument is deemed waived.

• "is considered as the actual producer of the members' sugarcane production, because it primarily provided the various inputs (fertilizers), capital, technology transfer, and farm management." — States BIR Ruling No. ECCP-015-08's confirmation of respondent's producer status, grounding VAT exemption and estoppel against the CIR's contrary position.
• "The withdrawal of sugar is not a separate transaction subject to VAT. It is only the payment thereof that is required to be made in advance." — Defines the controlling distinction between VAT-imposing sale and advance-payment obligation, supporting inclusion of advance VAT in the exemption.
• "regulations may not enlarge, alter, or restrict the provisions of the law it administers; it cannot engraft additional requirements not contemplated by the legislature." — Articulates the limit on revenue regulations invoked to reject additional documentary conditions for exemption.
• "Any modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:" — Quotes Section 246 of the NIRC to preserve pre-revocation rights under favorable BIR rulings.

• Commissioner of Internal Revenue vs. Eastern Telecommunications Philippines, Inc., G.R. No. 163835, July 7, 2010 — Cited with Commissioner of Internal Revenue vs. Fortune Tobacco Corporation for the rule that refund claims based on exemption statutes partake of the nature of exemption.
• Philippine Long Distance Company vs. City of Bacolod, G.R. No. 149179, July 15, 2005 — Cited for the rule that tax refunds and exemptions, as exceptions, are highly disfavored.
• Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6, 2010 — Cited for strict interpretation requiring proof of entitlement and observance of reglementary periods, with non-compliance denying the claim.
• CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. Nos. 193383-84, January 14, 2015 — Cited with Visayas Geothermal Power Company vs. Commissioner of Internal Revenue on the two-year period for administrative and judicial claims under Sections 204(C) and 229.
• Commissioner of Internal Revenue vs. San Roque Power Corporation, G.R. No. 187485, February 12, 2013 — Cited with Republic vs. Court of Appeals for equitable estoppel precluding the Commissioner from questioning jurisdiction or status after misleading taxpayers through interpretative rulings.
• Commissioner of Internal Revenue vs. Central Luzon Drug, G.R. No. 159647, April 15, 2005 — Cited for the rule that regulations cannot enlarge, alter or restrict the law administered.
• Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007 — Invoked by petitioner as revoking prior rulings upon filing an Answer, but applied with its recognized Section 246 non-retroactivity exception to preserve respondent's rights.
• Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010 — Cited by the CTA en banc for waiver of issues raised belatedly for the first time on reconsideration.
• Gibbs and Gibbs vs. Commissioner of Internal Revenue and Court of Tax Appeals, G.R. No. L-17406, November 29, 1965 — Cited for the two-year prescriptive period compliance.

• Sections 204(C) and 229, National Internal Revenue Code — Govern refund of taxes erroneously or illegally collected, requiring written administrative claim with the Commissioner and barring suit unless such claim was filed, both within two years from payment; applied to sustain timeliness and CTA jurisdiction.
• Section 109(1), National Internal Revenue Code — Exempts from VAT sales by agricultural cooperatives duly registered with the CDA to members and sales of their produce, original or processed, to non-members; applied to hold respondent's refined sugar sales VAT-exempt.
• Section 105, 106 and 114, National Internal Revenue Code — Impose VAT on sale of goods based on gross selling price and prescribe monthly or quarterly payment; distinguished to explain advance payment as mere acceleration of payment for refined sugar.
• Section 246, National Internal Revenue Code — Bars retroactive application of revocation or modification of rulings prejudicial to taxpayers except for misstatement, materially different facts, or bad faith; applied to preserve respondent's reliance on pre-revocation rulings.
• Articles 61 and 62, Republic Act No. 6938 (Cooperative Code of the Philippines) — Grant cooperatives exemption from government taxes and sales tax on member transactions and conditional exemptions on non-member transactions; applied consistently with Section 109(1) to support exemption.
• Article 17, Cooperative Code; Section 7(a)(1) and (2), R.A. No. 1125 as amended by R.A. No. 9282 — Make CDA registration certificate conclusive evidence of due registration and vest the CTA with exclusive appellate jurisdiction over CIR refund decisions and inaction; applied to establish status and jurisdiction.
• Revenue Regulations No. 20-2001, No. 6-2007, No. 13-2008, No. 16-2005 — Implement tax exemption certificates, advance VAT on refined sugar, good-standing and producer requisites, and raw vs. refined sugar polarimeter standard; construed as unable to add to statutory requisites and as recognizing cooperative exemption from advance VAT.

Carpio, Chairperson, Del Castillo, Mendoza, and Leonen, JJ., concur.