Merck Sharp & Dohme LLC - Philippine Branch vs. Commissioner of Internal Revenue

DECISION

FERRER-FLORES, J.:

The Petition for Review prays that judgment be rendered:

a. declaring petitioner entitled to a refund of value-added tax (VAT) erroneously paid on the importation of diabetes, high cholesterol, and hypertension medicines in the amount ofP33,730,490.83; and,

b. ordering respondent to refund or issue a tax credit certificate to petitioner in the amount ofP33,730,490.83. 1

THE PARTIES

Petitioner Merck Sharp & Dohme (I.A.) LLC- Philippine Branch is a foreign corporation duly organized and existing under the laws of the Statement of the Case, Pre-Trial Order dated October 3, 2022, Docket - Vol. I, p. 321. 1

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

State of Delaware, United States of America and licensed to do business in the Philippines as a branch office, with principal office at the 261h Floor Philamlife Tower, 8767 Paseo de Roxas, Makati City.2 It is a VAT- registered entity under Taxpayer Identification Number 004-474-947- 00000.3 Respondent is the incumbent Commissioner of Internal Revenue (CIR) who holds office at the Bureau of Internal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon City. He is represented by the Legal Officers of the BIR Litigation Division with office address at Room 703, BIR National Office Building, BIR Road, Diliman, Quezon City.4

ANTECEDENTS (ADMINISTRATIVE LEVEL)

On October 18, 2021, petitioner filed with BIR Regular Large Taxpayers Audit Division I (LTAD1) two separate administrative claims for refund in the amounts of P6,290,154.00 and P27,440,336.83, or a total of P33,730,490.83, representing the alleged erroneously paid VAT on the importation of diabetes, high cholesterol, and hypertension medicines from January 1, 2020 to January 22, 2020, and from January 23, 2020 to April 30, 2020, respectively, based on Sections 109, 204(C), and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended. 5 Likewise, through the letters dated October 18, 2021, petitioner filed two separate Applications for Tax Credits/Refunds (BIR Form No. 1914).6 However, on August 18, 2022, petitioner received the letter dated August 2, 2022, where respondent through the BIR Large Taxpayers Service Division denied petitioner's application for refund of erroneously paid VAT filed on October 18, 2021 for the first batch of medicines imported covering the period from January 1, 2020 to January 22, 2020, amounting to P6,290,154.00.7 In the same letter, respondent admitted that (i) petitioner complied with the documentary requirements listed under Revenue Memorandum Order (RMO) No. 36-2020 and (ii) the input tax on imported items have not p,, I, Summ•ry of Adm ltted Foot,, Joint St\pul•tlon ofF oot,.nd \""" ( JSFI); Exh \bit "P-I", Doeket~ - Vol. I, pp. 3 I 0 and 51 9 to 535, respectively. Exhibit "P-2", ld. at 536 to 537.

Par. 2, Summary of Admitted Facts, JSFI, Jd. at 310 Par. I, Stipulated Facts, JSFI; Exhibits "P-11 " and "P-12", Jd. at 311 and 156 to 166, respectively. 6 Par. 3, Stipulated Facts, JSFI; Exhibits "P-13" and "P-14", Jd. at 311 and 167 to 168, respectively; Exhibits "R-1 " and "R-2", BIR Records - Folder I, pp. 181 to 182 and BIR Records - Folder 2, pp. 575 to 576, respectively.

Par. 4, Stipulated Facts, JSFI; Exhibit "P-19", Docket - Vol. I, pp. 311 and 461 to 462, respectively; Exhibit "R-4", BIR Records- Folder I, pp. 260 to 261.

Merck Sharp & Dohme (!A.) LLC - Philippine Branch vs.

Commissioner of Internal Revenue

been reported and claimed as input tax credit. Respondent, however, denied petitioner's tax application for refund for the sole reason that the medicines were imported before the supposed effectivity date of Republic Act (R.A.) No. 114678 and its implementing rules and regulations: Despite the fact that the Company complied with all the documentary requirements required in RMO No. 36-2020 and the input tax on imported items have not been reported and claimed as input tax credit in the monthly/and or quarterly VAT returns as stated in Section 3 of RR No. 18-2020, the Company failed to comply with RMC No. 62- 2020 which states that:

" ... the copy of the List of Prescription Drugs and Medicines for Diabetes, High-Cholesterol and Hypertension Exempt from VAT beginning January 27, 2020" And RR No. 18-2020 provides:

"VAT on importation of prescription drugs and medicines for diabetes, high cholesterol and hypertension included in the Department of Health-Food and Drug Administration (DOH-FDA) approved list .from the effectivity of R.A. No. 11467 on January 27,2020 until the effectivity oftltese Regulations" Thus, the importations you ought to be refunded for the period of January 1, 2020 to January 22, 2020 are still subject to VAT, and granting the tax refund would be contrary to the law and regulations. In view of the foregoing, we regret to inform you that your Claim for Refund of Erroneously Paid VAT in the amount of Six Million Two

