Title
Commissioner of Internal Revenue vs. Hedcor Sibulan, Inc.
Case
G.R. No. 209306
Decision Date
Sep 27, 2017
HSI filed a VAT refund claim for unutilized input VAT. The Supreme Court ruled its judicial claim timely under BIR Ruling No. DA-489-03, remanding for further determination of entitlement.
domestic corporation
power generation
refund

Case Summary (G.R. No. 209306)

Factual Background: HSI’s VAT Filings and Claims

HSI operated as a domestic corporation engaged in power generation through hydropower and the subsequent sale of generated power to Davao Light and Power Company, Inc. On April 21, 2008, HSI filed with the BIR its Original Quarterly VAT Returns for the first quarter of 2008. On May 20, 2008, HSI filed Amended Quarterly VAT Returns for the same quarter, reflecting that it incurred unutilized input VAT amounting to P9,379,866.27, attributable to its zero-rated sales of generated power. HSI asserted that it had no local sales subject to VAT at 12%, and thus no output VAT liability against which the unutilized input VAT could be applied or credited.

On March 29, 2010, HSI filed an administrative claim for refund of the unutilized input VAT for the first quarter of taxable year 2008 in the amount of P9,379,866.27. On the very next day, March 30, 2010, HSI filed its judicial claim for refund with the CTA, docketed as CTA Case No. 8051. In its Answer, the CIR argued that the judicial claim was prematurely filed and that there was no proof of compliance with the prescribed requirements for VAT refund under RMO No. 53-98. While HSI’s judicial claim was pending before the CTA Division, the Court promulgated Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi) on October 6, 2010, where it held that compliance with the 120-day period under Section 112(C) is mandatory and jurisdictional for the filing of a petition with the CTA.

CTA Division Proceedings: Dismissal Based on Prematurity

Following Aichi, the CTA Division issued a Decision dated January 5, 2012, dismissing HSI’s judicial claim for being prematurely filed. HSI moved for reconsideration, but the CTA Division denied the motion in a Resolution dated March 28, 2012 for lack of merit. HSI then elevated the matter to the CTA En Banc, contending that (1) its petition for review was not prematurely filed, (2) the periods under Section 112(C) of the NIRC of 1997, as amended were not mandatory, and (3) Aichi should not be given retroactive effect.

CTA En Banc’s Initial Affirmance and Later Reversal Under San Roque

On December 6, 2012, the CTA En Banc rendered a Decision affirming the CTA Division. The CTA En Banc applied stare decisis et non quieta movere, holding that the principles in Aichi had to be followed to maintain consistency in jurisprudence. After HSI filed a Motion for Reconsideration on January 2, 2013, the Court decided consolidated cases including Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue (San Roque) on February 12, 2013. In San Roque, the Court recognized an exception to the mandatory and jurisdictional nature of the 120-day waiting period under Section 112(C).

In light of San Roque, on May 30, 2013, the CTA En Banc issued the assailed Amended Decision, reversing and setting aside its earlier December 6, 2012 Decision and remanding the case to the CTA Division for a complete determination of HSI’s compliance with the other legal requirements relative to its refund or tax credit claim, “if any,” for alleged unutilized input VAT for the first quarter of calendar year 2008. The CIR filed a motion for reconsideration, which the CTA En Banc denied in its Resolution dated September 17, 2013. The CIR thus elevated the controversy to the Supreme Court, presenting two issues: (1) whether HSI timely filed its judicial claim on March 30, 2010, a day after filing its administrative claim; and (2) whether HSI was entitled to the claimed refund or credit of P9,379,866.27.

Issues on Review

The CIR’s principal contention was procedural: it insisted that HSI’s judicial claim was premature because HSI filed it on March 30, 2010, before the lapse of the 120-day period under Section 112(C). The CIR further maintained, in essence, that prematurity barred judicial recourse and that HSI failed to substantiate entitlement to the refund or credit of its alleged unutilized input VAT.

