G.R. No. 145559 - Commissioner of Internal Revenue vs. Benguet Corp.

The petitioner is the Commissioner of Internal Revenue, while the respondent is Benguet Corporation, a domestic VAT-registered corporation engaged in mining and the marketing of mine products.
The dispute arose from a petition for review under Rule 45, wherein the petitioner sought to reverse and set aside certain Court of Appeals (CA) resolutions.
The CA originally issued a Resolution on May 10, 2000 ordering the petitioner to issue a tax credit to the respondent; later, a subsequent CA Resolution on October 16, 2000 denied the petitioner’s motion for reconsideration.

In January 1988, Benguet Corporation filed an application for zero-rating of its sales of mine products, which was approved by the Commissioner of Internal Revenue.
Several BIR issuances, including:

VAT Ruling No. 378-88 (issued on August 28, 1988) and Revenue Memorandum Circular No. 59-88 (issued on December 14, 1988), established that sales of gold to the Central Bank were treated as export sales subject to 0% VAT.
Other similar rulings issued from 1988 to 1990 reaffirmed the zero-rating treatment.

Relying on these rulings, the respondent conducted transactions from January 1, 1988 to July 31, 1989, selling gold to the Central Bank as zero-rated transactions and incurring input taxes attributable to these sales.
Consequently, the respondent applied for Tax Credit Certificates for the input VAT incurred during the six taxable quarters, with specific amounts claimed for each taxable period.

On January 23, 1992, a new VAT Ruling No. 008-92 was issued by then Commissioner Jose U. Ong, reclassifying sales of gold to the Central Bank as domestic sales subject to 10% VAT.
This new position was reiterated by VAT Ruling No. 59-92 (dated April 28, 1992), which retroactively applied the 10% VAT treatment to sales from January 1, 1988, notwithstanding earlier administrations indicating a zero-rating regime.
Based on these revised rulings, the petitioner in following assessments disallowed the input VAT credit claim for the gold sales and only allowed tax credits for input VAT attributable to direct export sales amounting to P81,991,810.91.

To suspend the prescriptive period for claiming refunds or credits, the respondent instituted consolidated Petitions for Review before the Court of Tax Appeals (CTA), seeking a total input VAT credit of P131,741,034.22 allocated over different taxable periods.
The CTA dismissed the petition, holding that the retroactive application of VAT Ruling No. 008-92 was prejudicial, and no alternative remedy could fully compensate the respondent.
The CA initially affirmed the CTA decision in a May 30, 1996 decision, but later, in its Resolution dated May 10, 2000, reversed the earlier decision by ordering the issuance of a tax credit for the full amount. However, it subsequently differentiated between:

P81,991,810.91 for input VAT attributable to direct export sales (maintaining a 0% VAT treatment) and
P49,749,223.31 for input VAT attributable to sales of gold to the Central Bank, where the retroactive 10% VAT did not apply.

The petitioner now challenges only the portion amounting to P49,749,223.31, contending that the retroactive application of VAT Ruling No. 008-92 should not result in prejudice to the respondent.

Whether the retroactive application of VAT Ruling No. 008-92 to respondent’s sales of gold to the Central Bank should be allowed, given that it allegedly prejudices the taxpayer.

Is it proper to deny the refund/tax credit for the input VAT incurred on these transactions due to retroactivity?

Whether the alternative remedies offered to the respondent—namely, the set-off of input VAT against output VAT or the treatment as an income tax deduction—are sufficient to compensate for the loss of a full tax credit.

Does the comparative disadvantage between a tax credit and a tax deduction warrant denying the retroactive application?

Whether the application of the modified VAT treatment violates the principles of fairness and reliance, considering the formal assurances given by earlier BIR rulings.

Can respondent rely on the initial zero-rating rulings in light of the later, adverse reclassification of its sales?