Hundred

Ninety

Thousand

One

Hundred

Fifty-Four

Pesos

(P6,290,154.00) covering January 1, 2020 to January 22, 2020 is hereby DENIED.9 On January 18, 2023, the VAT Refund Notice was issued by the BIR, through OIC - Assistant Commissioner Jethro M. Sabariaga of the Large Taxpayers Service, 10 informing petitioner that upon processing of the claim for VAT refund on erroneously paid VAT on importation of diabetes, high cholesterol, and hypertension medicines covering the period from January 23 to April 30, 2020 amounting to P27,440,336.83, the total amount to be refunded is P19,140,829.83, while the amount of P8,299,507.00 was AN ACT AMENDING SECTIONS 5, 6, 24, 25, 27, 31, 32, 3 3, 34, 51, 52, 56, 57, 58, 7 4, 79, 84, 86, \ 90, 91 , 97, 99, 100, 101 , 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148, 149, 151 , 155, 171 , 174, 175, 177, 178, 179, 180, 181 , 182, 183, 186, 188, 189, 190, 191 , 192, 193, 194, 195, 196, 197, 232, 236, 237, 249, 254, 264, 269, AND 288; CREATING NEW SECTIONS 51 -A, 148-A, 150-A, 150-8, 237-A, 264-A, 264-8, AND 265-A; AND REPEALING SECTIONS 35,62, AND 89; ALL UNDER REPUBLIC ACT NO. 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.

Merck Sharp & Dohme (JA.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

"disallowed due to failure to comply with Revenue Memorandum Circular (RMC) No. 62-2020, which states that ' ... the copy of the List of Prescription Drugs and Medicines for Diabetes, High-Cholesterol and Hypertension Exempt from VAT beginning January 27, 2020.'

PROCEEDINGS BEFORE THIS COURT

Petitioner filed the present Petition for Review with this Court on January 5, 2022.11 In the Resolution dated February 14, 2022, 12 the Court ordered petitioner to submit, within ten (1 0) days from receipt thereof, a clear legible duplicate original or certified true copy of the letter dated October 18, 2021, which was allegedly not acted upon by respondent. Petitioner then filed on March 4, 2022 its Compliance, 13 which the Court noted in the Resolution dated March 14, 2022. 14 Respondent's Answer was filed on May 23, 2022. 15 The Pre-Trial Conference was set and held on August 16, 2022. 16 Prior thereto, respondent filed his Pre-Trial Brief on August 9, 2022, 17 while Petitioner's Pre-Trial Brief was submitted on August 11, 2022. 18 On September 15, 2022, the parties submitted their Joint Stipulation of Facts and Issues, 19 which was admitted and approved in the Resolution dated September 22, 2022,20 thereby deeming the termination of the Pre- Trial. Subsequently, the Pre-Trial Order dated October 3, 2022 was issued by the Court. 21 Trial then ensued, with the parties presenting and offering their respective documentary and testimonial evidence. \ 11 Docket - Vol.I,pp. 8to23.

12 !d. at 170.

13 !d. at 173 to 175.

14 !d. at 172.

15 /d.at203to213.

16 Notice of Pre-Trial Conference dated May 25, 2022, !d. at 215 to 216; Minutes of the hearing held on, and Order dated, August 16, 2022, Docket- Vol. II, pp. 237 to 239. 17 Docket- Vol. I, pp. 217 to 220.

18 !d. at 223 to 232.

19 !d. at 310 to 318.

20 !d. at 308 to 309.

2 1 !d. at 321 to 329.

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

Petitioner offered the testimonies of the following individuals, namely: (1) Ms. Paula Mae Francisco,22 petitioner's Tax Officer; and, (2) Ms. Katherine 0. Constantino,23 the Court-commissioned Independent Certified Public Accountant (ICPA).24 The Report of the ICPA was submitted on November 3, 2022.25 On the same date, respondent transmitted to this Court the BIR Records of this case.26 Petitioner filed its Formal Offer of Evidence on March 29, 2023.27 Respondent then filed his Comment (on Petitioner's Formal Offer of Evidence) on March 31, 2023.28 In the Resolution dated June 15, 2023,29 the Court admitted petitioner's offered exhibits. For his part, respondent offered the testimony of Revenue Officer (RO) Ma. Clarissa DM. Calaoagan.30 On August 14, 2023, respondent filed his Formal Offer of Evidence,31 to which petitioner submitted its Comment (to Respondent's Formal Offer of Evidence) on August 29, 2023.32 In the Resolution dated October 24, 2023,33 the Court admitted respondent's offered exhibits. Petitioner filed its Memorandum through registered mail on December 11, 2023;34 while respondent filed on January 8, 2024 a Manifestation,35 stating that he is adopting the arguments he raised in his Answer as his Memorandum.

