Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc.

A taxpayer need not wait for the CIR to act on its administrative claim for refund/tax credit before seeking judicial recourse, provided both the administrative and judicial claims are filed within the two-year prescriptive period under Sections 204 and 229 of the NIRC. The CTA may also consider evidence not presented at the administrative level, since proceedings before it are litigated de novo and are not governed by strict technical rules of evidence.

The Commissioner of Internal Revenue is the government official vested with authority under the National Internal Revenue Code to compromise, abate, refund, or credit taxes, while Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.) is a corporate taxpayer whose income payments were subjected to creditable withholding taxes by its customers. The dispute turns on the interplay between the administrative claim for refund under Section 204 and the judicial claim under Section 229 of the 1997 NIRC, both bounded by a two-year prescriptive period, and on the CTA's jurisdiction over tax refund claims under RA No. 9282.

On July 8, 2011, Univation Motor Philippines, Inc. filed its amended Annual Income Tax Return (ITR) for 2010, showing a total gross income of ₱117,084,174.00 and an overpayment of income taxes amounting to ₱26,103,898.52. It opted to claim the overpayment through the issuance of a tax credit certificate. On March 12, 2012, Univation filed its administrative claim with the Bureau of Internal Revenue (BIR), explaining that the overpayment of ₱26,103,898.52 consisted of prior year's excess credits in the amount of ₱15,576,837.00, less Minimum Corporate Income Tax amounting to ₱2,341,683.48, and creditable withholding taxes accumulated during the four quarters of 2010 in the amount of ₱12,868,745.00. It filed its Application for Tax Credit in the amount of ₱12,868,745.00.

Because the BIR had not yet acted upon the administrative claim, Univation filed a Petition for Review with the CTA on April 12, 2013. In its Answer, the CIR raised special and affirmative defenses: (a) the claim for refund was tainted with procedural infirmity due to Univation's failure to submit complete documents in support of its administrative claim; (b) Univation failed to exhaust administrative remedies before elevating the case; and (c) claims for refund are construed strictly against the taxpayer and in favor of the government.

During trial, Univation presented and formally offered its testimonial and documentary evidence, all of which were admitted in the Resolutions dated May 22, 2014 and August 11, 2014. The CIR's counsel manifested during the hearing that he would no longer present any evidence.

On March 10, 2015, the CTA First Division rendered a Decision partially granting Univation's Petition for Review and ordering the CIR to issue a tax credit certificate in the amount of ₱12,729,617.90 representing Univation's unutilized or excess creditable withholding taxes for the taxable year 2010. The CIR filed a Motion for Reconsideration, which the CTA First Division denied in a Resolution dated June 30, 2015. The CIR elevated the case to the CTA En Banc. Finding Univation's documentary evidence sufficient, the CTA En Banc issued its Decision dated December 22, 2016 affirming the CTA First Division. The CIR moved to reconsider, but its motion was denied in a Resolution dated April 27, 2017. Dissatisfied, the CIR filed the instant Petition for Review on Certiorari with the SC.

The CTA found that Univation presented a Schedule/Summary of Creditable Taxes Withheld for 2010 and the related Certificates of Creditable Taxes Withheld at Source (BIR Form No. 2307) issued by various withholding agents, reflecting creditable withholding taxes totaling ₱12,868,745.87. It traced the income payments related to the substantiated CWT of ₱12,868,745.87 (save for ₱139,127.97) to Univation's General Ledger for CY 2010, 2009, 2008 and 2006, and noted that these were reported in Univation's Annual ITRs for those years. The CTA En Banc accepted the independent CPA's explanation that delays in collection of certain income payments—certain sales made to dealers in 2008 and 2009 were only paid in 2010—caused the timing difference between the actual reporting of income and the actual withholding of the corresponding creditable income tax by Univation's customers.

• Exhaustion of Administrative Remedies: The CIR argued that Univation prematurely filed its judicial claim with the CTA, depriving the CIR of the opportunity to act on the administrative claim for refund/tax credit, in violation of the doctrine of exhaustion of administrative remedies.
• Pro-Forma Claim / Incomplete Documents: The CIR argued that Univation's administrative claim should be considered pro-forma for failure to submit the complete supporting documents required by RMO No. 53-98 and RR No. 2-2006, and that this failure rendered the CTA petition dismissible for lack of jurisdiction.
• Strict Construction Against Taxpayer: The CIR argued that claims for refund are construed strictly against the taxpayer and in favor of the government.

• Irreparable Damage / Prescriptive Period: Univation explained that if it waited for the CIR's decision on its claim for refund, it would have suffered irreparable damage as it would have been barred from seeking judicial recourse.

