The Supreme Court clarified the rules for claiming value-added tax (VAT) refunds, emphasizing the importance of adhering to specific timelines. The Court ruled that while the administrative claim must be filed within two years from the close of the taxable quarter when the sales were made, the judicial claim filed with the Court of Tax Appeals (CTA) must comply with the 120+30 day period. This means the Commissioner of Internal Revenue (CIR) has 120 days to decide on the claim, and the taxpayer has 30 days from receipt of denial or the expiration of the 120-day period to appeal to the CTA. Failure to comply with these periods can lead to dismissal of the claim.

Navigating Timelines: Can a Power Company Recover VAT if it Files Early?

Visayas Geothermal Power Company (VGPC) sought a refund for unutilized input VAT payments for 2005, arguing its sales of generated power were subject to zero percent VAT. After the CTA Second Division partially granted the refund, both VGPC and the CIR appealed. The CTA En Banc reversed the Second Division’s decision, stating VGPC’s judicial claim was prematurely filed because it was filed only 28 days after filing the administrative claim, without waiting for the 120-day period for the CIR to act.

The main issue before the Supreme Court was whether VGPC’s judicial claim for a VAT refund was prematurely filed, thus depriving the CTA of jurisdiction. The resolution hinged on interpreting Sections 112 and 229 of the National Internal Revenue Code (NIRC). Specifically, the Court had to determine the relationship between the two-year prescriptive period for filing a claim and the 120+30 day periods for the CIR’s action and the taxpayer’s appeal.

The Court highlighted that Section 112 of the NIRC governs claims for tax credit certificates and tax refunds for zero-rated or effectively zero-rated sales by VAT-registered persons. This section sets the timeline for both administrative and judicial claims. Under Section 112(A), a taxpayer has two years from the close of the taxable quarter when the sales were made to file an administrative claim with the CIR. Section 112(D) mandates the CIR to act on the claim within 120 days from submission of complete documents.

The importance of adhering to the prescribed periods was underscored by the Court. Failure to comply with the 120+30 day periods would render the judicial claim premature, effectively stripping the CTA of its jurisdiction. This principle reinforces the doctrine of exhaustion of administrative remedies, ensuring the CIR has the opportunity to act on the claim before judicial intervention.

However, the Court acknowledged an exception based on BIR Ruling No. DA-489-03, which allowed taxpayers to seek judicial relief without waiting for the 120-day period. This ruling created a window of exception from December 10, 2003, to October 6, 2010, during which taxpayers could file judicial claims without exhausting the 120-day period. The Court reasoned that taxpayers who relied in good faith on this BIR ruling should not be penalized.

In VGPC’s case, the Court found that its judicial claim, filed on January 3, 2007, fell within the exception period. Therefore, the CTA En Banc erred in dismissing the claim as premature. The Court emphasized that the Atlas doctrine, which pertains to the reckoning point of the two-year prescriptive period under Section 229, had no bearing on the 120+30 day periods under Section 112.

Furthermore, the Court dismissed VGPC’s argument that the CIR was estopped from questioning the CTA’s jurisdiction. It is a well-established principle that the government cannot be estopped by the mistakes or omissions of its agents, especially in matters of taxation. The ability of the government to function and serve its citizens depends on taxes, therefore, neglect or omission of government officials should not be allowed to harm the people.

To provide clarity, the Supreme Court summarized the rules for claiming refunds or tax credits for unutilized creditable input VAT:

• Administrative Claim: File within two years from the close of the taxable quarter when the sales were made, except if filed between June 8, 2007, and September 12, 2008, in which case it should be within two years from the date of payment of output VAT.
• Judicial Claim: File within 30 days from the full or partial denial of the administrative claim by the CIR, or within 30 days from the expiration of the 120-day period given to the CIR to decide on the claim. An exception exists if the judicial claim was filed from December 10, 2003, to October 6, 2010, during which the 120-day waiting period was not required.

Ultimately, the Supreme Court partially granted VGPC’s petition and reinstated the CTA Second Division’s decision, awarding VGPC a refund of P7,699,366.37, representing unutilized input VAT. The Court emphasized the importance of adhering to the mandatory and jurisdictional 120+30 day periods, subject to the exception during the effectivity of BIR Ruling No. DA-489-03.

FAQs

What is the main issue in this case?	The central question is whether Visayas Geothermal Power Company (VGPC) prematurely filed its judicial claim for a VAT refund with the Court of Tax Appeals (CTA). This hinges on interpreting the timelines outlined in the National Internal Revenue Code (NIRC).
What are the key sections of the NIRC involved?	Sections 112 and 229 of the NIRC are central. Section 112 governs VAT refund claims and sets timelines for administrative and judicial claims. Section 229 generally pertains to recovery of taxes erroneously or illegally collected, but the Court clarifies that Section 112 is the specific provision applicable to VAT refund claims.
What is the 120+30 day rule?	The 120+30 day rule, as stated in Section 112(D) of the NIRC, refers to the period within which the CIR must grant a refund or issue a tax credit certificate (120 days), and the period within which the taxpayer may appeal to the CTA (30 days). It is applicable to zero-rated or effectively zero-rated sales.
Is the 120+30 day rule mandatory?	Generally, yes. The Supreme Court has held that the 120+30 day period is mandatory and jurisdictional. However, there was an exception during a specific period.
What was the exception to the 120+30 day rule?	BIR Ruling No. DA-489-03 created an exception, allowing taxpayers to seek judicial relief without waiting for the 120-day period. This exception applied to judicial claims filed from December 10, 2003, to October 6, 2010.
Did VGPC fall under the exception?	Yes, VGPC’s judicial claim was filed on January 3, 2007, falling within the period covered by BIR Ruling No. DA-489-03. The claim was therefore not premature.
What did the Supreme Court ultimately rule?	The Supreme Court partially granted VGPC’s petition, reinstating the CTA Second Division’s decision. VGPC was awarded a refund of P7,699,366.37 for unutilized input VAT.
Can the government be estopped from questioning jurisdiction in tax cases?	No. The Supreme Court reiterated that the government cannot be estopped by the mistakes or omissions of its agents, especially in matters of taxation.
What is the significance of the Atlas doctrine?	The Atlas doctrine, effective from June 8, 2007, to September 12, 2008, dictated that the two-year prescriptive period for claiming a VAT refund should be counted from the date of payment of output VAT. However, this was abandoned.
Does Aichi apply retroactively?	The interpretation in Aichi applies retroactively to the date the NIRC was enacted because it did not overrule an old doctrine.

This case serves as a crucial reminder for taxpayers to strictly adhere to the timelines and procedures prescribed by the NIRC when claiming VAT refunds. While exceptions may exist, reliance on outdated rulings or jurisprudence can be detrimental. Staying abreast of current jurisprudence and administrative interpretations is paramount for ensuring successful VAT refund claims.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Visayas Geothermal Power Company vs. CIR, G.R. No. 197525, June 04, 2014