On January 9, 2024, the case was considered submitted for decision.36 " Exh ;b;t> "P-20" •nd " P-48". Dooht - V o I. I. pp. 24 to 41 . •nd 4 53 to 460. <e'peoH vely; M ;nute' of lh~ hearings held on, and Orders dated, October 4, 2022 and March 8, 2023, Docket- Vol. I, pp. 330, 332 to 333, and 493 to 494, respectively.

23 Exhibit "P-21 ", Docket - Vol. I, pp. 425 to 432; Minutes of the hearing held on, and Order dated, March 8, 2023, Docket - Vol. I, pp. 493 to 494. 24 Oath of Commission dated October 4, 2022, Docket- Vol. I, p. 331 ; Minutes of the hearing held on, and Order dated, October 4, 2022, Docket- Vol. I, pp. 330, and 332 to 333, respectively 25 Exhibit "P-23", Docket - Vol. II, pp. 345 to 418 . 26 Respondent's Compliance dated October 28, 2022, Docket- Vol. I, pp. 337 to 339. 27 Refer to Manifestation and Submission dated March 29, 2023 with attached Formal Offer of Evidence, Jd. at495 to 518.

28 !d. at 594 to 597.

29 Docket- Vol. II, pp. 60 I to 602.

30 Exhibit "R-10", Docket - Vol. II, pp. 613 to 620; Minutes of the hearing held on, and Order dated August I, 2023, Docket- Vol. II, pp. 622 to 624. 3 1 Jd. at 625 to 630.

32 /d. at 634 to 636.

33 !d. at 654.

34 /d. at 655 to 681 .

35 /d. at 686 to 688.

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

to wit:

THE STIPULATED ISSUE

The parties submitted the following issue for this Court's resolution, Whether or not Petitioner is entitled to the refund of PhP6,290,154.00 and PhP27,440,336.83 or a total of PhP33,730,490.83 representing alleged erroneously paid VAT on the importation of medicines intended for the treatment of persons with diabetes, high cholesterol, and hypertension from 6 January 2020 to 22 January 2020 and from 23 January 2020 to 30 April 2020, which are allegedly exempt from VAT pursuant to Section 109(1)(AA)(1) ofthe Tax Code, as amended by Republic Act No. 11467.37 Petitioner's arguments:

Petitioner argues that the importation of the medicines subject of the claims for refund is exempt from VAT beginning January 1, 2020. It claims that the erroneously paid VAT subject of the claims for refund has not been claimed and utilized by petitioner as input tax credits. Lastly, petitioner posits that it is entitled to the refund of P14,589,661.00 representing VAT erroneously paid on the importation from January 6, 2020 to January 26, 2020 of medicines intended for the treatment of persons with diabetes, high cholesterol, and hypertension.

Respondent's counter-arguments:

In his Answer, respondent contends that refunds are in the nature of tax exemptions, and thus, strictly construed against the taxpayer. Respondent argues that in case of doubt as to the entitlement to the refund, refund must be denied. Finally, even assuming, arguendo that R.A. No. 11467 can be applied retroactively, petitioner is still not entitled to the refund sought.

THE COURT'S RULING

The present Petition for Review is partly meritorious. '\

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

The provisions of the NIRC of 1997, as amended, which are pertinent to claims for refund of erroneously or illegally paid tax, are Sections 204(C) and 229 thereof, to wit:

SEC. 204. - Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -The Commissioner may -

XXX

XXX

XXX

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis added) SEC. 229. -Recovery ofTax Erroneously or fllegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphases added) The aforequoted provisions are clear: within two years from the date of payment of tax, the claimant must first file an administrative claim with respondent before filing its judicial claim with the courts of law. Both claims must be filed within a two-year reglementary period. Timeliness of the filing of the claim is mandatory and jurisdictional, and thus the Court cannot take cognizance of a judicial claim for tax credit filed either prematurely or out of time. It is worthy to stress that, as for the judicial claim, the law even explicitly provides that it be filed within two years from \

Merck Sharp & Dohme (IA.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

payment of the tax "regardless of any supervening cause that may arise after payment. "38 Moreover, the foregoing prov1s10ns allow the recovery of taxes erroneously or illegally collected.

An "erroneous or illegal tax" is defined as one levied without statutory authority, or upon property not subject to taxation, or by some officer having no authority to levy the tax, or one which is some other similar aspect is illegal. 39 Thus, for the present claims for refund to prosper, apart from showing the timely filing of its administrative and judicial claims, petitioner must also prove that the subject VAT paid is "erroneous or illegal".

Petitioner

timely filed its administrative and judicial claims.

