G.R. No. 174004 - Cagatao vs. Almonte

The case involves three consolidated petitions (G.R. Nos. 175707, 180035, and 181092) brought by Fort Bonifacio Development Corporation (FBDC) against the Commissioner of Internal Revenue and the Revenue District Officer of BIR, Revenue District No. 44, Taguig and Pateros.
FBDC is a domestic corporation partly owned by the government entity Bases Conversion Development Authority (BCDA) and a consortium of private corporations (Bonifacio Land Corporation).
The respondents are high-level revenue officials responsible for the implementation and collection of value-added tax (VAT).

These parcels were conveyed to FBDC by the national government under Republic Act No. 7227.
The properties, formerly part of a military reservation, are now being developed and sold as part of an urban redevelopment project.

Initially, the sale of these real properties was not subject to VAT. However, with the enactment of Republic Act No. 7716 (the Expanded VAT Law), the definition of “goods or properties” was expanded so that sales of real properties became subject to VAT.
Later, Republic Act No. 9337 increased the VAT rate applied to such transactions from 10% to 12%.

FBDC became VAT-registered and, pursuant to Section 105 of the old National Internal Revenue Code (NIRC), sought a transitional (or presumptive) input tax credit computed at 8% of the value of its beginning inventory of properties.

The inventory included the value of real properties, with controversy arising over whether the allowable credit should apply to the entire value or only to the improvements (buildings, roads, drainage systems, etc.) thereon.
FBDC submitted an inventory list dated February 29, 1996 with an aggregated value, later revised due to reconveyance of part of the property.

Based on its inventory, FBDC claimed significant amounts as input tax credits that would offset its output VAT liability.
The petition also sought a refund (or issuance of tax credit certificates) for VAT payments made in specific quarters:

FBDC’s refund claims were initially denied by the Court of Tax Appeals (CTA) and subsequently by the Court of Appeals, based on their interpretations of Revenue Regulations No. 7-95.

The regulations limited the transitional input tax credit basis to the value of “improvements” rather than the entire real property.
The CTA and CA emphasized that prior payment of VAT or sales taxes on the property was a necessary condition for claiming the credit.

FBDC argued that no such prerequisite existed in Section 105 of the NIRC and that administrative rules limiting the term “goods” to improvements were contrary to the statutory definition under Section 100.
Motions for reconsideration and petitions for review were filed, and FBDC contended that Revenue Regulations No. 6-97 effectively repealed the restrictive limitation contained in RR No. 7-95.
The controversies also involved questions regarding the constitutional separation of powers – specifically, whether an administrative agency may effectively amend or reinterpret a statutory provision.

Whether FBDC is entitled to a refund or the issuance of a tax credit certificate for the VAT amounts claimed:

Whether the transitional/presumptive input tax credit under Section 105 (now Section 111[A] of the NIRC) should be computed on the value of the entire real property (i.e., including the land) rather than limited solely to the improvements.

Whether prior payment of VAT or sales tax on the real property is a necessary prerequisite to qualify for the transitional input tax credit.

Whether Revenue Regulations No. 7-95 is a valid and effective implementation of Section 105 of the NIRC, or if its restrictive interpretation (limiting the credit to improvements) is contrary to the statutory scheme.

Whether the issuance and judicial endorsement of such administrative regulations by the BIR, CTA, and CA violate the principle of separation of powers by effectively amending the enabling statute.