Team Energy Corporation vs. Commissioner of Internal Revenue

A judicial claim for refund or tax credit of unutilized input VAT filed after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 but before the promulgation of Commissioner of Internal Revenue vs. Aichi Forging Company, Inc. on October 6, 2010 is exempt from the mandatory and jurisdictional 120-30-day period under Section 112(C) of the NIRC; the CTA may take cognizance of such prematurely filed claim.

Team Energy Corporation, formerly Mirant Pagbilao Corporation, is principally engaged in power generation and sale of electricity to the National Power Corporation under a Build, Operate, Transfer scheme. It is registered with the Bureau of Internal Revenue as a VAT taxpayer, and its supply of electricity to NPC for January 1 to December 31, 2005 was covered by an approved application for VAT zero-rate. The controversy concerns the refund or issuance of a tax credit certificate for unutilized input VAT under Section 112 of the National Internal Revenue Code of 1997, as affected by BIR Ruling No. DA-489-03 and the Aichi and San Roque decisions.

Team Energy Corporation, formerly Mirant Pagbilao Corporation, is principally engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) scheme. It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer under Section 107 of the National Internal Revenue Code (NIRC) of 1977 (now Section 236 of the NIRC of 1997), with Tax Identification No. 001-726-870-000, as shown on BIR Certificate of Registration No. OCN8RC0000017854. On December 17, 2004, it filed with the BIR Audit Information, Tax Exemption and Incentives Division an Application for VAT Zero-Rate for the supply of electricity to NPC from January 1, 2005 to December 31, 2005, which was subsequently approved.

Petitioner filed its Quarterly VAT Returns for the first three quarters of 2005 on April 25, 2005, July 26, 2005, and October 25, 2005, respectively. It also filed its Monthly VAT Declaration for October 2005 on November 21, 2005, subsequently amended on May 24, 2006. The returns reflected zero-rated sales/receipts, taxable sales, output VAT, and input VAT as follows: for the first quarter, P3,044,160,148.16, P1,397,107.80, P139,710.78, and P16,803,760.82; for the second quarter, P3,038,281,557.57, P1,241,576.30, P124,157.63, and P32,097,482.29; for the third quarter, P3,125,371,667.08, P452,411.64, P45,241.16, and P16,937,644.73; and for amended October 2005, taxable sales of P910,949.50, output VAT of P91,094.95, and input VAT of P14,297,363.76. The totals were P9,207,813,372.81 in zero-rated sales/receipts, P4,002,045.24 in taxable sales, P400,204.52 in output VAT, and P80,136,251.60 in input VAT.

On December 20, 2006, petitioner filed an administrative claim for cash refund or issuance of a tax credit certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the first three quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of P80,136,251.60. It cited as legal bases Section 112(A), in relation to Section 108(B)(3) of the NIRC of 1997, Section 4.106-2(c) of Revenue Regulations No. 7-95, Revenue Memorandum Circular No. 61-2005, and the case of Maceda vs. Macaraig. Due to respondent’s inaction on its claim, petitioner filed the Petition for Review before the Court of Tax Appeals (CTA) on April 18, 2007.

In his Answer filed on May 27, 2007, respondent interposed special and affirmative defenses. He alleged that the claim was subject to administrative investigation or examination; that taxes remitted to the BIR are presumed to have been made in the regular course of business and in accordance with law; and that petitioner had to prove registration requirements, invoicing and accounting requirements, compliance with the submission of complete documents under Section 112(D), payment of the input taxes, their attribution to zero-rated sales, their use in the course of trade or business, and that they had not been applied against any output tax. Respondent also alleged that the claim had to be filed within two years under Section 112(A), that petitioner had to comply with Sections 112(A) and 229, and that petitioner failed to prove compliance. He invoked the rule that the burden of proof is on the taxpayer, that exemptions from taxation are highly disfavored, and that claims for refund are construed strictly against the claimant.

During trial, petitioner presented documentary and testimonial evidence, while respondent waived his right to present evidence. The case was submitted for decision on July 13, 2009, after the parties filed their respective Memoranda. The CTA found that petitioner’s administrative claim was filed on December 20, 2006, well within the two-year prescriptive period under Section 112(A), and that its judicial claim was filed on April 18, 2007, or only 199 days from December 20, 2006, before the expiration of the 120-day period.

• Jurisdiction and Non-Exhaustion: Petitioner argued that the requirement to exhaust the 120-day period for respondent to act on its administrative claim for input VAT refund/credit under Section 112(C) of the NIRC is merely a species of the doctrine of exhaustion of administrative remedies and is, therefore, not jurisdictional.
• Failure to Invoke Non-Exhaustion: Petitioner maintained that the CTA acquired jurisdiction over the Petition for Review filed with and tried by the Special First Division of the CTA due to respondent CIR’s failure to invoke the rule of non-exhaustion of administrative remedies.
• Retroactive Application of Aichi: Petitioner argued that the CTA En Banc’s application of the Aichi case to its petition was erroneous because it violated established rules prohibiting retroactive application of judicial decisions.
• Good Faith Reliance and Equity: Petitioner contended that applying Aichi retroactively would be unjust and inequitable because it relied in good faith on prevailing jurisprudence at the time of instituting its administrative and judicial claims.
• Unjust Enrichment: Petitioner argued that the retroactive application of Aichi would unjustly enrich the government at its expense.