In this case, the dates of payments of the VAT on the importation for the period from January 1, 2020 to April30, 2020 of medicines for diabetes, high cholesterol, and hypertension are as follows: Date of payment Amount of VAT paid January 7, 2020 p 3,018,526.0040 January 16, 2020 159,930.0041 January 20, 2020 832,839.0042 January 21,2020 1,688,096.0043 January 22, 2020 317,634.0044 January 22, 2020 273,129.0045 January 24, 2020 358,797.0046 January 24, 2020 981,626.0047 \ 38 Commissioner of Internal Revenue vs. San Miguel Corporation, et seq., G.R. Nos. 180740 and 180910, November II , 2019.

39 Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, G.R. No. 188497, April 25, 2012, citing the definition provided in BLACK'S LAW DICTIONARY, Fifth Edition, p. 486. 40 Exhibit "P-6", BIR Records (Exhibit "R-9")- Folder I, pp. 149 to 155; Exhibits "P-36", "P-37", and "P-38".

4 1 Exhibit "P-6", BIR Records (Exhibit "R-9")- Folder I, pp. 149 to 155; Exhibits "P-36-1 ", "P-37-1 ", and "P-38-1 ".

Merck Sharp & Dohme (I.A.) LLC — Philippine Branch vs.

Commissioner of Internal Revenue

January 24, 2020 211,311.00 January 24, 2020 57,663.00°> January 28, 2020 116,180.00°° January 29, 2020 211,643.00°7 January 29, 2020 483,201.00°8 January 29, 2020 989,987.00°?

January 29, 2020 February 4, 2020 1,256,387.00°!

February 6, 2020 228,754.00 February 6, 2020 469,460.00 February 6, 2020 February 12, 2020 250,585.00 597,553.00 47 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “ and “P-38-6”.

-36-7”, “P-37-6”, 48 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-8”, “P-37-6”, and “P-38-6”, 49 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-9”, “P-37-6”, and “P-38-6”.

0 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-10”, “P-37-6”, and “P-38-6”.

51 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-11”, “P-37-6”, and “P-38-6”.

52 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. and “P-38-6”.

33 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. and “P-38-7”.

54 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. and “P-38-7”.

55 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. and “P-38-7”.

56 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. and “P-38-8”.

37 Exhibit “P-6”, BIR Records (Exhibit ““R-9”) — Folder 1, pp. and “P-38-9”.

58 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. and “P-38-9”.

149 to 155; Exhibits “P-36-12”, “P-37-6”, 149 to 155; Exhibits “P-36-13”, “P-37-7”, 149 to 155; Exhibits “P-36-14”, “P-37-7”, 149 to 155; Exhibits “P-36-15”, “P-37-7”, 149 to 155; Exhibits “P-36-16”, “P-37-8”, 149 to 155; Exhibits “P-36-17”, “P-37-9”, 149 to 155; Exhibits “P-36-18”, “P-37-9”, %° Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-19”, “P-37-9”, and “P-38-9”.

60 Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-20”, “P-37-10”, and “P-38-10”.

6! Exhibit “P-6”, BIR Records (Exhibit “R-9”) — Folder 1, pp. 149 to 155; Exhibits “P-36-21”, “P-37-11”, and “P-38-11”.

Merck Sharp & Dohme (! A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

February 14, 2020 305,234.0066 February 14, 2020 328,329.0067 February 18, 2020 280,936.0068 February 26, 2020 237,444.0069 February 26, 2020 1,593,064.0070 February 28, 2020 1,376,415.0071 March 3, 2020 188,000.0072 March 3, 2020 118,103.0073 March 10, 2020 1,415,841.00 74 March 1 7, 2020 932,131.00 75 March 17, 2020 1,310,297.0076 March 26, 2020 1 '134,832.00 77 March 17, 2020 2,062,284.0078 March 17, 2020 1,262,483.0079 March 17, 2020 168,017.0080 March 17, 2020 50,248.0081 March 27, 2020 158,358.8382 April 1, 2020 532,722.0083 \ 0 0 0 0 0 0 '\

Merck Sharp & Dohme (!A.) LLC - Philippine Branch vs.

Commissioner of Internal Revenue

April 1, 2020 142,807.0084 April 1, 2020 115,950.0085 April 1, 2020 115,260.0086

Total

P33, 730,490.83 Correspondingly, the end of the two-year reglementary period 1s respectively determined as follows:

Date of payment End of the two-year reglementary period January 7, 2020 January 7, 2022 January 16, 2020 January 16, 2022 January 20, 2020 January 20, 2022 January 21 , 2020 January 21,2022 January 22, 2020 January 22, 2022 January 24, 2020 January 24, 2022 January 28, 2020 January 28, 2022 January 29, 2020 January 29, 2022 February 4, 2020 February 4, 2022 February 6, 2020 February 6, 2022 February 12, 2020 February 12, 2022 February 14, 2020 February 14, 2022 February 18, 2020 February 18, 2022 February 26, 2020 February 26, 2022 February 28, 2020 February 28, 2022 March 3, 2020 March 3, 2022 March 10, 2020 March 10, 2022 March 17, 2020 March 1 7, 2022 March 26, 2020 March 26, 2022 March 27, 2020 March 27, 2022 April 1, 2020 April 1, 2022 Considering that the administrative claims were filed on October 18, 2021 87 and the present Petition for Review was filed on January 5, 2022,88 both administrative and judicial claims were timely filed within the two-year reglementary period. Such being the case, this Court has jurisdiction to entertain the same.

