FIRST DIVISION

[G.R. Nos. 219630-31. December 7, 2021.]

COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. TAGANITO MINING
CORPORATION, respondent.

[G.R. Nos. 219635-36. December 7, 2021.]

TAGANITO MINING CORPORATION, petitioner, vs.

DECISION

GESMUNDO, C.J  : p

Before the Court are two (2) petitions for review on certiorari under Rule
45 of the Rules of Court, filed separately by the Commissioner of Internal
Revenue (CIR) and Taganito Mining Corporation (TMC), seeking the reversal
of the Decision 1 dated December 16, 2014, and Resolution 2 dated August 3,
2015 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case Nos. 935
and 936. In the assailed decision, the CTA En Banc affirmed in toto the May
25, 2012 Decision 3 of the CTA Second Division (CTA Division) in CTA Case
No. 8090 ordering the CIR to refund or issue a Tax Credit Certificate (TCC) in
favor of TMC in the reduced amount of P3,981,970.05, representing the
latter's unutilized input Value-Added Tax (VAT) on purchases of capital goods
attributable to its zero-rated sales for the calendar year 2008.
TMC is a corporation duly organized under Philippine laws primarily
engaged in the business of exploring, producing, and exporting nickel,
chromite, cobalt, gold, and all kinds of ores, metals, and their by-products. It is
registered as a VAT-taxpayer with the Bureau of Internal Revenue (BIR) and
as an exporter of beneficiated nickel silicate ores and chromite ores with the
Board of Investments (BOI). As certified by the BOI, TMC exports and ships
100% of its ores to foreign countries, such as Japan and Australia.
On December 1, 2009, TMC filed with the BIR a claim for refund of
excess input VAT paid on domestic purchases of taxable goods and services
and importation of goods in the total amount of P42,038,669.54, covering the
period of January 1 to December 31, 2008. TMC attached to its letter-claim
the following supporting documents:
1) Duly accomplished BIR Form No. 1914;
2) Original and latest amended quarterly VAT Returns for the
four (4) quarters of 2008 with supporting schedules on Summary Lists
of Sales and Purchases for the year 2008;
3) Original and latest amended Monthly VAT Declarations for
2008 with supporting schedules or Summary Lists of Sales and
Purchases for the year 2008;
4) Photocopy of the Certification issued by Security Bank
Corporation dated February 17, 2009 as to the export remittance
proceeds received by the said bank in favor of TMC for the year 2008;
5) Photocopy of Certificate of Registration No. OCN
8RC0000017494 and corresponding BIR Form 1905 filed on
December 9, 2004;
6) Annual Income Tax Return for CY 2008 duly filed with the
BIR;
7) Audited Financial Statements for CY 2008 with attached
Report of Independent Auditors;
8) Certification issued by the Department of Finance (DOF) One
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center to [the]
effect that TMC has not filed any similar, previous and/or outstanding
application for tax credit and duty drawback with the said agency for
the period January 1, 2008 to December 31, 2008. 4
When the BIR failed to take action on its administrative claim, TMC filed
a petition for review before the CTA on April 21, 2010, to forestall the lapse of
the two-year prescriptive period for such a judicial claim. The petition was
docketed as CTA Case No. 8090 and raffled to the CTA Division of the tax
court. In its petition for review, TMC sought the tax refund/credit of the lower
amount of P34,131,592.29 because of the CIR's alleged representation that a
portion of the claim of TMC pertaining to purchases of non-capital goods and
capital goods below P1 Million was already about to be released.
After trial, the CTA Division rendered its Decision 5 on May 25, 2012,
partially granting the petition of TMC.
The CTA Division found that TMC was able to sufficiently substantiate
P33,608,456.58 out of its total claim, after disallowing three transactions
amounting to P523,135.71 which were not supported by proper VAT invoices.
However, the CTA Division also held that not all of the substantiated claims of
TMC were refundable/creditable. It reasoned that pursuant to Section 110 (A)
 of the National Internal Revenue Code (NIRC) of 1997, as amended, input
VAT on purchases of capital goods which are attributable to zero-rated sales
may be claimed as refund/credit in two ways, depending on the aggregate
acquisition cost of the capital goods in the calendar month, i.e.: (a) If the
aggregate acquisition cost of the capital goods does not exceed P1 Million,
the full amount of input VAT shall be allowed as credit/refund in the month of
acquisition; or (b) If the aggregate acquisition cost of the capital goods
exceeds P1 Million, the claim for input VAT would be spread over 60 months
or the estimated useful life of the capital goods, whichever is shorter. Since
the judicial claim of TMC only involved its purchases of capital goods with
aggregate acquisition cost exceeding P1 Million, the CTA Division spread the
P33,608,456.58 substantiated input VAT of TMC in 2008 over 60 months or
the estimated useful life of the capital goods, whichever was shorter, to
compute for the amount of input VAT refundable/creditable by December 31,
2008, thus:
 

