Visayas Geothermal Power Company vs. Commissioner of Internal Revenue

The 120-day period for the CIR to decide and the 30-day period for the taxpayer to appeal to the CTA under Section 112(D) of the NIRC are mandatory and jurisdictional; however, judicial claims for refund of unutilized input VAT filed from December 10, 2003 to October 6, 2010 need not await the expiration of the 120-day period, having been filed in reliance on BIR Ruling No. DA-489-03 which allowed immediate judicial recourse during that interval.

Visayas Geothermal Power Company (VGPC) is a special limited partnership organized under Philippine laws, principally engaged in geothermal power generation and the sale of generated power to the Philippine National Oil Company (PNOC) pursuant to an Energy Conversion Agreement. Under Republic Act No. 9136 (the Electric Power Industry Reform Act of 2001), sales of generated power were treated as subject to zero percent (0%) VAT starting June 26, 2001. For taxable year 2005, VGPC filed quarterly VAT returns and paid input VAT on its domestic purchases of goods and services. It subsequently sought to recover the unutilized input VAT attributable to its zero-rated sales, claiming that the input taxes exceeded its output taxes due to the zero-rating of its sales.

• Nature of Petitioner: Visayas Geothermal Power Company (VGPC) is a special limited partnership duly organized under Philippine laws with its principal office in Ormoc City, Leyte. It is engaged in power generation through geothermal energy and sells generated power to the Philippine National Oil Company (PNOC) pursuant to an Energy Conversion Agreement.
• Zero-Rated Sales: Pursuant to Republic Act No. 9136 (EPIRA), sales of generated power were subject to VAT at zero percent (0%) starting June 26, 2001.
• VAT Returns for 2005: VGPC filed its Original Quarterly VAT Returns for the first to fourth quarters of taxable year 2005 on April 25, 2005, July 25, 2005, October 25, 2005, and January 20, 2006, respectively. It paid input VAT on domestic purchases of non-capital goods and services, services rendered by non-residents, and importations of non-capital goods.
• Administrative Claim: On December 6, 2006, VGPC filed an administrative claim for refund with the BIR District Office No. 89 in Ormoc City, seeking to recover ₱14,160,807.95 representing excess and unutilized input VAT payments for the four quarters of taxable year 2005.
• Judicial Claim: On January 3, 2007, while its administrative claim was still pending, VGPC filed a petition for review with the CTA Second Division praying for a refund or the issuance of a tax credit certificate in the amount of ₱14,160,807.95.
• CTA Second Division Ruling: In its Decision dated April 17, 2009, the CTA Second Division partially granted the petition, awarding only ₱7,699,366.37 on the ground that only this amount was duly substantiated by evidence. The court ruled that both the administrative and judicial claims were filed within the two-year prescriptive period under Section 112(A) of the NIRC, reckoned from the close of the taxable quarter when the sales were made, following Commissioner of Internal Revenue v. Mirant Pagbilao Corporation.
• CTA En Banc Ruling: In its Decision dated February 7, 2011, the CTA En Banc reversed the Second Division, holding that the judicial claim filed on January 3, 2007—only 28 days after the administrative claim and prior to the expiration of the 120-day period—was premature under Section 112(D) of the NIRC. Citing CIR v. Aichi Forging Company of Asia, Inc., the En Banc held that the CTA acquired no jurisdiction over the case.

• Jurisdictional Nature of Periods: The 120-day and 30-day periods prescribed under Section 112(D) of the NIRC are not jurisdictional and mandatory; the CTA-Division should take cognizance of the judicial appeal as long as it is filed within the two-year prescriptive period under Section 229 of the NIRC.
• Primacy of Section 229: The doctrine in Atlas Consolidated Mining v. CIR, which upheld the primacy of the two-year period under Section 229, was not overturned by Aichi; the law and jurisprudence have long established that the taxpayer must observe the two-year period when filing claims for refund.
• Prospective Application of Aichi: The novel interpretation of the law in Aichi should be applied prospectively only and not to the present case, as it was contrary to existing jurisprudence at the time VGPC filed its administrative and judicial claims.
• Government Estoppel: The CIR, by actively participating in the proceedings before the CTA Second Division without questioning jurisdiction, should have been estopped from subsequently raising the issue of prematurity.