• Administrative Investigation/Examination: Respondent argued that petitioner’s claim for refund was subject to administrative investigation or examination.
• Presumption of Regularity: Respondent maintained that taxes remitted to the BIR are presumed to have been made in the regular course of business and in accordance with law.
• Burden and Requirements: Respondent argued that petitioner had to prove registration requirements, invoicing and accounting requirements, compliance with the submission of complete documents under Section 112(D), payment of input taxes, their attribution to zero-rated sales, their use in trade or business, and that they had not been applied against output tax; also that the claim was filed within two years under Section 112(A) and complied with Sections 112(A) and 229.
• Failure to Prove and Strict Construction: Respondent countered that petitioner failed to prove compliance, that the burden of proof is on the taxpayer, that exemptions from taxation are highly disfavored, and that claims for refund are construed strictly against the claimant.

• CTA Jurisdiction: Whether the CTA has jurisdiction to take cognizance of the instant case despite the judicial claim being filed before the expiration of the 120-day period under Section 112(C) of the NIRC.
• Retroactive Application of Aichi: Whether the CTA En Banc erred in applying the Aichi doctrine retroactively to petitioner’s prematurely filed judicial claim.
• Good Faith Reliance / Equitable Estoppel: Whether petitioner’s reliance on BIR Ruling No. DA-489-03 and prevailing jurisprudence exempts its prematurely filed judicial claim from the mandatory 120-30-day rule.

• CTA Jurisdiction: Yes. The CTA may take cognizance of the case because the judicial claim was filed within the interim period from BIR Ruling No. DA-489-03 on December 10, 2003 to Aichi on October 6, 2010, which is exempt from the mandatory and jurisdictional 120-30-day period.
• Retroactive Application of Aichi: No. Aichi cannot be applied retroactively to petitioner’s claim because it was filed before Aichi and during the period when BIR Ruling No. DA-489-03 allowed premature judicial claims.
• Good Faith Reliance / Equitable Estoppel: Yes. BIR Ruling No. DA-489-03 is a general interpretative rule on which all taxpayers could rely; under Section 246 of the NIRC, its reversal by Aichi cannot prejudice petitioner.

• CTA Jurisdiction: Section 112(A) requires a VAT-registered taxpayer claiming refund or tax credit of unutilized input VAT to file the administrative claim within two years from the close of the taxable quarter when the sales were made. Section 112(C) provides that the Commissioner has 120 days from submission of complete documents to grant the refund or issue the tax credit certificate; in case of full or partial denial, or failure to act, the taxpayer may appeal to the CTA within 30 days from receipt of the denial or after the expiration of the 120-day period. Aichi ruled that the 120-30-day period is mandatory and jurisdictional, and its non-observance is fatal to the filing of a judicial claim with the CTA. San Roque clarified, however, that the mandatory and jurisdictional nature of the 120-30-day rule does not apply to claims for refund prematurely filed during the interim period from BIR Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010 when Aichi was adopted. BIR Ruling No. DA-489-03 expressly stated that the taxpayer-claimant need not wait for the lapse of the 120-day period before seeking judicial relief with the CTA. It is a general interpretative rule because it responded to a query by the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance, not by a particular taxpayer. All taxpayers could rely on it from its issuance until its reversal by Aichi. Here, petitioner filed its judicial claim on April 18, 2007, after BIR Ruling No. DA-489-03 and before Aichi. Thus, even though the judicial claim was prematurely filed without waiting for the expiration of the 120-day mandatory period, the CTA may take cognizance of the case. The case must be remanded to the CTA for proper determination of the refundable amount.
• Retroactive Application of Aichi: Section 246 of the NIRC provides that any modification or reversal of BIR rules, regulations, rulings, or circulars shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to taxpayers, except where the taxpayer deliberately misstates or omits material facts, the facts subsequently gathered are materially different from those on which the ruling is based, or the taxpayer acted in bad faith. San Roque held that a reversal by the Supreme Court is covered by Section 246. BIR Ruling No. DA-489-03 was a general interpretative rule, and taxpayers acting in good faith should not be made to suffer for adhering to it. Applying Aichi retroactively to petitioner would violate Section 246. Since petitioner filed its judicial claim within the exempt period, Aichi’s mandatory rule cannot retroactively bar the claim.
• Good Faith Reliance / Equitable Estoppel: The Commissioner has exclusive and original jurisdiction to interpret tax laws, and taxpayers acting in good faith should not be prejudiced by adhering to general interpretative rules of the Commissioner that later turn out to be erroneous. BIR Ruling No. DA-489-03 is a general interpretative rule that misled all taxpayers into filing premature judicial claims with the CTA. Equitable estoppel under Section 246 of the NIRC set in, and the Commissioner cannot be allowed to question the CTA’s assumption of jurisdiction over such a claim. Petitioner relied on BIR Ruling No. DA-489-03 and prevailing jurisprudence, and its judicial claim falls within the exempt period.