  Allowable Input VAT

Capital
Goods
Purchases Useful Remaining
Exceeding Life (in Month of Months of
Exhibit P1M Input VAT months) Acquisition 2008 Total

FEBRUARY

N-11-19,
N-11-19-2 2,241,071.50 268,928.58 60 4,482.14 44,821.43 49,303.57

MARCH

N-11-172,
N-1-172-A 18,873,328.63 2,264,799.44 48 47,183.32 424,649.90 471,833.22

MAY

N-11-173 54,413,695.00 6,529,643.40 48 136,034.24 952,239.66 1,088,273.90

JUNE

N-11-93-1 1,339,285.71 160,714.29 48 3,348.21 20,089.29 23,437.50

JULY
N-11-175 89,641,766.66 10,757,012.00 48 224,104.42 1,120,522.08 1,344,626.50

N-11-176 56,436,650.00 6,772,398.00 48 141,091.63 705,458.13 846,549.75

SEPTEMBER

N-11-133 2,017,857.14 242,142.86 48 5,044.64 15,133.93 20,178.57

DECEMBER

N-11-177 24,300,291.67 2,916,035.00 48 60,750.73   60,750.73

N-11-174 30,806,522.14 3,696,782.66 48 77,016.31   77,016.31

INPUT VAT ALLOWABLE FOR REFUND 3,981,970.05 6

 
Based on the foregoing, the CTA determined that only P3,981,970.05
input VAT of TMC may be refunded/credited for the year 2008. It further ruled
that since TMC only reported zero-rated sales in its quarterly VAT returns for
2008, all of its purchases and input VAT incurred thereon were attributable to
its zero-rated sales; and that there was no output VAT liability during the
same time period against which the said input VAT could have been applied.
As for the timeliness of the filing by TMC of its administrative and
judicial claims, the CTA Division cited the case of Commissioner of Internal
Revenue v. Aichi Forging Company of Asia, Inc. 7 (Aichi). According to the
CTA Division, it was clarified in Aichi that the administrative claim for
refund/credit of creditable input VAT should be made within two years from
the close of the taxable quarter when the sales were made, as provided under
Sec. 112 (A) of the Tax Code of 1997. It then concluded that the
administrative claim for refund/credit of TMC in this case, filed on December
1, 2009, was within the two-year prescriptive period, as the following summary
would show:
 