• Mandatory and Jurisdictional Periods: The 120-day period for the CIR to decide and the 30-day period to appeal to the CTA under Section 112(D) are mandatory and jurisdictional, requiring strict compliance as a condition precedent to judicial review.
• Prematurity: The judicial claim filed on January 3, 2007, without waiting for the expiration of the 120-day period or a denial of the claim, was premature and violated the doctrine of exhaustion of administrative remedies.
• Irrelevance of Atlas: The Atlas doctrine only pertained to the reckoning point of the two-year prescriptive period for administrative claims and has no relevance to the 120+30 day period for judicial claims under Section 112(D).
• Non-Retroactivity of BIR Ruling: BIR Ruling No. DA-489-03, which allegedly allowed immediate judicial filing, was effectively reversed by Aichi and could not excuse non-compliance with the statutory periods.

• Mandatory Nature of Section 112(D): Whether the 120-day and 30-day periods prescribed under Section 112(D) of the NIRC are mandatory and jurisdictional in the filing of judicial claims for VAT refund.
• Applicability of Section 229: Whether the two-year period under Section 229 of the NIRC applies to claims for refund of unutilized input VAT under Section 112.
• Prematurity and BIR Ruling Exception: Whether the judicial claim was premature, or whether it fell within the exception recognized for claims filed during the effectivity of BIR Ruling No. DA-489-03.
• Prospective Application of Aichi: Whether CIR v. Aichi Forging Company of Asia, Inc. should be applied prospectively only.
• Government Estoppel: Whether the CIR is estopped from questioning the jurisdiction of the CTA after participating in the proceedings.

• Mandatory Nature of Periods: The 120-day period for the CIR to decide administrative claims and the 30-day period for the taxpayer to appeal to the CTA under Section 112(D) are mandatory and jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998. The jurisdiction of the CTA is appellate in nature and requires the prior filing of an administrative claim and either a denial or the lapse of the 120-day period.
• Applicability of Section 229: Section 229 applies only to the recovery of taxes erroneously, illegally, or excessively collected; it does not apply to claims for refund or tax credit of unutilized creditable input VAT under Section 112. Input VAT is not "excessively" collected under Section 229 because, at the time of payment, the amount is correct and proper; the right to refund arises only when the input VAT remains unutilized due to zero-rated sales.
• Prematurity and BIR Ruling Exception: The judicial claim was not premature. Although the general rule requires waiting for the 120-day period to expire or for a denial, an exception applies to judicial claims filed from December 10, 2003 (issuance of BIR Ruling No. DA-489-03) to October 6, 2010 (promulgation of Aichi), during which taxpayers were expressly allowed by the BIR ruling to seek judicial relief without awaiting the 120-day period. VGPC filed its judicial claim on January 3, 2007, squarely within this exempt period.
• Prospective Application of Aichi: Aichi interpreted Section 112 as of the date of its enactment; it did not overturn prior doctrine but settled the interpretation for the first time. Thus, the ruling in Aichi that the 120+30 day period is mandatory and jurisdictional retroacts to January 1, 1998, and cannot be applied prospectively only.
• Government Estoppel: The government cannot be estopped by the mistakes, errors, or omissions of its agents, especially in matters of taxation. Taxes are the lifeblood of the nation, and the government's right to collect cannot be prejudiced by the negligence of its officials.
• Amount of Refund: The award is limited to ₱7,699,366.37 as determined by the CTA Second Division based on substantiating evidence; the claim for the higher amount of ₱14,160,807.95 was denied for lack of sufficient proof.

