In Visayas Geothermal Power Company v. Commissioner of Internal Revenue, the Supreme Court addressed the timeliness of a judicial claim for tax refund, clarifying when taxpayers can seek judicial relief despite not fully complying with the mandatory waiting periods. The Court partly granted the petition, reversing the Court of Tax Appeals’ (CTA) dismissal and clarifying that the CTA erred in ruling that the judicial claim was prematurely filed. The ruling highlights the impact of a previously issued BIR ruling, which had allowed taxpayers to file judicial claims without waiting for the Commissioner’s decision, and provides guidance on the exception to the strict compliance rule for claims filed during the effectivity of that BIR ruling. The case was remanded to the CTA for a decision on the merits of the tax refund claim.

Navigating Tax Refund Timelines: When Can Taxpayers Rely on BIR Rulings?

The case revolves around Visayas Geothermal Power Company’s (VGPC) claim for a refund of unutilized input Value-Added Tax (VAT) for the taxable year 2007. VGPC filed an administrative claim for refund with the Bureau of Internal Revenue (BIR) on February 13, 2009, and, believing that the BIR would not act promptly, filed a petition for review with the Court of Tax Appeals (CTA) on March 30, 2009. VGPC argued that Section 6 of Republic Act (R.A.) No. 9136, also known as the “Electric Power Industry Reform Act of 2001,” provides for zero-rated VAT on sales of generated power, and referred to the 1997 National Internal Revenue Code (NIRC) as amended by R.A. No. 9337, which imposes a zero percent VAT rate on the sale of power generated through renewable sources of energy. The CTA First Division initially dismissed VGPC’s petition for being prematurely filed, a decision later affirmed by the CTA en banc.

The core of the legal issue lies in the interpretation and application of Section 112(C) of the 1997 NIRC, which stipulates a 120-day period for the Commissioner of Internal Revenue (CIR) to decide on refund applications, followed by a 30-day period for the taxpayer to appeal to the CTA. The CTA ruled that VGPC’s petition was premature because it was filed only 45 days after the administrative claim, well before the 120-day period had lapsed. VGPC contended that it relied on BIR Ruling No. DA-489-03, which stated that a taxpayer-claimant need not wait for the 120-day period to expire before seeking judicial relief. This ruling became the crux of the Supreme Court’s analysis.

The Supreme Court acknowledged the general rule requiring strict compliance with the 120+30-day periods as established in CIR v. San Roque Power Corporation. According to this rule, failure to adhere to the 120-day waiting period violates the doctrine of exhaustion of administrative remedies, rendering the petition premature and depriving the CTA of jurisdiction. The Court, however, also recognized an exception to this rule. The Court reiterated in San Roque that strict compliance with the 120+30-day periods is necessary, “except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30-day periods as mandatory and jurisdictional.”

BIR Ruling No. DA-489-03 explicitly stated that a taxpayer-claimant need not wait for the lapse of the 120-day period before seeking judicial relief with the CTA. The Court emphasized that this BIR ruling constituted a general interpretative rule applicable to all taxpayers, as it was a response to a query made by a government agency, not a specific taxpayer. This meant that all taxpayers could rely on it from its issuance on December 10, 2003, until its effective reversal by the Court in CIR v. Aichi Forging Company of Asia, Inc. on October 6, 2010, which reinstated the mandatory and jurisdictional nature of the 120+30-day periods. This reliance creates an instance of equitable estoppel.

Applying this principle to VGPC’s case, the Supreme Court noted that both the administrative and judicial claims were filed in 2009, falling squarely within the period when BIR Ruling No. DA-489-03 was in effect. Consequently, the CTA en banc’s reliance on the general rule was misplaced. The Court stated that notwithstanding the fact that VGPC failed to wait for the expiration of the 120-day mandatory period, the CTA could still take cognizance of the petition for review. The decision underscores the importance of considering the prevailing BIR rulings at the time the claims are filed.

Despite ruling in favor of VGPC on the procedural issue, the Supreme Court did not resolve the substantive issue of VGPC’s entitlement to the tax refund. The CTA First Division had identified the requisites for entitlement to tax refund: the existence of zero-rated or effectively zero-rated sales; incurrence or payment of input taxes; attributability of such input taxes to zero-rated sales; non-application of the input taxes against any output VAT liability; and timely filing of the claim for refund within the two-year prescriptive period. The Court found that these matters required factual findings that were not within its purview. Therefore, it remanded the case to the CTA for a determination of VGPC’s entitlement to the claimed tax refund.

FAQs

What was the central issue in this case?	The central issue was whether Visayas Geothermal Power Company’s (VGPC) judicial claim for a tax refund was prematurely filed, considering it was filed before the 120-day period for the BIR to act on the administrative claim had lapsed. The court needed to determine if VGPC could rely on a BIR ruling allowing early filing.
What is the 120+30 day rule?	The 120+30 day rule, as per Section 112 of the NIRC, requires the Commissioner of Internal Revenue to grant a refund or issue a tax credit certificate within 120 days from the submission of complete documents. If the claim is denied or unacted upon, the taxpayer has 30 days from receipt of the denial or after the 120-day period to appeal to the Court of Tax Appeals.
What is BIR Ruling No. DA-489-03?	BIR Ruling No. DA-489-03, issued on December 10, 2003, stated that a taxpayer-claimant need not wait for the lapse of the 120-day period before seeking judicial relief with the CTA. This ruling allowed taxpayers to file judicial claims even before the BIR had acted on their administrative claims.
What is the period covered by BIR Ruling No. DA-489-03?	The period covered by BIR Ruling No. DA-489-03 is from December 10, 2003, to October 6, 2010. After October 6, 2010, the Supreme Court’s ruling in CIR v. Aichi Forging Company of Asia, Inc. reinstated the mandatory nature of the 120+30-day periods.
What does equitable estoppel mean in this context?	Equitable estoppel prevents the BIR from going back on its representation in BIR Ruling No. DA-489-03, on which taxpayers relied in good faith. Taxpayers who filed claims during the ruling’s effectivity are protected from having their claims dismissed for premature filing.
What were the requisites for entitlement to tax refund mentioned in the case?	The requisites include having zero-rated or effectively zero-rated sales, incurring or paying input taxes, the input taxes being attributable to zero-rated sales, the input taxes not being applied against any output VAT liability, and filing the claim for refund within the two-year prescriptive period.
Why was the case remanded to the CTA?	The case was remanded to the CTA because the Supreme Court determined that the CTA should have taken cognizance of the claim, but the CTA had not yet ruled on the merits of VGPC’s entitlement to the tax refund, specifically the factual findings required to establish such entitlement.
What is the practical implication of this ruling for taxpayers?	The practical implication is that taxpayers who filed claims for tax refunds during the effectivity of BIR Ruling No. DA-489-03 (December 10, 2003, to October 6, 2010) can still have their claims heard, even if they did not wait for the 120-day period to lapse before filing a judicial claim.

In conclusion, the Supreme Court’s decision in Visayas Geothermal Power Company v. Commissioner of Internal Revenue provides important clarification on the application of tax refund rules, particularly concerning the effect of prior BIR rulings. The case serves as a reminder that tax regulations and their interpretations can evolve, and taxpayers should remain informed of these changes to ensure compliance. Taxpayers should also be prepared to substantiate their claims with solid evidence to prove their entitlement to tax refunds.

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 v. Commissioner of Internal Revenue, G.R. No. 205279, April 26, 2017