Year End of the Quarter End of 2-year Administrative

1st March 31, 2008 March 31, 2010  

2nd June 30, 2008 June 30, 2010 December 1,

3rd September 30, 2008 September 30,  

4th December 31, 2008 December 31,  

 
Still referring to Aichi, the CTA Division stated that the filing of a judicial
claim for refund/credit should comply with the provisions of Sec. 112 (D) [now
Sec. 112 (C)] of the same Code, which gives the CIR 120 days to act on the
administrative claim, counted from the date of submission by the taxpayer of
complete documents in support of its claim. Thereafter, the taxpayer should
file its petition for review before the CTA within 30 days, either from the
receipt of the CIR's decision denying its administrative claim or after the
expiration of the 120-day period for the CIR to act on its administrative claim.
TMC filed its administrative claim on December 1, 2009, together with the
supporting documents. The CIR did not inform TMC that it submitted
incomplete supporting documents or that it still needed to submit additional
documents, so that the 120-day period for the CIR to act on the claim started
to run on December 1, 2009. The filing by TMC of its petition for review before
the CTA on April 21, 2010, was well within the 30-day period after the lapse of
the 120-day period for the CIR to act on the administrative claim.
The dispositive portion of the decision of the CTA Division reads:
WHEREFORE, premises considered, the instant Petition for
Review is hereby PARTIALLY GRANTED. [CIR] is hereby ORDERED
TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE to [TMC] in
the reduced amount of P3,981,970.05 representing its unutilized input
VAT on capital goods purchases attributable to its zero-rated sales for
the period January 1 to December 31, 2008.
SO ORDERED. 9
The CIR and TMC filed their respective motions for reconsideration of
the foregoing decision together with comment on each other's motion for
reconsideration. In its Resolution 10 dated August 30, 2012, the CTA Division
denied both the motions for reconsideration of the CIR and TMC for lack of
merit.
The parties each filed an appeal before the CTA En Banc, with the
appeal of TMC being docketed as CTA EB Case No. 935, while that of the
CIR as CTA EB Case No. 936. The CTA En Banc, in its Decision 11 dated
December 16, 2014, denied both appeals and affirmed in toto the judgment of
the CTA Division. It also subsequently denied in its Resolution dated August
3, 2015, the respective motions for reconsideration of the parties for lack of
merit.
 The parties sought recourse from the Court through the petitions for
review at bar.
The Court's Ruling
TMC timely filed its judicial claim.
The CIR contends in its petition, docketed as G.R. Nos. 219630-31, that
the judicial claim of TMC before the CTA Division was prematurely filed. The
CIR stresses that the 120-day period for her to act on the administrative claim,
accorded by Sec. 112 of the Tax Code of 1997, as amended, is jurisdictional
and mandatory; and its non-observance would lead to the dismissal of the
judicial claim due to the CTA's lack of jurisdiction. Since TMC did not submit
the complete documents as required under Revenue Memorandum Order
(RMO) No. 53-98, 12 the CIR posits that the 120-day period has not yet
commenced, thus, also depriving the CIR of the opportunity to examine and
evaluate its claim for refund. The CIR lastly maintains that claims for tax
refund/credit are in the nature of claims for tax exemption, so that the law
relied upon is not only construed in strictissimi juris against the taxpayer, but
the proof presented entitling a taxpayer to an exemption is
also strictissimi scrutinized.
There is no merit in the CIR's contentions.
Sec. 112 of the Tax Code of 1997, as amended, 13 provides for the time
periods for the filing and processing of administrative claims for tax
refund/credit:
Section 112.  Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales. — Any VAT-
registered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)
(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable
foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable
or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales: Provided, finally,
That for a person making sales that are zero-rated under Section
 108(B)(6), the input taxes shall be allocated ratably between his zero-
rated and non-zero-rated sales.
xxx xxx xxx
(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. (emphases supplied)
As for the time period for filing of judicial claims for tax refund/credit,
reference may be made to Sec. 11 of Republic Act (R.A.) No. 1125, 14 as
amended; 15
Section 11. Who May Appeal; Mode of Appeal; Effect of Appeal.
— Any party adversely affected by a decision, ruling or inaction of the
Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the
