Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue

The 8% transitional/presumptive input tax credit under Section 105 (now Section 111[A]) of the NIRC is computed on the beginning inventory of goods, which includes the entire real properties held primarily for sale to customers or for lease in the ordinary course of trade or business by a real estate dealer, and prior payment of sales tax or VAT on such inventory is not a requisite; hence, Revenue Regulations No. 7-95’s limitation of the credit to improvements on real property is null and void.

Fort Bonifacio Development Corporation is a domestic corporation engaged in the development and sale of real property; its capital stock is partly owned by the Bases Conversion Development Authority, a government corporation created by Republic Act No. 7227, and 55% by Bonifacio Land Corporation. It owns and develops parcels within the Fort Bonifacio Global City, which the National Government conveyed to it on February 8, 1995 pursuant to Republic Act No. 7227 and Executive Order No. 40. At the time of acquisition, VAT was not yet imposed on the sale of real properties. Republic Act No. 7716, the Expanded VAT Law effective January 1, 1996, amended Section 100 of the old NIRC to include “real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business” within “goods or properties” subject to VAT, and FBDC thereafter became a VAT-registered taxpayer.

Fort Bonifacio Development Corporation is a domestic corporation engaged in the development and sale of real property. It owns and develops parcels of land within the Fort Bonifacio Global City, located within the former military camp known as Fort Bonifacio, Taguig, Metro Manila. Its issued and outstanding capital stock is owned in part by the Bases Conversion Development Authority, a wholly-owned government corporation created by Republic Act No. 7227, while the remaining 55% is owned by Bonifacio Land Corporation, a consortium of private domestic corporations. The National Government conveyed to FBDC parcels of land on February 8, 1995 by virtue of Republic Act No. 7227 and Executive Order No. 40. In May 1996, FBDC commenced developing the Global City, and since October 1996, it had been selling lots to interested buyers. At the time of acquisition, value-added tax was not yet imposed on the sale of real properties.

Republic Act No. 7716, the Expanded Value-Added Tax Law, took effect on January 1, 1996 and restructured the VAT system by amending pertinent provisions of the National Internal Revenue Code. Section 100 of the old NIRC was amended to include “real properties” in the definition of “goods or properties,” thereby subjecting the sale of real properties to VAT. FBDC afterwards became a VAT-registered taxpayer. On September 19, 1996, in accordance with Revenue Regulations No. 7-95, FBDC submitted to the BIR Revenue District No. 44 an inventory list of its properties as of February 29, 1996. The total book value of FBDC’s land inventory amounted to P71,227,503,200.00. On the basis of Section 105 of the NIRC, FBDC claimed a transitional or presumptive input tax credit of 8% of P71,227,503,200.00, or a total input tax credit of P5,698,200,256.00. After the value of the real properties was reduced due to a reconveyance by FBDC to the BCDA of a parcel of land, FBDC claimed entitlement to an input tax credit in the reduced amount of P4,250,475,000.48. What FBDC sought to be refunded were the actual VAT payments made by it in cash, which it claimed were either erroneously paid by or illegally collected from it. Each claim for refund was based on FBDC’s position that it is entitled to a transitional input tax credit under Section 105 of the old NIRC, which more than offsets the VAT payments.

In G.R. No. 175707, FBDC’s VAT returns showed that for the second quarter of 1997, it received the total amount of P5,014,755,287.40 from its sales and lease of lots, on which the output VAT payable was P501,475,528.74. The VAT returns likewise showed that FBDC made cash payments totaling P486,355,846.78 and utilized its input tax credit of P15,119,681.96 on purchases of goods and services. On February 11, 1999, FBDC filed with the BIR a claim for refund of P486,355,846.78 which it paid in cash as VAT for the second quarter of 1997. On May 21, 1999, FBDC filed with the CTA a petition for review by way of appeal, docketed as CTA Case No. 5885, from the alleged inaction by respondents on its claim for refund.