\ 83 Exhibit "P-6", BIR Records (Exhibit "R-9")- Folder I, pp. 149 to 155; Exhibits "P-36-48", "P-37-29", and "P-38-29".

84 Exhibit "P-6", BIR Records (Exhibit "R-9")- Folder I, pp. 149 to 155; Exhibits "P-36-49", "P-37-29", and "P-38-29".

85 Exhibit "P-6", BIR Records (Exhibit "R-9")- Folder I, pp. 149 to 155; Exhibits "P-36-50", "P-37-29", and "P-38-29".

86 Exhibit "P-6", BIR Records (Exhibit "R-9")- Folder I, pp. 149 to 155; Exhibits "P-36-51", "P-37-29", and "P-38-29".

87 Par. I, Stipulated Facts, JSFI; Exhibits "P-11 " and "P-12", Docket- Vol. I, pp. 311 and 156 to 166, respectively.

88 !d. at 8 to 23.

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

The importation of prescription drugs and medicines for diabetes, high cholesterol, and hypertension is exempt from

VAT

beginning January 1, 2020.

Section 109(1)(AA)(i) of the NIRC of 1997, as amended by R.A. No. 10963,89 otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), and as further amended by R.A. No. 11467,90 provides that the importation of prescription drugs and medicines for diabetes, among others, shall enjoy exemption from VAT, to wit: SEC. 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax:

XXX

XXX

XXX

(AA) Sale of or importation of prescription drugs and medicines for:

1.

Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and 11.

Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2023:

Provided, That the DOH shall issue a list of approved drugs and medicines for this purpose within sixty (60) days from the effectivity ofthis Act: xxx xxx xxx.

(Emphases

and underscoring added) Pursuant to the foregoing provtswn, RMC No. 62-202091 was promulgated on June 8, 2020, following the issuance by the DOH-FDA of the letter dated March 2, 2020, with an approved list of medicines for diabetes, high cholesterol and hypertension, that are qualified for VAT exemption beginning January 27, 2020. Furthermore, on October 14, 2020, 89 AN ACT AMENDING SECTIONS 5, 6, 24, 25, 27, 31 , 32, 33, 34, 51 , 52, 56, 57, 58, 74, 79, 84, 86\ 90, 91 , 97, 99, 100, 101 , 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148, 149, 151, 155, 171 , 174, 175, 177, 178, 179, 180, 181 , 182, 183, 186, 188, 189, 190, 191 , 192, 193, 194, 195, 196, 197, 232, 236, 237, 249, 254, 264, 269, AND 288; CREATING NEW SECTIONS 51-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-B, AND 265-A; AND REPEALING SECTIONS 35,62, AND 89; ALL UNDER REPUBLIC ACT NO. 8424, OTHER WISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES. 90 AN ACT AMENDING SECTIONS 109, 141 , 142, 143, 144, 147, 152, 263, 263-A, 265, AND 288-A, AND ADDING A NEW SECTION 290-A TO REPUBLIC ACT NO. 8424, AS AMENDED, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AND FOE OTHER PURPOSES.

91

SUBJECT:

Publishing the full text of the letter from the Food and Drug Administration (FDA) of the Department of Health (DOH) containing the "List of Prescription Drugs and Medicines for Diabetes, High-Cholesterol and Hypertension Exempt from VAT beginning January 27, 2020" pursuant to Section I of Republic Act No. 11467.

Merck Sharp & Dohme (!A.) LLC - Philippine Branch vs.

Commissioner of Internal Revenue

respondent issued RMC No. 113-2020,92 which clarified the effectivity date of RA No. 11467 to be January 23, 2020, instead of January 27, 2020, on account of the law's publication in the Official Gazette, through its website, on the said date.93 It is worth noting that while RMC No. 113-2020 indicates that the exemption shall only begin on January 23, 2020, R.A. No. 11467 explicitly provides as to when the VAT exemption shall begin, i.e., on January 1, 2020. Particularly, the VAT exemption on the importation of prescription drugs and medicines for diabetes, high cholesterol, and hypertension, shall perforce begin on January 1, 2020, and not when R.A. No. 11467 took effect.