Secretary of Agriculture or the Central Board of Assessment Appeals
or the Regional Trial Courts may file an appeal with the CTA within
thirty (30) days after the receipt of such decision or ruling or after
the expiration of the period fixed by law for adion as referred to in
Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a
procedure analogous to that provided for under Rule 42 of the 1997
Rules of Civil Procedure with the CTA within thirty (30) days from
the receipt of the decision or ruling or in the case of inaction as
herein provided, from the expiration of the period fixed by law to
act thereon. A Division of the CTA shall hear the appeal: Provided,
however, That with respect to decisions or rulings of the Central Board
of Assessment Appeals and the Regional Trial Court in the exercise of
its appellate jurisdiction, appeal shall be made by filing a petition for
review under a procedure analogous to that provided for under rule 43
of the 1997 Rules of Civil Procedure with the CTA, which shall hear the
case en banc.
xxx xxx xxx (emphases supplied)
In Commissioner of Internal Revenue v. Mindanao II Geothermal
Partnership, 16 the Court provided a summary of the rules on prescriptive
periods for claiming refund/credit of input VAT, considering the aforequoted
statutory provisions together with relevant jurisprudence: 17
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR
CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
 1. It is only the administrative claim that must be filed within the
two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period
is the close of the taxable quarter when the relevant sales
were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8
June 2007 to 12 September 2008. Atlas states that the
two-year prescriptive period for filing a claim for tax refund
or credit of unutilized input VAT payments should be
counted from the date of filing of the VAT return and
payment of the tax. (San Roque)
B. 120+30-Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner
denies the claim within the 120-day period, or (2) file the
judicial claim within thirty days from the expiration of the
120-day period if the Commissioner does not act within the
120-day period.
2. The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed
only if filed between 10 December 2003 and 5 October
2010, when BIR Ruling No. DA-489-03 was still in
force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when
BIR Ruling No. DA-489-03 was in force. (San Roque) 18
There appears to be no dispute as to the two-year prescriptive period.
As determined by the CTA Division, TMC filed its administrative claim for the
four quarters of 2008 within two years from the close of the taxable quarters in
question.
The controversy lies in the 120+30-day period, with the CIR insisting
that the 120-day period had not commenced at all because TMC did not
submit the complete documents as listed in RMO No. 53-98.
The Court already settled in Pilipinas Total Gas, Inc. v. Commissioner
of Internal Revenue 19 (Total Gas) that it is the taxpayer who ultimately
determines when complete documents have been submitted for the purpose
of commencing and continuing the running of the 120-day period:
Indeed, the 120-day period granted to the CIR to decide the
administrative claim under the Section 112 is primarily intended to
benefit the taxpayer, to ensure that his claim is decided judiciously and
expeditiously. After all, the sooner the taxpayer successfully processes
his refund, the sooner can such resources be further reinvested to the
business translating to greater efficiencies and productivities that
would ultimately uplift the general welfare. To allow the CIR to
determine the completeness of the documents submitted and, thus,
dictate the running of the 120-day period, would undermine these
objectives, as it would provide the CIR the unbridled power to
indefinitely delay the administrative claim, which would ultimately
prevent the filing of a judicial claim with the CTA.
xxx xxx xxx
Thus, the question must be asked: In an administrative claim for
tax credit or refund of creditable input VAT, from what point does the
law allow the CIR to determine when it should decide an application for
refund? Or stated differently: Under the present law, when should the
submission of documents be deemed "completed" for purposes of
determining the running of the 120-day period?
Ideally, upon filing his administrative claim, a taxpayer should
complete the necessary documents to support his claim for tax credit
or refund or for excess utilized VAT. After all, should the taxpayer
decide to submit additional documents and effectively extend the 120-
period, it grants the CIR more time to decide the claim. Moreover, it
would be prejudicial to the interest of a taxpayer to prolong the period
of processing of his application before he may reap the benefits of his