In G.R. No. 180035, the parties’ stipulation showed that FBDC’s VAT returns reflected output VAT of P90,342,726.42, cash payments of P77,151,020.46, and utilization of regular input tax credit of P39,878,959.37 on purchases of goods and services. On November 22, 1999, FBDC filed with the BIR a claim for refund of P77,151,020.46 which it paid as value-added tax for the first quarter of 1998. Earlier, on October 8, 1998, November 17, 1998, February 11, 1999, May 11, 1999, and September 10, 1999, FBDC filed with the BIR claims for refund of the amounts of P269,340,469.45, P359,652,009.47, P486,355,846.78, P347,741,695.74, and P15,036,891.26, representing value-added taxes paid on proceeds from its sales and lease of lots for the quarters ended December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997, and December 31, 1997, respectively. After deducting these amounts from the total P5,698,200,256.00 claimed as input tax credit, the remaining input tax credit more than sufficiently covered the P77,151,020.46 subject of the November 22, 1999 claim. As of the date of the petition, no action had been taken by respondents on the claim.

In G.R. No. 181092, the parties’ stipulation showed that for the fourth quarter of 1996, FBDC derived the total amount of P3,498,888,713.60 from its sales and lease of lots, on which the output VAT payable was P318,080,792.14. To pay that amount, FBDC made cash payments totaling P269,340,469.45 and utilized part of the total transitional/presumptive input tax credit of P5,698,200,256.00 to the extent of P28,413,783.00, as well as its regular input tax credit of P20,326,539.69 on purchases of goods and services. On October 8, 1998, FBDC filed with the BIR a claim for refund of P269,340,469.45, which it paid as value-added tax. As of the date of the petition, no action had been taken by respondents on the claim.

The BIR took no action on the claims, and FBDC sought judicial relief. The CTA and the Court of Appeals denied the claims, finding that FBDC acquired the Global City lots from the National Government under a VAT-free transaction, that no VAT or sales tax had been passed on to FBDC, and that Revenue Regulations No. 7-95 validly limited the 8% transitional input tax credit for real estate dealers to improvements on the land. The Supreme Court consolidated the cases and applied its prior En Banc rulings.

• Statutory Definition of “Goods”: Petitioner argued that Section 100 of the old NIRC, as amended by Republic Act No. 7716, defines “goods or properties” to include real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; Section 105 uses the term “goods” and should be read with Section 100, so the 8% transitional input tax credit should be based on the value of the land inventory, not merely improvements.
• Invalidity of Revenue Regulations No. 7-95: Petitioner maintained that Section 4.105-1 and the Transitory Provisions of Revenue Regulations No. 7-95, insofar as they limit real estate dealers to improvements, are invalid for being contrary to Section 105 in relation to Section 100; an administrative regulation cannot amend or constrict the law.
• Repeal by Revenue Regulations No. 6-97: Petitioner argued that Revenue Regulations No. 6-97 deleted the paragraph limiting the credit to improvements, effectively repealing or repudiating Revenue Regulations No. 7-95 on that point; Revenue Regulations No. 6-97 is beneficial and should be applied retroactively to the transactions.
• No Prior Payment Required: Petitioner asserted that the law does not require prior payment of sales tax or VAT; the credit is based on the beginning inventory, and the BIR, CTA, and Court of Appeals improperly read into the law a condition not found in it.
• Separation of Powers and Non-Delegation: Petitioner contended that the BIR’s issuance of Revenue Regulations No. 7-95 and the CTA and Court of Appeals’ upholding of it violated separation of powers and non-delegation because the regulation decreed what the law shall be, not how the law may be enforced.
• Clear Language and No Need for Construction: Petitioner argued that Sections 100 and 105 are clear and unambiguous, so no interpretation was needed; the lower tribunals virtually amended the law.

• Improvements Only: Respondents argued that the 8% input tax credit under Section 105 in relation to Section 100 is based on the value of improvements on the land, not the land itself.
• Prior Payment Required: Respondents maintained that the taxpayer is entitled to the credit only if it previously paid VAT or sales taxes on its inventory of land.
• Validity of Revenue Regulations No. 7-95: Respondents contended that Section 4.105-1 of Revenue Regulations No. 7-95 is valid, effective, and has the force and effect of law, implementing Section 105.
• VAT-Free Acquisition: Respondents argued that FBDC acquired the raw land from the Government under a VAT-free transaction; the Government was tax-exempt and did not pass on any VAT or sales tax, so FBDC is not entitled to the credit.
• No Transitional Input Tax on Land Inventory: Respondents asserted that no transitional input tax is allowed on inventory of land; the Transitory Provisions of Revenue Regulations No. 7-95 limit real estate dealers to improvements constructed on or after January 1, 1988.
• Late Filing of Inventory: Respondents claimed FBDC filed its inventory listing on September 19, 1996, almost nine months late under Revenue Regulations No. 7-95’s requirement to file not later than January 31, 1996.
• Strict Construction of Tax Exemption: Respondents argued that the claim for transitional input tax is in the nature of a tax exemption and should be strictly construed against FBDC.