Pertinently, the time-honored doctrine, in case of conflict, is that the law prevails over the administrative regulations implementing it. The authority to promulgate implementing rules proceeds from the law itself. To be valid, a rule or regulation must conform to and be consistent with the provisions of the enabling statute.94 Thus, if a discrepancy occurs between the basic law and an implementing rule or regulation, it is the former that prevails, because the law cannot be broadened by a mere administrative

Issuance -

an administrative agency certainly cannot amend an act of Congress.95 Administrative issuances must not override, supplant, or modify the law, they must remain consistent with the law intended to carry out.96 Particularly, administrative issuances such as revenue memorandum circulars cannot amend nor modify the law.97 Moreover, it is well-settled that a tax statute may be retroactive in its operation.98 The legislative intent to grant VAT exemption on imported medicines for diabetes, high cholesterol, and hypertension, beginning \

92 SUBJECT:

Publishing the full text of the letter from the Food Publishing the Full Text of the Letter from the Department of Finance (DOF) to Amend the Effectivity Date of Republic Act (R.A.) No. 11467, as Circularized Under Revenue Memorandum Circular No. 65-2020. 93 Par. 8, Stipulated Facts, JSFI, Docket - Vol. III, p. 968. 94 Felix B. Perez and Amante G. Doria vs. Philippine Telegraph and Telephone Company and Jose Luis Santigao, G.R. No. 152048, April 7, 2009.

95 MCC Industrial Sales Corporation vs. Ssangyong Corporation, G.R. No. I 70633, October 17, 2007. 96 In the matter of declaratory relied on the validity of Revenue Memorandum Circular No. 65-2020, Bureau of Internal Revenue (BIR), as herein represented by its Commissioner Kin S. Jacinto-Henares and Revenue District Officer (RDO) Ricardo B. Espiritu vs. First £-Bank Tower Condominium Corp., G.R. No. 215801 , January 15, 2020; and First £-Bank Tower Condominium Corp. vs Bureau of Internal Revenue (BIR), as herein represented by its Commissioner Kim S. Jacinto-Henares, G.R. No. 218924, January 15, 2020.

97 JNG Bank N. V., engaged in banking operations in the Philippines as lNG Bank N. V. Manila Branch vs. Commissioner of Internal Revenue, G.R. No. 167679, Apri120, 2016.

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

January 1, 2020, is perfectly clear under the aforequoted Section 109(1)(AA)(i) of the NIRC of 1997, as further amended by R.A. No. 11467. Correspondingly, the VAT paid on the imported medicines for diabetes, high cholesterol, and hypertension, must be considered as erroneously or illegally collected or paid beginning January 1, 2020.

To prove payment of VAT on its importations of prescnptwn medicines for diabetes, high cholesterol and hypertension, petitioner submitted various documents, such as the Bureau of Customs (BOC) Single Administrative Documents (SAD),99 Statements of Settlement of Duties and Taxes (SSDT), 100 Temporary Assessment Notices, 101 Final Assessment Notices, 102 and various Commercial Invoices issued to petitioner, 103 as well as the VAT Payment Certification issued by BOC Revenue Accounting Division. 104 Upon verification of the aforesaid supporting documents, the Court finds that petitioner indeed paid VAT on the said importation of prescription medicines for diabetes, high cholesterol, and hypertension in as much as P33,730,490.83-the amount of refund being claimed, to wit:

SAD

Item Description

Generic Name

VAT Payment

Exhibit

SSDT

Exhibit

Reference

Reference

EZETROL IOMG 3XIOTAB PHL

Ezetimibe

COZAARXQ 50/SMG 3XlOTAB PHL

Losartan + Amlodipine

JANUMET 50 I OOOMG 4X

Metformin + Sitag1iptin

JANUMET 50/SOOMG 4X7TAB PHL

Metformin + Sitag1iptin

ZOCOR 20MG 30T AB PHL

Simvastatin

HYZAAR I00/12.5MG 3XIOTAB PHL

Losartan +

Hydrochlorothiazide

JANUVIA 25MG 4X7TAB PHL

Sitagliptin

COZAAR 50MG 3X10TAB PHL

Losartan

99 Exhibits "P-37" to "P-37-29" and "P-4".

100 Exhibits "P-38" to "P-38-29" and "P-5". 10 1 Exhibits "P-39" to "P-39-30".

102 Exhibits "P-40" to "P-40-30".

103 Exhibits "P-36" to "P-36-51 " and "P-3".

104 Exhibit "P-6", BIR Records, pp. 149 to 155. p 3,018,526.00

"P-37"

"P-38"

159,930.00

"P-37-1 "

"P-38-1 "

832,839.00

"P-37-2"

"P-38-2"

I ,688,096.00

"P-37-3"

"P-38-3"

317,634.00

"P-37-4"

"P-38-4"

273,129.00

"P-37-5"

"P-38-5"

358,797.00

"P-37-6"

"P-38-6"

981 ,626.00

"P-37-6"

Merck Sharp & Dohme (!A.) LLC - Philippine Branch vs.

