Deutsche Knowledge Services Pte Ltd. vs. Commissioner of Internal Revenue

A judicial claim for refund/credit of unutilized input VAT filed with the CTA before the lapse of the 120-day period under Section 112 of the NIRC is timely if it was filed after BIR Ruling No. DA-489-03 on December 10, 2003 but before the Aichi doctrine on October 6, 2010.

Deutsche Knowledge Services Pte Ltd was the taxpayer-claimant, while the Commissioner of Internal Revenue was the respondent empowered under Section 112 of the 1997 NIRC to act on applications for refund or tax credit of input VAT. Section 112 gives the CIR 120 days from submission of complete documents to act on the application and allows the taxpayer to appeal to the CTA within 30 days from denial or expiration of that period. The case was decided against shifting jurisprudence on whether the 120-day period must lapse before a judicial claim may be filed, with Atlas, Mirant, Aichi, and San Roque bearing on the issue.

Deutsche Knowledge Services Pte Ltd filed with the Commissioner of Internal Revenue, through BIR Revenue District No. 47, an application for tax credit/refund of its allegedly excess and unutilized input VAT for the first quarter of the calendar year 2007 in the amount of P12,549,446.30. The application was filed on March 31, 2009.

Citing inaction on the part of the CIR, petitioner filed a Petition for Review with the CTA on April 17, 2009, or 17 days after it filed its administrative application, invoking Sections 112 and 229 of the National Internal Revenue Code of 1997, as amended.

On June 8, 2009, instead of an Answer, respondent filed a Motion to Dismiss on the ground of prescription. Citing Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation, respondent alleged that the Petition for Review was filed out of time because it was beyond the two-year prescriptive period. A day later, on June 9, 2009, respondent filed an Answer citing the same grounds in her Special and Affirmative Defenses.

After hearing and the filing of Comment/Opposition on the Motion to Dismiss, the CTA Former Second Division granted the motion on October 28, 2009. Petitioner filed a motion for reconsideration on November 16, 2009. In an Order dated January 11, 2010, the case was ordered transferred to the CTA Third Division pursuant to CTA Administrative Circular No. 01-2010, “Implementing the Fully Expanded Membership in the Court of Tax Appeals.” Notwithstanding the transfer, the CTA Former Second Division promulgated a Resolution on February 8, 2010 denying petitioner’s motion for reconsideration.

Petitioner then filed a petition for review with the CTA En Banc. The CTA En Banc found that the administrative claim was filed on March 31, 2009, within the two-year prescriptive period, and that petitioner filed its judicial claim on April 17, 2009, only 17 days later. The CIR had 120 days, or until July 29, 2009, to determine the validity of the claim.

• Jurisdiction of the CTA Former Second Division: Petitioner argued that the CTA En Banc committed reversible error in affirming that the CTA Former Second Division could still resolve petitioner’s motion for reconsideration after it had lost jurisdiction over the case upon its transfer to the Third Division.
• Pre-trial and Motion to Dismiss: Petitioner argued that the CTA Former Second Division should have ordered the pre-trial conference to proceed; that the division failed to address matters sufficient to render respondent’s motion to dismiss moot and academic; that respondent defied the order to file an Answer; that respondent lost her right to assail the division’s jurisdiction when she sought an extension of time to file an Answer; and that the issues had been joined upon respondent’s filing of the Answer, so pre-trial and trial should have proceeded.
• Timeliness Under Section 112(C) and Section 229: Petitioner argued that its judicial claim for refund was timely under Section 112(C) of the Tax Code in relation to the two-year prescriptive period under Section 229; that the two-year period should be reckoned from the filing of the quarterly VAT return as settled in Atlas; that Aichi did not prevail over or overturn Atlas; that respondent was precluded from questioning the CTA Division’s jurisdiction because she did not raise prematurity in her Answer and Motion to Dismiss; and that Aichi should not be applied to taxpayers who in good faith relied on established declarations, or at least should be applied prospectively.

• Prescription: Respondent countered that the Petition for Review was filed out of time because it was beyond the two-year prescriptive period, citing Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation.

• Timeliness of Judicial Claim for Input VAT Refund: Whether petitioner’s judicial claim for tax credit/refund of its allegedly excess and unutilized input VAT for the first quarter of 2007, filed with the CTA on April 17, 2009 before the lapse of the 120-day period under Section 112 of the NIRC but after BIR Ruling No. DA-489-03 and before the Aichi doctrine, was timely filed.

• Timeliness of Judicial Claim for Input VAT Refund: Yes. Under San Roque, a judicial claim filed before the lapse of the 120-day period is timely if filed after BIR Ruling No. DA-489-03 on December 10, 2003 but before Aichi on October 6, 2010; petitioner’s April 17, 2009 filing falls within that window.