• Entitlement to Refund or Tax Credit: Whether petitioner is entitled to a refund of the amounts of P486,355,846.78 in G.R. No. 175707, P77,151,020.46 in G.R. No. 180035, and P269,340,469.45 in G.R. No. 181092, which it paid as value-added tax, or to a tax credit for said amounts.
• Basis of Transitional/Presumptive Input Tax Credit: Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be claimed only on the “improvements” on real properties.
• Prior Payment of Sales Tax or VAT: Whether there must have been previous payment of sales tax or value-added tax by petitioner on its land before it may claim the input tax credit granted by Section 105 of the NIRC.
• Validity of Revenue Regulations No. 7-95: Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC.
• Separation of Powers: Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and the declaration of validity of said Regulations by the Court of Tax Appeals and the Court of Appeals, was in violation of the fundamental principle of separation of powers.

• Entitlement to Refund or Tax Credit: Yes. Petitioner is entitled to a refund of the amounts paid as output VAT for the covered periods, or to a tax credit, because the 8% transitional input tax credit under Section 105 (now Section 111[A]) is based on its beginning inventory of land and offsets the VAT payments.
• Basis of Transitional/Presumptive Input Tax Credit: No. The credit is not limited to improvements; it includes the value of the entire real properties held primarily for sale or lease, as “goods or properties” under Section 100.
• Prior Payment of Sales Tax or VAT: No. Prior payment of sales tax or VAT is not a prerequisite; the law requires only the filing of a beginning inventory.
• Validity of Revenue Regulations No. 7-95: No. Section 4.105-1 and the Transitory Provisions of Revenue Regulations No. 7-95, insofar as they limit the credit to improvements, are null and void for being contrary to Section 105 in relation to Section 100.
• Separation of Powers: Yes. The Commissioner of Internal Revenue and the Secretary of Finance exceeded their delegated authority by redefining “goods” to exclude real properties; an administrative regulation cannot amend the statute, and the CTA and Court of Appeals erred in sustaining it.

• Entitlement to Refund or Tax Credit: The Court found the issues already resolved by the Court En Banc in FBDC vs. Commissioner of Internal Revenue, G.R. Nos. 158885 and 170680, and G.R. No. 173425. Those decisions held FBDC entitled to the 8% transitional input tax on its beginning inventory of land under Section 105 (now Section 111[A]) and granted refunds of output VAT for the periods. The Court was bound by stare decisis and by Article VIII, Section 4(3) of the Constitution, which prohibits modification or reversal of a doctrine laid down by the Court en banc except by the Court sitting en banc. Since the prior rulings had attained finality and involved the same parties, facts, and issues, the consolidated petitions were granted.

• Basis of Transitional/Presumptive Input Tax Credit: Section 105 allows input tax on the beginning inventory of “goods, materials and supplies.” Section 100, as amended by Republic Act No. 7716, defines “goods or properties” to include real properties held primarily for sale to customers or for lease in the ordinary course of trade or business. Nothing in Section 105 prohibits including real properties, together with improvements, in the beginning inventory. A real estate dealer’s goods are the real properties themselves, which are its operating assets. Revenue Regulations No. 7-95’s own Section 4.100-1 included such real properties in “goods or properties,” yet Section 4.105-1 limited the credit to improvements, contravening both the NIRC and the regulation’s own definition. Thus, the credit should include the value of the real properties.