• Mandatory 120+30 Day Period: Under Section 112(D) of the NIRC, the 120-day period for the CIR to decide refund claims and the 30-day period to appeal to the CTA are mandatory and jurisdictional conditions precedent to judicial review of claims for unutilized input VAT.
• Exhaustion of Administrative Remedies: A judicial claim filed prior to the expiration of the 120-day administrative period is premature and constitutes a violation of the doctrine of exhaustion of administrative remedies, unless a specific exception applies.
• BIR Ruling No. DA-489-03 Exception: Taxpayers who filed judicial claims for VAT refund from December 10, 2003 to October 6, 2010, in reliance on BIR Ruling No. DA-489-03 (which permitted immediate judicial recourse), are exempt from the 120-day waiting period. This exception is based on Section 246 of the NIRC (non-retroactivity of rulings) and equitable estoppel.
• Section 112 vs. Section 229: Claims for refund of unutilized input VAT attributable to zero-rated sales are governed exclusively by Section 112 of the NIRC, not by Section 229 which applies to taxes erroneously or illegally collected.
• Limited Effect of Atlas Doctrine: The Atlas doctrine, which held that the two-year prescriptive period for administrative claims is reckoned from the date of payment of output VAT, was effective only from June 8, 2007 to September 12, 2008, and applied only to the reckoning of the administrative prescriptive period, not to the 120+30 day period for judicial claims.
• Government Estoppel: The State cannot be estopped by the errors or omissions of its agents in the collection of taxes.

• "The 120+30 day period prescribed under Section 112(D) mandatory and jurisdictional."
• "The jurisdiction of the CTA over decisions or inaction of the CIR is only appellate in nature and, thus, necessarily requires the prior filing of an administrative case before the CIR under Section 112."
• "Input VAT is not 'excessively' collected as understood under Section 229 because, at the time the input VAT is collected, the amount paid is correct and proper."
• "The general rule is that the 120+30 day period is mandatory and jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998, up to the present. As an exception, judicial claims filed from December 10, 2003 to October 6, 2010 need not wait for the exhaustion of the 120-day period."
• "It is a well-settled rule that the government cannot be estopped by the mistakes, errors or omissions of its agents."

• CIR v. San Roque Power Corporation, G.R. No. 187485 (2013) — Controlling precedent establishing the mandatory and jurisdictional nature of the 120+30 day period and recognizing the exception for claims filed during the effectivity of BIR Ruling No. DA-489-03.
• CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823 (2010) — Held that the 120+30 day period is mandatory and jurisdictional; overturned BIR Ruling No. DA-489-03 prospectively from its promulgation date.
• CIR v. Mirant Pagbilao Corporation, 586 Phil. 712 (2008) — Abandoned the Atlas doctrine; held that the two-year prescriptive period for administrative claims is reckoned from the close of the taxable quarter when the sales were made under Section 112(A).
• Atlas Consolidated Mining v. CIR, 551 Phil. 519 (2007) — Held that the two-year prescriptive period is reckoned from the date of payment of the output VAT; limited in effectivity from June 8, 2007 to September 12, 2008.

• Section 112(A) and (D), National Internal Revenue Code of 1997 — Govern the refund or tax credit of input tax for zero-rated sales (administrative claim period and judicial appeal period).
• Section 229, National Internal Revenue Code of 1997 — Recovery of tax erroneously or illegally collected (two-year period from payment).
• Section 4, National Internal Revenue Code of 1997 — Power of the CIR to interpret tax laws.
• Section 246, National Internal Revenue Code of 1997 — Non-retroactivity of rulings prejudicial to taxpayers.
• Article 8, Civil Code of the Philippines — Judicial decisions applying or interpreting the law form part of the legal system.
• Republic Act No. 9136 (EPIRA) — Treats sales of generated power as zero-rated for VAT purposes.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Martin S. Villarama, Jr.

• Associate Justice Marvic Mario Victor F. Leonen — Dissented with position in San Roque v. CIR, maintaining the view that the 120+30 day period is not mandatory and jurisdictional.