Commissioner of Internal Revenue

JANUVIA I OOMG 4X7T AB PHL

Sitagliptin

JANUVIA 50MG 4X7T AB PHL

Sitagliptin

HYZAAR DS I00/25MG 6X5TAB PHL

Losartan +

Hydrochlorothiazide

COZAAR IOOMG 3XIOTAB PHL

Losartan

HYZAAR 50/12.5MG 3XIOTAB PHL

Losartan +

Hydrochlorothiazide

VYTORIN 10/IOMG 30TAB PHL

Ezetimibe + Simvastatin

VYTORIN I0/20MG 30TAB PHL

Ezetimibe + Simvastatin

VYTORIN I0/40MG 30TAB PHL

Ezetimibe + Simvastatin

HYZAAR 50/1 2.5MG 3XIOTAB PHL

Losartan +

Hydrochlorothiazide

JANUMET 50/SOOMG 4X7TAB PHL

Metformin + Sitagliptin

JANUMET 50/850MG 4X7TAB PHL

Metfonnin + Sitagliptin

JANUMET 50 1000MG 4X7

Metfonnin + Sitagliptin

JANUMET XR 100/ IOOOMG 28TAB

Metformin + Sitagliptin

PHL

JANUMET 50/SOOMG 4X7T AB PHL

Metfonnin + Sitagliptin

HYZAAR 100/ 12.5MG 3XIOTAB PHL

Losartan +

Hydrochlorothiazide

COZAAR XQ 50/SMG 3X I OT AB PHL

Losartan + Amlodipine

JANUMET 50/1000MG 4X

Metf01min + Sitagliptin

VYTORIN I0/20MG 30TAB PHL

Ezetimibe + Simvastatin

ZOCOR 20MG 30TAB PHL

Simvastatin

VYTORIN I 0/1 OMG 30T AB PHL

Ezetimibe + Simvastatin

HYZAAR I00/12.5MG 3XIOTAB PHL

Losartan +

Hydrochlorothiazide

EZETROL IOMG 3XIOTAB PHL

Ezetimibe

JANUMET XR 100/ IOOOMG 28TAB

Metfonnin + Sitagliptin

PHL

HYZAAR 50/12.5MG 3XIOTAB PHL

Losartan +

Hydrochlorothiazide

HYZAAR DS I 00/25MG 6X5T AB PHL

Losartan +

Hydrochlorothiazide

JANUMET 50/IOOOMG 4X

Metfonnin + Sitagliptin

2,993,884.00

"P-37-6"

2,452,322.00

"P-37-6"

117,410.00

"P-37-6"

714,380.00

"P-37-6"

115,886.00

"P-37-6"

296,228.00

"P-37-7"

211 ,311.00

"P-37-7"

"P-38-7"

57,663.00

"P-37-7"

116,180.00

"P-37-8"

"P-38-8"

211,643.00

"P-37-9"

483,201.00

"P-37-9"

"P-38-9"

I

989,987.00

"P-37-9"

708,324.00

"P-37-10"

"P-38-10"

I ,256,387.00

"P-37-11"

"P-38-11 "

228,754.00

"P-4"

"P-5"

469,460.00

"P-37-13"

"P-38-13"

597,553 .00

"P-37-14"

"P-38-14"

305,234.00

"P-37-15"

"P-38-15"

328,329.00

"P-37-15"

280,936.00

"P-37-16"

"P-38-16"

237,444.00

"P-37-17"

"P-38-17"

I ,593,064.00

"P-37-18"

"P-38-18"

1,376,415.00

"P-37-19"

"P-38-19"

188,000.00

"P-37-20"

"P-38-20"

118,103.00

"P-37-20"

I ,415,841.00

"P-37-21 "

"P-38-21 "

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

JANUMET 50/850MG 4X7TAB PHL

Metfonnin + Sitagliptin

932,131.00

"P-37-22"

"P-38-22"

JANUMET 50/SOOMG 4X7TAB PHL

Metfonnin + Sitagliptin

1,310,297.00

"P-37-23"

"P-38-23"

JANUMET 50/SOOMG 4X7TAB PHL

Metfonnin + Sitagliptin

1,134,832.00

"P-37-24"

"P-38-24"

JANUMET XR 100/ IOOOMG 28TAB

Metfonnin + Sitagliptin

2,062,284.00

"P-37-25"

"P-38-25"

PHL

JANUMET 50/SOOMG 4X7TAB PHL

Metfonnin + Sitagliptin

I ,262,483.00

"P-37-26"

"P-38-26"

ZOCOR 40MG 30TAB PHL

Simvastatin

168,017.00

"P-37-27"

"P-38-27"

VYTORJN I0/40MG 30TAB PHL

Ezetimibe + Simvastatin

50,248.00

"P-37-27"