• Prior Payment of Sales Tax or VAT: The Court held prior payment is not required. Section 105 states the credit is available to a person who becomes liable to VAT or elects to be VAT-registered, subject only to filing an inventory. It does not mention prior payment. The credit is not a tax refund per se but a tax credit; it operates to benefit newly VAT-registered persons whether or not they previously paid taxes on the beginning inventory. To require prior payment would be judicial legislation and would render nugatory the alternative basis of “8% of the value of such inventory” when higher than actual VAT paid. The fact that FBDC acquired the Global City property from the Government under a tax-free transaction made no difference.

• Validity of Revenue Regulations No. 7-95: Revenue Regulations No. 7-95, specifically Section 4.105-1 and paragraph (a)(iii) of the Transitory Provisions, limited the 8% transitional input tax for real estate dealers to improvements. This is inconsistent with Section 105 in relation to Section 100. An administrative rule must conform to, not contradict, the enabling law; it cannot modify, expand, or subtract from the statute. The Commissioner of Internal Revenue has no power to limit the meaning and coverage of “goods” absent statutory authority. Thus, the restrictive provision is a nullity. Revenue Regulations No. 6-97 later deleted the limiting paragraph, effectively repealing or repudiating it and aligning with Section 100.

• Separation of Powers: The Commissioner of Internal Revenue and the Secretary of Finance, in issuing Revenue Regulations No. 7-95’s limitation, performed a legislative act beyond their delegated authority. Administrative agencies may issue regulations to implement statutes but cannot amend an act of Congress or limit the statute to less than what it provides. The regulation’s attempt to redefine “goods” violated the principle of separation of powers and non-delegation. The CTA and Court of Appeals erred in upholding the regulation. To require prior payment or restrict the credit to improvements would also amount to judicial legislation, which the Court cannot do.

• Stare decisis et non quieta movere — When the Supreme Court has laid down a principle of law applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same, regardless of whether the parties and property are the same. The Court applied this doctrine because the issues had already been resolved by the Court En Banc in prior FBDC cases, which had attained finality; Article VIII, Section 4(3) of the Constitution also barred modification or reversal except by the Court sitting en banc.
• Administrative regulations cannot contravene the enabling law — A rule or regulation must bear upon and be consistent with the provisions of the enabling statute; it cannot modify, expand, or subtract from the law it implements. Any inconsistent rule is null and void. Revenue Regulations No. 7-95’s limitation of the transitional input tax credit to improvements was struck down because it contradicted Section 105 in relation to Section 100 of the NIRC.
• Transitional/presumptive input tax credit under Section 105 (now Section 111[A]) — A person who becomes liable to VAT or elects to be VAT-registered is allowed an input tax on the beginning inventory of goods, materials, and supplies equivalent to 8% of the value of the inventory or the actual VAT paid, whichever is higher, creditable against output tax. The only statutory requirement is the filing of an inventory. The Court held that for real estate dealers, the beginning inventory includes the real properties themselves, not merely improvements, and that prior payment of sales tax or VAT is not required.
• Definition of “goods or properties” under Section 100 — As amended by Republic Act No. 7716, “goods or properties” means all tangible and intangible objects capable of pecuniary estimation and includes real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business. The term “goods” in Section 105 must be read consistently with this definition; the Commissioner of Internal Revenue cannot give it a different meaning.
• Separation of powers and non-delegation — Administrative agencies may issue regulations to implement statutes but cannot amend an act of Congress, limit the scope of a statute to less than what it provides, or extend it beyond its terms. The Commissioner of Internal Revenue and the Secretary of Finance exceeded their delegated authority when Revenue Regulations No. 7-95 redefined “goods” to exclude real properties from the beginning inventory of real estate dealers.
• Tax credit vs. tax refund — Tax credit is not synonymous with tax refund; a tax refund is money overpaid and returned by the taxing authority, while a tax credit is an amount subtracted directly from one’s total tax liability. Prior payment of taxes is not required to avail of a tax credit. The Court used this distinction to reject the argument that prior VAT payment was a prerequisite to the transitional input tax credit.