• Premature Judicial Claim / Exhaustion of Administrative Remedies: Whether the CTA prematurely assumed jurisdiction over Univation's judicial claim for tax refund or credit without waiting for the CIR's decision.
• Sufficiency of Documentary Proof: Whether the CTA En Banc erred in granting Univation's claim for refund despite its alleged failure to substantiate the claim by sufficient documentary proof.

• Premature Judicial Claim / Exhaustion of Administrative Remedies: No. Both the administrative claim (March 12, 2012) and the judicial claim (April 12, 2013) were filed within the two-year prescriptive period reckoned from the April 15, 2011 filing of the Final Adjustment Return, so Univation's immediate resort to the CTA was justified and there was no violation of the doctrine of exhaustion of administrative remedies.
• Sufficiency of Documentary Proof: No. The CTA's factual finding that Univation substantiated its claim through the CWT certificates, General Ledger, and ITRs is supported by substantial evidence and is entitled to the highest respect.

• Premature Judicial Claim / Exhaustion of Administrative Remedies: Sections 204 and 229 of the NIRC govern administrative and judicial claims for refund. The two-year prescriptive period commences, at the earliest, on the date of the filing of the adjusted final tax return, because that is where the figures of gross receipts and deductions have been audited and adjusted. Here, the two-year period is reckoned from April 15, 2011, the date Univation filed its Final Adjustment Return. Univation filed its administrative claim on March 12, 2012 and its judicial claim on April 12, 2013, both within the two-year period. If Univation had awaited the CIR's action, the prescriptive period would have lapsed, resulting in the loss of its right to seek judicial recourse. The law only requires that an administrative claim be priorly filed; for as long as the administrative and judicial claims are filed within the two-year period, there is exhaustion of administrative remedies. Section 7 of RA No. 9282 confers on the CTA exclusive appellate jurisdiction over tax refund claims where the Commissioner fails to act, and such inaction is deemed a denial. Univation need not wait for the Commissioner to act, as held in P.J. Kiener Co., Ltd. vs. David. As for the incomplete documents, the CIR never sent any written notice informing Univation that its documents were incomplete or requiring additional documents, and never rendered a decision denying the administrative claim. Under Pilipinas Total Gas, Inc. vs. CIR, the distinction is between administrative cases appealed due to inaction and those dismissed at the administrative level due to failure to submit supporting documents; here, it was the CIR's inaction that prompted the judicial recourse. Since the administrative claim was never acted upon, there was no decision for the CTA to review per se, but this does not preclude the CTA from considering evidence not presented in the administrative claim. Under Section 8 of RA No. 1125, CTA proceedings are not governed strictly by technical rules of evidence; cases in the CTA are litigated de novo, and the claimant may present new and additional evidence.
• Sufficiency of Documentary Proof: The basic requirements for a tax credit or refund of creditable withholding tax are: (1) the claim must be filed with the CIR within the two-year period from the date of payment of the tax under Section 229 of the NIRC; (2) the fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld; and (3) it must be shown on the return of the recipient that the income received was declared as part of the gross income. The second and third requirements are found under Section 2.58.3(B) of RR No. 2-98, as amended. Univation established compliance with the second and third requisites through its Schedule/Summary of Creditable Taxes Withheld for 2010 and the related BIR Form No. 2307 certificates reflecting CWT totaling ₱12,868,745.87, and by tracing the income payments to its General Ledger and Annual ITRs for 2010, 2009, 2008 and 2006. While the income payments covered several years, this was explained by delays in collection—certain sales made to dealers in 2008 and 2009 were only paid in 2010—causing a timing difference between the actual reporting of income and the actual withholding of the corresponding tax. What matters is that the CWT corresponding to the related income for CYs 2006, 2008 and 2009 were not yet claimed as income tax credits in the annual ITRs for those years, so it was proper to include them in the 2010 tax credit. The issue of whether Univation proved its entitlement by preponderance of evidence is a factual matter, and the SC will not lightly set aside the CTA's conclusions, which are entitled to the highest respect absent abuse or improvident exercise of authority.

• Exhaustion of Administrative Remedies in Tax Refund Cases — The doctrine requires that an administrative claim for refund be priorly filed with the CIR to give the BIR an opportunity to act on it. However, for as long as both the administrative and judicial claims are filed within the two-year prescriptive period, there is exhaustion of administrative remedies, and the taxpayer need not wait for the CIR to act before seeking judicial recourse.
• Two-Year Prescriptive Period for Tax Refund — Under Sections 204 and 229 of the NIRC, the claim for refund must be filed within two years from the date of payment of the tax. Jurisprudence clarifies that the period commences, at the earliest, on the date of the filing of the adjusted final tax return, because that is where the figures of gross receipts and deductions have been audited and adjusted.
• De Novo Nature of CTA Proceedings — Under Section 8 of RA No. 1125, proceedings before the CTA are not governed strictly by technical rules of evidence. The CTA is not limited by the evidence presented in the administrative claim; the claimant may present new and additional evidence, and the CTA may give credence to all evidence presented, including those not submitted to the CIR.
• Requisites for Tax Credit/Refund of Creditable Withholding Tax — (1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax under Section 229 of the NIRC; (2) the fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld; and (3) it must be shown on the return of the recipient that the income received was declared as part of the gross income.
• Respect for CTA's Factual Findings — The SC will not lightly set aside the conclusions reached by the CTA, which has developed expertise on tax problems, unless there has been an abuse or improvident exercise of authority.