• Mandatory and Jurisdictional 120-30 Day Period under Section 112(C) of the NIRC — Under Section 112(C), the Commissioner has 120 days from submission of complete documents to grant a refund or issue a tax credit certificate; in case of full or partial denial, or failure to act, the taxpayer may appeal to the CTA within 30 days from receipt of the denial or after expiration of the 120-day period. Aichi held this period mandatory and jurisdictional, and non-observance is fatal to the filing of a judicial claim with the CTA.
• Interim Period Exemption / Equitable Estoppel — The mandatory and jurisdictional nature of the 120-30-day rule does not apply to claims for refund prematurely filed during the interim period from the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010 when Aichi was adopted. The exemption rests on equitable estoppel under Section 246 of the NIRC because BIR Ruling No. DA-489-03 expressly allowed taxpayers to seek judicial relief with the CTA without waiting for the 120-day period.
• General Interpretative Rule vs. Specific Ruling — A general interpretative rule issued by the Commissioner under Section 4 of the Tax Code applies to all taxpayers, while a specific ruling applies only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative rule because it responded to a query by a government agency tasked with processing tax refunds and credits, not by a particular taxpayer; all taxpayers may rely on it from issuance until reversal.
• Non-Retroactivity of BIR Rulings under Section 246 of the NIRC — Any modification or reversal of BIR rules, regulations, rulings, or circulars shall not be given retroactive application if prejudicial to taxpayers, except where the taxpayer deliberately misstates or omits material facts, the facts later gathered are materially different, or the taxpayer acted in bad faith. A reversal by the Supreme Court is covered; taxpayers acting in good faith may rely on a general interpretative rule until its reversal.

• "In the present case, petitioner filed its judicial claim on April 18, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 but before October 6, 2010, the date when the Aichi case was promulgated. Thus, even though petitioner’s judicial claim was prematurely filed without waiting for the expiration of the 120-day mandatory period, the CTA may still take cognizance of the instant case as it was filed within the period exempted from the 120-30-day mandatory period." — This passage states the ratio decidendi: the premature judicial claim falls within the interim period exempt from the mandatory 120-30-day rule.
• "There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code." — This excerpt defines the two exceptions to the mandatory and jurisdictional 120-day rule and grounds the second exception in equitable estoppel.
• "BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance." — This excerpt explains why BIR Ruling No. DA-489-03 applies to all taxpayers and not merely to a particular claimant.
• "Section 246. Non-retroactivity of Rulings. – 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: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith." — This is the statutory basis for the non-retroactivity of BIR rulings and the equitable estoppel relied upon by the Court.

• Commissioner of Internal Revenue vs. Aichi Forging Company, Inc., G.R. No. 184823, October 6, 2010, 632 SCRA 422 — Held that the 120-30-day period under Section 112(C) of the NIRC is mandatory and jurisdictional, and that non-observance is fatal to the filing of a judicial claim with the CTA. The Court applied this doctrine but recognized the San Roque interim-period exception.
• Commissioner of Internal Revenue vs. San Roque Power Corporation, G.R. Nos. 187485, 196113, 197156, February 12, 2013, 690 SCRA 336 — Clarified that the mandatory and jurisdictional nature of the 120-30-day rule does not apply to claims for refund prematurely filed during the interim period from BIR Ruling No. DA-489-03 on December 10, 2003 to Aichi on October 6, 2010; the controlling precedent for the exemption applied to petitioner.

• Section 112(A), National Internal Revenue Code of 1997 — A VAT-registered person whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent not applied against output tax. Petitioner’s administrative claim was filed on December 20, 2006 for sales made in 2005.
• Section 112(C), National Internal Revenue Code of 1997 — In proper cases, the Commissioner shall grant a refund or issue a tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents in support of the application. In case of full or partial denial, or failure of the Commissioner to act within the period, the taxpayer may appeal to the CTA within 30 days from receipt of the denial or after the expiration of the 120-day period. This provision supplies the mandatory 120-30-day rule at issue.
• Section 246, National Internal Revenue Code of 1997 — Any modification or reversal of BIR rules, regulations, rulings, or circulars shall not be given retroactive application if prejudicial to taxpayers, except where the taxpayer deliberately misstates or omits material facts, the facts later gathered are materially different, or the taxpayer acted in bad faith. The Court used this provision to hold that the reversal of BIR Ruling No. DA-489-03 by Aichi could not prejudice petitioner.
• Section 4, Tax Code — Cited in the San Roque excerpt as the basis for general interpretative rules issued by the Commissioner. Such rules may bind the Commissioner and support equitable estoppel when taxpayers rely on them.
• Section 107, National Internal Revenue Code of 1977 (now Section 236, National Internal Revenue Code of 1997) — Governs registration of a VAT taxpayer. Petitioner was registered under this provision with TIN 001-726-870-000 and BIR Certificate of Registration No. OCN8RC0000017854.

Velasco, Jr. (Chairperson), Abad, and Mendoza, JJ., concurred.

• Justice Leonen — Dissented, stating that he maintained his position in Commissioner of Internal Revenue vs. San Roque Power Corporation (2013). The provided text does not elaborate on his separate reasoning.