claim. Therefore, ideally, the CIR has a period of 120 days from the
date an administrative claim is filed within which to decide if a claim for
tax credit or refund of excess unutilized VAT has merit.
xxx xxx xxx
Then, except in those instances where the BIR would require
additional documents in order to fully appreciate a claim for tax credit
or refund, in terms what additional document must be presented in
support of a claim for tax credit or refund — it is the taxpayer who has
that right and the burden of providing any and all documents that would
support his claim for tax credit or refund. After all, in a claim for tax
credit or refund, it is the taxpayer who has the burden to prove his
cause of action. As such, he enjoys relative freedom to submit such
evidence to prove his claim.
The foregoing conclusion is but a logical consequence of the
due process guarantee under the Constitution. Corollary to the
guarantee that one be afforded the opportunity to be heard, it goes
without saying that the applicant should be allowed reasonable
freedom as to when and how to present his claim within the allowable
period.
 Thereafter, whether these documents are actually complete
as required by law — is for the CIR and the courts to
determine. Besides, as between a taxpayer-applicant, who seeks the
refund of his creditable input tax and the CIR, it cannot be denied that
the former has greater interest in ensuring that the complete set of
documentary evidence is provided for proper evaluation of the State.
Lest it be misunderstood, the benefit given to the taxpayer to
determine when it should complete its submission of documents is not
unbridled. Under RMC No. 49-2003, if in the course of the investigation
and processing of the claim, additional documents are required for the
proper determination of the legitimacy of the claim, the taxpayer-
claimants shall submit such documents within thirty (30) days from
request of the investigating/processing office. Again, notice, by way
of a request from the tax collection authority to produce the
complete documents in these cases, is essential.
Moreover, under Section 112 (A) of the NIRC, as amended
by RA 9337, a taxpayer has two (2) years, after the close of the
taxable quarter when the sales were made, to apply for the issuance of
a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales. Thus, before the administrative claim is
barred by prescription, the taxpayer must be able to submit his
complete documents in support of the application filed. This is
because, it is upon the complete submission of his documents in
support of his application that it can be said that the application was,
"officially received" as provided under RMC No. 49-2003
To summarize, for the just disposition of the subject
controversy, the rule is that from the date an administrative claim for
excess unutilized VAT is filed, a taxpayer has thirty (30) days within
which to submit the documentary requirements sufficient to support his
claim, unless given further extension by the CIR. Then, upon filing by
the taxpayer of his complete documents to support his application, or
expiration of the period given, the CIR has 120 days within which to
decide the claim for tax credit or refund. Should the taxpayer, on the
date of his filing, manifest that he no longer wishes to submit any other
addition documents to complete his administrative claim, the 120-day
period allowed to the CIR begins to run from the date of filing.
In all cases, whatever documents a taxpayer intends to file to
support his claim must be completed within the two-year period under
Section 112(A) of the NIRC. The 30-day period from denial of the claim
or from the expiration of the 120-day period within which to appeal the
denial or inaction of the CIR to the CTA must also be respected.
xxx xxx xxx
Applying the foregoing precepts to the case at bench, it is
observed that the CIR made no effort to question the inadequacy of the
 documents submitted by Total Gas. It neither gave notice to Total Gas
that its documents were inadequate, nor ruled to deny its claim for
failure to adequately substantiate its claim. Thus, for purposes of
counting the 120-day period, it should be reckoned from August 28,
2008, the date when Total Gas made its "submission of complete
documents to support its application" for refund of excess unutilized
input VAT. Consequently, counting from this later date, the BIR had
120 days to decide the claim or until December 26, 2008. With
absolutely no action or notice on the part of the BIR for 120 days, Total
Gas had 30 days or until January 25, 2009 to file its judicial claim.
Total Gas, thus, timely filed its judicial claim on January 23,
2009. 20 (emphases in the original)
In Total Gas, taxpayer Total Gas filed its administrative claim for refund