• Timeliness of Judicial Claim for Input VAT Refund: The CTA En Banc relied on Section 112(C) of the 1997 NIRC and the Aichi doctrine, which held that the 120-day period is crucial in filing an appeal with the CTA and that a judicial claim filed before the lapse of that period is premature. At the time the CTA En Banc promulgated its July 22, 2011 Decision, Aichi was the controlling jurisprudence. During the pendency of this case, however, the SC En Banc resolved San Roque and held that a judicial claim for refund of input VAT filed with the CTA before the lapse of the 120-day period is considered timely if filed after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 but before the adoption of Aichi on October 6, 2010. San Roque recognized that before BIR Ruling No. DA-489-03, the CIR correctly considered the 120-day period mandatory and jurisdictional, but it cited two exceptions: (1) a specific ruling misleading a particular taxpayer, applicable only to that taxpayer; and (2) a general interpretative rule issued under Section 4 of the NIRC misleading all taxpayers, in which case the CIR cannot later question the CTA’s jurisdiction because equitable estoppel has set in under Section 246. BIR Ruling No. DA-489-03, issued under the CIR’s power to interpret tax laws under Section 4, was considered in San Roque as a general interpretative rule that taxpayers may rely upon from its issuance until its reversal by the CIR or the SC, providing a valid claim for equitable estoppel under Section 246. Section 246 provides that any revocation, modification, or reversal of rules, regulations, rulings, or circulars shall not be given retroactive application if prejudicial to taxpayers, except for deliberate misstatement or omission of material facts, materially different facts subsequently gathered, or bad faith. San Roque held that Section 246 is not limited to a reversal by the CIR because it speaks of “any revocation, modification or reversal” without specifying who made it, so a reversal by the SC is covered. San Roque further held that taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law, and that absent fraud, bad faith, or misrepresentation, the reversal by the SC of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should apply prospectively. In this case, petitioner filed its administrative claim on March 31, 2009 and its judicial claim on April 17, 2009. The date of filing falls within the period following the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 but before the promulgation of Aichi on October 6, 2010. Under San Roque, petitioner’s judicial claim was timely filed and should be given due course and consideration by the CTA. The SC found it unnecessary to pass upon the other issues raised.

• Equitable Estoppel from General Interpretative Rule — When the CIR issues a general interpretative rule under Section 4 of the NIRC that misleads taxpayers into filing premature judicial claims, the CIR cannot later question the CTA’s jurisdiction; equitable estoppel under Section 246 sets in. Applied: BIR Ruling No. DA-489-03 was such a rule, and petitioner filed its judicial claim after its issuance and before Aichi, so the claim was timely.
• Prospective Application of Reversal of BIR Ruling or Doctrine — Section 246 prohibits retroactive application of a revocation, modification, or reversal of a BIR ruling if prejudicial to taxpayers, except for deliberate misstatement or omission, materially different facts, or bad faith. The SC’s reversal of a general interpretative rule also applies prospectively absent fraud, bad faith, or misrepresentation. Applied: petitioner could rely on BIR Ruling No. DA-489-03 before Aichi.
• 120-Day Period under Section 112(C) — The CIR has 120 days from submission of complete documents to act on a claim for refund or tax credit of input VAT; if denied or no action is taken, the taxpayer may appeal to the CTA within 30 days from denial or expiration. Aichi held the 120-day period crucial and a premature judicial claim dismissible. San Roque carved out the window for claims filed after BIR Ruling No. DA-489-03 and before Aichi. Applied: petitioner’s April 17, 2009 filing was within the window and timely.

• “a judicial claim for refund of input VAT which was filed with the CTA before the lapse of the 120-day period under Section 112 of the NIRC is considered to have been timely made, if such filing occurred after the issuance of the Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 dated December 10, 2003 but before the adoption of the Aichi doctrine which was promulgated on October 6, 2010.” — The SC states the San Roque rule that governs petitioner’s filing.
• “Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law.” — Quoting San Roque, the SC explains the equitable basis for not penalizing reliance on the CIR’s interpretation.
• “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 also apply prospectively.” — The SC adopts San Roque’s prospective-application rule for reversals of general interpretative rules.
• “In accordance with the doctrine laid down in San Roque, we rule that petitioner’s judicial claim had been timely filed and should be given due course and consideration by the CTA.” — The SC applies the San Roque window to petitioner’s April 17, 2009 judicial claim.

• Commissioner of Internal Revenue vs. San Roque Power Corporation, 703 Phil. 311 (2013) — Controlling precedent; SC En Banc; supplied the rule that a judicial claim filed before the 120-day period is timely if filed after BIR Ruling No. DA-489-03 and before Aichi, and the equitable estoppel/prospective-application doctrine applied to petitioner.
• Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc., 646 Phil. 710 (2010) — Prior controlling doctrine at the time of the CTA En Banc decision; held the 120-day period crucial and a premature judicial claim dismissible; its application to petitioner was displaced by San Roque because petitioner filed within the window.

• Section 112(C), National Internal Revenue Code of 1997 — Provides that the CIR shall grant a refund or issue a tax credit certificate within 120 days from submission of complete documents; if the claim is denied or the CIR fails to act, the taxpayer may appeal to the CTA within 30 days from receipt of denial or expiration of the 120-day period. Applied: the CTA En Banc used it to dismiss petitioner’s claim as premature, but the SC held the claim timely under the San Roque window.
• Section 4, National Internal Revenue Code of 1997 — Vests in the CIR the power to interpret tax laws. Applied: BIR Ruling No. DA-489-03 was issued under this power and was treated in San Roque as a general interpretative rule on which taxpayers could rely.
• Section 246, National Internal Revenue Code of 1997 — Provides that any revocation, modification, or reversal of rules, regulations, rulings, or circulars shall not be given retroactive application if prejudicial to taxpayers, except for deliberate misstatement or omission of material facts, materially different facts subsequently gathered, or bad faith. Applied: the CIR could not question the CTA’s jurisdiction over petitioner’s premature judicial claim because equitable estoppel set in; the reversal by the SC of the general interpretative rule applied prospectively.