The Supreme Court has reiterated the strict adherence to the 120+30 day rule for Value-Added Tax (VAT) refund claims. This rule requires taxpayers to file their judicial appeal with the Court of Tax Appeals (CTA) within 30 days after either receiving a denial from the Commissioner of Internal Revenue (CIR) or the expiration of the 120-day period for the CIR to act on the refund claim. Failure to comply with this rule results in the CTA losing jurisdiction over the case, thus emphasizing the importance of diligently observing these timelines to preserve the right to claim VAT refunds.

San Roque Power’s Battle: Navigating VAT Refund Timelines in the Philippine Energy Sector

The case of San Roque Corporation v. Commissioner of Internal Revenue revolves around San Roque’s claims for refund or tax credit of excess input VAT for the year 2006. San Roque, a power generation company, argued that its sales of electricity were zero-rated due to the renewable energy source and the tax-exempt status of its sole customer, the National Power Corporation (NPC). The central legal question was whether San Roque complied with the prescriptive periods under Section 112 of the National Internal Revenue Code (NIRC) for filing administrative and judicial claims for VAT refunds.

The factual background involves San Roque entering into a Power Purchase Agreement (PPA) with NPC in 1997 to develop hydroelectric facilities. As a VAT-registered entity, San Roque incurred creditable input taxes in 2006. It filed administrative claims for a refund or tax credit, asserting its sales were zero-rated. When the CIR failed to act, San Roque filed petitions for review with the CTA. The CTA First Division dismissed these petitions due to San Roque’s failure to comply with the mandatory 120+30 day periods. The CTA en banc affirmed this decision, leading San Roque to elevate the matter to the Supreme Court.

The core of the legal discussion centers on Section 112 of the NIRC, which governs VAT refunds or tax credits. This provision sets the timelines for both administrative and judicial claims. Section 112(A) states that a VAT-registered person may apply for a tax credit certificate or refund within two years after the close of the taxable quarter when the sales were made. Section 112(C) stipulates that the Commissioner must grant the refund or issue the tax credit certificate within one hundred twenty (120) days from the date of submission of complete documents. Critically, it adds that if the claim is denied or unacted upon, the taxpayer may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal to the Court of Tax Appeals.

SEC. 112. Refunds or Tax Credits of Input Tax. –

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeal.

The Supreme Court underscored that the 120+30 day periods are mandatory and jurisdictional. Failure to comply deprives the CTA of its authority to hear the case. The Court relied heavily on its prior ruling in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., which clarified the interpretation and application of Section 112. While San Roque argued against the retroactive application of Aichi, the Court clarified that the 120+30 day periods were already prescribed in the NIRC when San Roque filed its claims.

The Court also addressed the exception created by BIR Ruling No. DA-489-03, which allowed taxpayers to prematurely file judicial claims before the expiration of the 120-day period. However, this exception only applied to taxpayers who filed judicial claims between December 10, 2003, and October 6, 2010 (the date of the Aichi decision). Since San Roque belatedly filed its judicial claims, it could not invoke the benefit of BIR Ruling No. DA-489-03.

In evaluating San Roque’s compliance, the Court determined that while San Roque timely filed its administrative claims, it failed to file its judicial claims within the 30-day period. This failure was fatal to its case, as it deprived the CTA of jurisdiction. The Court referenced the case of Philex Mining Corporation, which was similarly situated in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power Corporation, emphasizing that late filing, rather than premature filing, was the issue.

The Supreme Court noted that the filing of amended administrative claims did not alter the outcome. For the first and second quarters, the amended claims were filed after the expiration of the 120+30 day periods, meaning the judicial claims had already prescribed. While the amended claims for the third and fourth quarters were filed before the end of the 120-day period, the subsequent judicial claims were still filed beyond the 30-day window after the 120-day period expired.

Ultimately, the Supreme Court denied San Roque’s petition, affirming the CTA’s decision. The Court emphasized the importance of strict compliance with the 120+30 day rule for VAT refund claims. This case serves as a critical reminder for taxpayers to diligently monitor and adhere to the prescribed timelines to preserve their right to seek judicial recourse for VAT refund claims.

FAQs

What is the 120+30 day rule in VAT refund claims?	The 120+30 day rule refers to the period within which the CIR has 120 days to decide on a VAT refund claim, and the taxpayer has 30 days from receipt of denial or lapse of the 120-day period to appeal to the CTA.
What happens if a taxpayer fails to comply with the 120+30 day rule?	Failure to comply with the 120+30 day rule results in the CTA losing jurisdiction over the case, meaning the taxpayer’s claim will be dismissed.
When does the 2-year period to file an administrative claim begin?	The 2-year period to file an administrative claim for VAT refund is reckoned from the close of the taxable quarter when the sales were made.
What was the significance of the Aichi case?	The Aichi case clarified that the 120+30 day periods are mandatory and jurisdictional, meaning strict compliance is required for the CTA to have jurisdiction.
What was BIR Ruling No. DA-489-03 and how did it affect the 120+30 day rule?	BIR Ruling No. DA-489-03 allowed taxpayers to prematurely file judicial claims before the 120-day period expired, but this only applied to claims filed between December 10, 2003, and October 6, 2010.
What is the difference between premature and late filing of a judicial claim?	Premature filing occurs when a judicial claim is filed before the 120-day period has expired, while late filing occurs when the judicial claim is filed after the 30-day period has lapsed.
Can an amended administrative claim revive a prescribed judicial claim?	No, an amended administrative claim cannot revive a judicial claim that has already prescribed due to the lapse of the 120+30 day periods.
Was the Aichi ruling applied retroactively in the San Roque case?	The Supreme Court clarified that the Aichi ruling was not applied retroactively, as the 120+30 day periods were already prescribed in the NIRC when San Roque filed its claims.
What are the implications of this case for power generation companies in the Philippines?	This case highlights the need for power generation companies to strictly comply with the VAT refund claim procedures and timelines to avoid losing their right to claim refunds.

In conclusion, the San Roque case reinforces the importance of understanding and adhering to the specific timelines outlined in Section 112 of the NIRC for VAT refund claims. Taxpayers must diligently track the deadlines for both administrative and judicial claims to safeguard their rights to seek refunds or tax credits.

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: San Roque Corporation vs. Commissioner of Internal Revenue, G.R. No. 205543, June 30, 2014