COZAARXQ 50 5MG 3XIO

Losartan + Amlodipine

158,358.83

"P-37-28"

"P-38-28"

COZAAR 1 OOMG 3X I OT AB PHL

Losartan

532,722.00

JANUVIA IOOMG 7TAB SAM PHL

Sitagliptin

142,807.00

HYZAAR DS I 00/25MG 6X5T AB PHL

Losartan +

115,950.00

"P-37-29"

"P-38-29"

Hydrochlorothiazide

Losartan +

HYZAAR 50/ 12.5MG 3XIOTAB PHL

Hydrochlorothiazide

115,260.00 HYZAAR I00/12.5MG 3XIOTAB PHL

Losartan +

250,585.00

"P-37-12"

"P-38-12"

Hydrochlorothiazide

TOTAL

P33, 730,490.83 Notably, the generic names of the listed imported prescnptwn medicines are included in the list of VAT -exempt drugs and medicines for diabetes, high cholesterol and hypertension under RMC No. 62-2020 dated June 8, 2020, 105 which published the full text ofthe letter from the Food and Drug Administration (FDA)- Department of Health (DOH) containing the list of prescription drugs and medicines exempted from VAT beginning January 27, 2020, thus, qualify for VAT exemption under Section 109(AA)(i) of the NIRC of 1997, as amended by R.A. No. 11467. Consequently and considering that RA No. 11467 is clear that the subject VAT exemption shall begin on January 1, 2020, the payments of VAT by petitioner on the subject importations for the period from January 7 to April 1, 2020 are therefore deemed illegal and erroneous. The input tax subject of the refund claim has not been reported as input tax credit.

~

105 SUBJECT:

Publishing the Full Text of the Letter from the Food and Drug Administration (FDA) of the Department of Health (DOH) Containing the "List of Prescription Drugs and Medicines for Diabetes, High-Cholesterol and Hypertension Exempt from VAT Beginning January 27, 2020" Pursuant to Section I of Republic Act No. 11467. i

Merck Sharp & Dohme (!A.) LLC - Philippine Branch vs.

Commissioner of Internal Revenue

In its amended Quarterly VAT Returns (BIR Form No. 2550Q) for the first 106 and second quarters of calendar year (CY) 2020 107 and Monthly VAT Return (BIR Form No. 2550M) for the month of April 2020 108, petitioner declared Importations of Goods Other than Capital Goods and Purchases Not Qualified for Input Tax, as follows:

Particulars

1st Quarter 2020

April2020

2nd Quarter 2020 Importation of Goods Other than 'P1,519,361,116.67 'P175,634,966.67 'P 491 ,713,345.25 Capital Goods- subjected to VAT

Purchases Not Qualified for Input Tax

271 ,443,050.00 120,490,280.4 7 292,691,364.04 Upon verification, the Court finds that the importations for the first quarter of CY 2020 and for the month of April 2020 related to the VAT subject of the present claim were declared as part of the Purchases Not Qualified for Input Tax. Evidently, the VAT on the subject imported items have not been reported and claimed as input tax credit in the petitioner's quarterly/monthly VAT returns. Such being the case, the input VAT subject of the present claim was not carried over or utilized in the succeeding amended Quarterly VAT Return for the third quarter of CY 2020. 109 In fine, petitioner was able to establish the amount of the refund claim of P33,730,490.83. Considering, however, that the BIR or respondent has already granted the amount of P19,140,829.83 per the VAT Refund Notice dated January 18, 2023, 110 only the remaining balance of P14,589,661.00 (P33,730,490.83 less P19,140,829.83) should be granted in this case.

WHEREFORE, in light of the foregoing considerations, the present Petitionfor Review is PARTIALLY GRANTED.

Accordingly, respondent is ORDERED TO REFUND petitioner the amount of Fourteen Million, Five Hundred Eighty-Nine Thousand, Six

Hundred

Sixty-One

Pesos

(P14,589,661.00), representing

VAT

erroneously paid on the importation of medicines intended for the treatment of persons with diabetes, high cholesterol, and hypertension for the period from January 7, 2020 to April 1, 2020. \

Merck Sharp & Dohme (IA.) LLC - Philippine Branch vs.

Commissioner of Internal Revenue

Associate Justice

WE CONCUR:

~. ~ '-7 \....._ MA. BELEN M. RINGPI~-LIBAN

Associate Justice

On leave

MARIA ROWENA MODESTO-SAN PEDRO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the consolidated cases were assigned to the writer of the opinion of the Court's Division.

~~ _,'- MA. BELEN M. RINGPIS-LIBAN

Associate Justice

Chairperson

- --- ~~~~~

Merck Sharp & Dohme (!A.) LLC- Philippine Branch vs.

Commissioner of Internal Revenue

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

Presiding Justice