Supreme Court’s Ruling: Denial of the CIR’s Petition

The Court denied the petition for lack of merit. It reiterated the basic rule under Section 112(C) of the NIRC of 1997, as amended: the CIR had 120 days to act on an administrative claim for refund. Upon receipt of a denial or upon the expiration of the 120-day period without action, the taxpayer had thirty (30) days to file a petition for review with the CTA. The Court emphasized that in Aichi, it had clarified that the combined 120 + 30-day periods were mandatory and jurisdictional, such that non-observance was fatal to the filing of the judicial claim with the CTA. The Court nevertheless acknowledged that San Roque subsequently recognized exceptions to this strict application.

Under San Roque, the Court held that although the 120-day period remained mandatory and jurisdictional generally, the CIR could be estopped when it misled taxpayers to file prematurely. One exception applied when the Commissioner, through a specific ruling, misled a particular taxpayer; the other exception applied when the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misled all taxpayers. The Court then relied on BIR Ruling No. DA-489-03, issued prior to the promulgation of Aichi, which explicitly declared that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of petition for review.” In this context, the Court treated BIR Ruling No. DA-489-03 as a general interpretative rule—a response addressed not to a particular taxpayer but to a government agency (the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance) that processed tax refunds and credits. Because of its general character, all taxpayers could rely on it from its issuance on 10 December 2003 up to its reversal in Aichi on 6 October 2010, when the Court ruled that the 120 + 30-day periods were mandatory and jurisdictional.

The Court further noted that in Taganito Mining Corporation v. Commissioner of Internal Revenue, it reconciled Aichi and San Roque by adopting a time-based framework. It held that from December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when Aichi was promulgated), taxpayers-claimants need not observe the 120-day waiting period before filing a judicial claim for refund of excess input VAT. Beyond that period, observance of the 120-day period was mandatory and jurisdictional.

Applying these doctrines, the Court found that HSI filed its judicial claim on March 30, 2010, which fell after BIR Ruling No. DA-489-03 took effect and before Aichi was promulgated. Therefore, even though HSI filed without waiting for the expiration of the 120-day mandatory period, the CTA could still take cognizance because the filing fell within the exception recognized in San Roque and explained in Taganito. The Court characterized BIR Ruling No. DA-489-03 as effectively shielding HSI’s judicial claim from the vice of prematurity. Consequently, it held that the CTA En Banc was correct in setting aside the earlier dismissal based on prematurity and in remanding the case for a full determination of HSI’s entitlement to the claimed VAT refund, if any.

CIR’s Objections to BIR Ruling No. DA-489-03 and the Court’s Response

The Court, however, addressed the CIR’s further challenge to the validity and effect of BIR Ruling No. DA-489-03. The CIR argued that the ruling was issued merely by a Deputy Commissioner, not by the CIR, who was the sole authority under law to interpret tax matters. The Court was not persuaded. It relied on the CTA En Banc’s reference in San Roque, which upheld the authority of a Deputy Commissioner to issue interpretative rules. The Court explained that the NIRC does not prohibit delegation of the CIR’s power under Section 4, and that the CIR may delegate powers vested in him to subordinate officials with the proper rank, subject to limitations and restrictions provided by the Secretary of Finance upon recommendation of the CIR.

The CIR also asserted that RR 16-2005, effective November 1, 2005, superseded and effectively repealed the effect of BIR Ruling No. DA-489-03, which had allowed taxpayers to avoid waiting for the 120-day period. The Court rejected the argument by citing Procter and Gamble Asia Pte, Ltd. v. Commissioner of Internal Revenue, where the Court reaffirmed that taxpayers could rely on BIR Ruling No. DA-489-03 as a general interpretative rule from December 10, 2003 until its effective reversal by Aichi. The Court further held there that even if RR 16-2005 re-established the necessity of the 120-day period, taxpayers could not be faulted for continuing to rely on BIR Ruling No. DA-489-03 because the controlling issue on mandatory compliance had only been finall

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