Title
Commissioner of Internal Revenue vs. Aichi Forging Co. of Asia, Inc.
Case
G.R. No. 184823
Decision Date
Oct 6, 2010
Aichi sought a VAT refund, filing simultaneous administrative and judicial claims. SC ruled the judicial claim premature, reversing CTA, as the two-year period starts at the taxable quarter's close, not payment date.
commissioner of internal revenue
prescriptive period
taxable quarter
A

Case Summary (G.R. No. 184823)

Factual Background

Aichi Forging Company of Asia, Inc. manufactured steel products and was a registered VAT taxpayer whose products enjoyed pioneer status with the Board of Investments. For the taxable quarter July 1, 2002 to September 30, 2002, respondent alleged zero-rated sales of P131,791,399.00 and claimed input VAT attributable to those sales. On September 30, 2004, respondent filed a claim for refund or issuance of a tax credit certificate of input VAT in the amount of P3,891,123.82 with the Department of Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, and on the same date filed a Petition for Review with the Court of Tax Appeals seeking the same relief.

Proceedings before the CTA Second Division

The Petition for Review was docketed as CTA Case No. 7065 and raffled to the Second Division. The Commissioner of Internal Revenue filed an Answer asserting, among others, defenses of untimeliness under the two-year prescriptive period of the NIRC and the burden of proof resting on the taxpayer. Trial ensued. The Second Division found that respondent satisfied the requisites of Section 112(A) for refund of input VAT except for certain unsubstantiated items, and on January 4, 2008 granted partial relief by ordering refund or issuance of a tax credit certificate in the reduced amount of P3,239,119.25.

Motion for Reconsideration before the CTA Second Division and Elevation to En Banc

The Commissioner of Internal Revenue moved for partial reconsideration, contending that the administrative and judicial claims were filed beyond the two-year period because 2004 was a leap year and that simultaneous filing of administrative and judicial claims violated Section 229 and the doctrine of exhaustion of administrative remedies. The Second Division denied the motion. Petitioner elevated the matter to the CTA En Banc by petition for review.

CTA En Banc Ruling

The CTA En Banc affirmed the Second Division on July 30, 2008. The En Banc held that the two-year prescriptive period should be reckoned from the filing of the quarterly return or the payment of tax, applying Section 114(A) of the NIRC, and therefore deemed respondent’s administrative and judicial claims, filed September 30, 2004, timely because respondent had filed its VAT quarterly return on October 20, 2002 and had until October 20, 2004 to claim a refund. The En Banc further held that simultaneous filing of administrative and judicial claims was not prohibited by the NIRC so long as both were within the two-year period. The CTA En Banc denied reconsideration.

Issue Presented

Whether respondent’s administrative and judicial claims for refund or tax credit of unutilized input VAT for the quarter July 1, 2002 to September 30, 2002 were filed within the two-year prescriptive period prescribed in Section 112(A) and Section 229 of the NIRC, and whether the simultaneous filing of both claims foreclosed the CTA’s jurisdiction.

Parties’ Principal Contentions

Petitioner argued that the two-year period expired on September 29, 2004 by operation of Article 13 of the Civil Code because 2004 was a leap year; that Section 112(A), not Section 114(A), controlled the reckoning of the prescriptive period; and that the judicial claim was premature because Section 229 and the doctrine of exhaustion require prior administrative filing. Respondent maintained that it complied with Section 112(A), that Section 112(A) should be read with Section 114(A) so that the two-year period ran from filing the quarterly return, that it had in fact filed the administrative claim before the judicial claim, and that the non-observance of the 120-day period in Section 112(D) did not bar judicial relief if the claims were within the two-year period, relying on Commissioner of Internal Revenue v. Victorias Milling Co., Inc.

Supreme Court Holding

The Supreme Court granted the petition. The Court reversed and set aside the CTA En Banc decision and directed the CTA Second Division to dismiss CTA Case No. 7065 for premature filing. The Court held that the CTA En Banc erred in applying Section 114(A) and Section 229 in computing the two-year prescriptive period for refund or tax credit of unutilized input VAT.

Legal Basis and Reasoning on the Prescriptive Period

The Court held that Section 112(A) of the NIRC governs claims for refund or issuance of tax credit certificates for unutilized input VAT and expressly prescribes that such claims must be made “within two (2) years after the close of the taxable quarter when the sales were made.” The Court relied on its prior decision in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (G.R. No. 172129, September 12, 2008) to reiterate that Sections 204(C) and 229 apply only to erroneous or illegal payments and thus are inapplicable to refund claims of unutilized input VAT governed by Section 112(A). The Court explained that Section 112(A) fixes the reckoning point at the close of the taxable quarter when the relevant sales or transactions were made regardless of when input VAT was paid or when official receipts were issued.

Computation of the Two-Year Period and Timeliness of the Administrative Claim

Conforming to prior jurisprudence on computation of legal periods, the Court applied the Administrative Code rule that a year is twelve calendar months and that periods are computed by calendar months rather than by counting days under Article 13 of the Civil Code. The Court cited Commissioner of Internal Revenue v. Primetown Property Group, Inc. (G.R. No. 162155, August 28, 2007) and the maxim lex posteriori derogat priori to prefer the Administrative Code method. Applying that computation, the Court concluded that the two-year period for the quarter ending September 30, 2002 expired on September 30, 2004; therefore respondent’s administrative claim filed September 30, 2004 was timely.

Prematurity of the Judicial Claim and Jurisdictional Consequence

Notwithstanding the timely administrative filing, the Court found that respondent’s filing of the judicial petition with the CTA on the same date was premature. The Court interpreted Section 112(D) as granting the Commissioner one hundred twenty days from submission of complete documents to act on the administrative claim and providing that, in case of denial or inaction, the taxpa

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