• "the two-year prescriptive period to claim a refund actually commences to run, at the earliest, on the date of the filing of the adjusted final tax return because this is where the figures of the gross receipts and deductions have been audited and adjusted, reflective of the results of the operations of a business enterprise." — This states the rule on when the two-year prescriptive period begins, which was decisive in finding Univation's claims timely.
• "for as long as the administrative claim and the judicial claim were filed within the two-year prescriptive period, then there was exhaustion of the administrative remedies." — This is the SC's formulation of the exhaustion rule in tax refund cases.
• "The law creating the CTA specifically provides that proceedings before it shall not be governed strictly by the technical rules of evidence." — This supports the CTA's power to receive evidence not presented at the administrative level.
• "It is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority." — This states the standard of review for the CTA's factual findings.

• P.J. Kiener Co., Ltd. vs. David, 92 Phil. 945 (1953) — Controlling precedent; held that the taxpayer need not wait for the Collector of Internal Revenue to act on the claim before proceeding to court within the two-year period.
• CBK Power Company Limited vs. Commissioner of Internal Revenue, 750 Phil. 748 (2015) — Followed; held that awaiting the Commissioner's action when the prescriptive period was about to end would cause the taxpayer to lose its right to seek judicial recourse and recover the taxes.
• Pilipinas Total Gas, Inc. vs. Commissioner of Internal Revenue, 774 Phil. 473 (2015) — Followed and distinguished; distinguished administrative cases appealed due to inaction from those dismissed at the administrative level due to failure to submit supporting documents.
• ACCRA Investments Corp. vs. Court of Appeals, 281 Phil. 1060 (1991) — Followed; held that the two-year prescriptive period commences on the date of the filing of the adjusted final tax return.
• Commissioner of Internal Revenue vs. TMX Sales, Inc., 282 Phil. 199 (1992) — Followed; same rule on reckoning the two-year period from the filing of the adjustment return.
• Commissioner of Internal Revenue vs. Philippine National Bank, 744 Phil. 299 (2014) — Followed; held that the CTA may consider evidence not presented in the administrative claim.
• Commissioner of Internal Revenue vs. TeaM (Philippines) Operations Corp., 719 Phil. 513 (2013) — Followed; laid down the basic requirements for a tax credit/refund of creditable withholding tax.
• Philippine Airlines, Inc. vs. Commissioner of Internal Revenue, G.R. Nos. 206079-80 and 206309, January 17, 2018 — Followed; held that the CTA is not limited by the evidence presented in the administrative claim and that the claimant may present new and additional evidence.

• Section 204, National Internal Revenue Code of 1997 — Governs administrative claims for refund; allows the Commissioner to credit or refund taxes erroneously or illegally received, provided the taxpayer files a written claim within two years after payment. Applied to require prior filing of the administrative claim.
• Section 229, National Internal Revenue Code of 1997 — Governs judicial claims for refund; requires that a claim for refund be duly filed with the Commissioner before any suit, and bars suits filed after two years from payment. Applied to require the judicial claim to be filed within the two-year period.
• Section 7, Republic Act No. 9282 (amending RA No. 1125) — Confers on the CTA exclusive appellate jurisdiction over decisions or inaction of the Commissioner in cases involving refunds of internal revenue taxes, with inaction deemed a denial. Applied to hold that the CTA properly took cognizance of Univation's petition.
• Section 8, Republic Act No. 1125 — Provides that CTA proceedings shall not be governed strictly by technical rules of evidence. Applied to allow the CTA to consider evidence not presented at the administrative level.
• Section 2.58.3(B), Revenue Regulations No. 2-98 (as amended) — Requires that for a claim for tax credit or refund of creditable income tax to be given due course, the income payment must be declared as part of gross income and the fact of withholding must be established by a withholding tax statement. Applied as the second and third requisites for the refund.
• Revenue Memorandum Order No. 53-98 and Revenue Regulations No. 2-2006 — Cited by the CIR as requiring complete supporting documents for the administrative claim; the SC held their non-compliance did not divest the CTA of jurisdiction where the CIR never acted on the claim.