• "On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties, together with the improvements thereon, in the beginning inventory of goods, materials and supplies, based on which inventory the transitional input tax credit is computed." — This passage, quoted from the prior En Banc decision and reiterated here, states the core rule that real properties may be included in the beginning inventory for the 8% transitional input tax credit.
• "It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies." — This passage rejects the condition of prior tax payment and supports the grant of refund or tax credit to FBDC despite its tax-free acquisition of the land.
• "To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling law. An implementing rule or regulation cannot modify, expand, or subtract from the law it is intended to implement. Any rule that is not consistent with the statute itself is null and void." — This is the ratio for invalidating Revenue Regulations No. 7-95’s limitation of the credit to improvements on real property.
• "Under the doctrine of stare decisis, “when this Court has once laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle, and apply it to all future cases, where facts are substantially the same; regardless of whether the parties and property are the same.”" — This passage explains the Court’s basis for applying the prior En Banc FBDC rulings to the consolidated cases.

• Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, G.R. Nos. 158885 and 170680 (Decision April 2, 2009; Resolution October 2, 2009; 602 Phil. 100 (2009); 602 SCRA 159) — Controlling En Banc precedent. It held that Section 105 does not prohibit including real properties in the beginning inventory, that prior payment of taxes is not required, and that Section 4.105-1 of Revenue Regulations No. 7-95 is a nullity insofar as it limits the transitional input tax credit to improvements. The Court applied this ruling under stare decisis.
• Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 173425 (Decision September 4, 2012; Resolution January 22, 2013; 679 SCRA 566; 689 SCRA 76) — Controlling En Banc precedent. It reiterated that prior payment of taxes is not necessary for the 8% transitional input tax credit, that Revenue Regulations No. 7-95 is inconsistent with Section 105, and that Revenue Regulations No. 6-97 effectively repealed the limiting provision. The Court found the issues identical to those in the consolidated cases.
• Ty vs. Banco Filipino Savings and Mortgage Bank, G.R. No. 188302, June 27, 2012, 675 SCRA 339 — Cited for the doctrine of stare decisis: when the Court has laid down a principle of law applicable to a certain state of facts, it will adhere to that principle in future cases with substantially the same facts, regardless of the parties.
• Confederation of Sugar Producers Association, Inc. (CONFED) vs. Department of Agrarian Reform (DAR), 548 Phil. 498 (2007) — Cited in Ty vs. Banco Filipino as authority for the stare decisis principle that like cases ought to be decided alike.
• Commissioner of Internal Revenue vs. Central Luzon Drug Corp. — Cited in the prior FBDC resolution for the rule that prior payment of taxes is not required to avail of a tax credit. The Court reiterated that principle in these consolidated cases.

• Section 100, old National Internal Revenue Code, as amended by Republic Act No. 7716 — Defines “goods or properties” to include real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business, thereby subjecting such real properties to VAT. The Court used this definition to hold that real properties are part of the beginning inventory for the Section 105 credit.
• Section 105, old National Internal Revenue Code (now Section 111[A], NIRC of 1997, as amended by Republic Act No. 8424) — Grants a transitional/presumptive input tax credit of 8% of the value of the beginning inventory of goods, materials, and supplies or the actual VAT paid, whichever is higher, creditable against output tax, subject only to the filing of an inventory. The Court held this includes real properties and does not require prior payment of sales tax or VAT.
• Section 4.105-1 and Transitory Provisions of Revenue Regulations No. 7-95 — Limited the presumptive input tax for real estate dealers to improvements on the land. The Court declared this limitation null and void for being contrary to Section 105 in relation to Section 100.
• Revenue Regulations No. 6-97 — Deleted the paragraph in Revenue Regulations No. 7-95 that limited the basis of the presumptive input tax for real estate dealers to improvements. The Court recognized this as an effective repeal or repudiation of the inconsistent provision and as aligning the regulation with Section 100.
• Article 7, Civil Code — Provides that administrative or executive acts, orders, and regulations are valid only when not contrary to law or the Constitution. The Court cited this in holding Revenue Regulations No. 7-95’s restrictive provision invalid.
• Article VIII, Section 4, Paragraph (3), 1987 Constitution — Provides that no doctrine or principle of law laid down by the Court in a decision rendered en banc or in division may be modified or reversed except by the Court sitting en banc. The Court cited this to reinforce its adherence to the prior En Banc FBDC rulings.

Sereno, C.J. (Chairperson), Velasco, Jr., Perez, and Perlas-Bernabe, JJ., concur.