of its unutilized input VAT for the first two quarters of 2007, inclusive of
supporting documents, on May 15, 2008. It submitted additional supporting
documents to the BIR on August 28, 2008. Since Total Gas did not receive
any notice from the BIR that its submitted documents were in any way
inadequate, the Court found that Total Gas had submitted complete
documents in support of its claim on August 28, 2008, and started counting
the 120-day period from said date.
In the instant case, TMC filed its administrative claim for refund of its
excess input VAT for all four quarters of 2008, with the attached supporting
documents, on December 1, 2009. TMC did not state any intention of filing
additional documents and it had, in fact, made no further submission of
supporting documents. Consequently, TMC is deemed to have already
submitted its complete documents together with its administrative claim on
December 1, 2009. Similar to Total Gas, the BIR did not give any notice to
TMC that it lacked supporting documents and/or that TMC needed to submit
additional documents. As the Court also declared in Total Gas, such written
notice from the taxing authority is essential. Hence, the 120-day period for the
BIR to act on the administrative claim of TMC commenced to run
on December 1, 2009, and expired on March 31, 2010. Given the inaction of
the BIR by the end of the period, TMC had 30 days from March 31, 2010, or
until April 30, 2010, to file its judicial claim. TMC then timely filed its petition
for review with the CTA on April 21, 2010.
The CIR cannot invoke RMO No. 53-98 to challenge the completeness
of the supporting documents submitted by TMC. Again, in Total Gas, the
Court had already rejected using the list of documents in RMO No. 53-98 as
the benchmark for determining whether the taxpayer submitted complete
documents in support of its claim for tax refund/credit. It reasoned as follows:
As can be gleaned from the above, RMO No. 53-98 is
addressed to internal revenue officers and employees, for purposes of
equity and uniformity, to guide them as to what documents they may
require taxpayers to present upon audit of their tax liabilities.
Nothing stated in the issuance would show that it was intended to be a
benchmark in determining whether the documents submitted by a
taxpayer are actually complete to support a claim for tax credit or
refund of excess unutilized excess VAT. As expounded
in Commissioner of Internal Revenue v. Team Sual Corporation
(formerly Mirant Sual Corporation):
The CIR's reliance on RMO 53-98 is
misplaced. There is nothing in Section 112 of the NIRC.
RR 3-88 or RMO 53-98 itself that requires submission of
the complete documents enumerated in RMO 53-98 for a
grant of a refund or credit of input VAT. The subject
of RMO 53-98 states that it is a "Checklist of Documents
to be Submitted by a Taxpayer upon Audit of his Tax
Liabilities x x x." In this case, TSC was applying for a
grant of refund or credit of its input tax. There was no
allegation of an audit being conducted by the CIR. Even
assuming that RMO 53-98 applies, it specifically states
that some documents are required to be submitted by the
taxpayer "if applicable."
Moreover, if TSC indeed failed to submit the
complete documents in support of its application, the CIR
could have informed TSC of its failure, consistent with
Revenue Memorandum Circular No. (RMC) 42-03.
However, the CIR did not inform TSC of the document it
failed to submit, even up to the present petition. The CIR
likewise raised the issue of TSC's alleged failure to
submit the complete documents only in its motion for
reconsideration of the CTA Special First Division's 4
March 2010 Decision. Accordingly, we affirm the CTA
EB's finding that TSC filed its administrative claim on 21
December 2005, and submitted the complete documents
in support of its application for refund or credit of its input
tax at the same time.
As explained earlier and underlined in Team Sual above,
taxpayers cannot simply be faulted for failing to submit the complete
documents enumerated in RMO No. 53-98, absent notice from a
revenue officer or employee that other documents are required.
Granting that the BIR found that the documents submitted by Total
Gas were inadequate, it should have notified the latter of the
inadequacy by sending it a request to produce the necessary
documents in order to make a just and expeditious resolution of the
claim.
 Indeed, a taxpayer's failure with the requirements listed
under RMO No. 53-98 is not fatal to its claim for tax credit or refund of
excess unutilized excess VAT. This holds especially true when the
application for tax credit or refund of excess unutilized excess VAT has
arrived at the judicial level. After all, in the judicial level or when the
case is elevated to the Court, the Rules of Court governs. Simply put,
the question of whether the evidence submitted by a party is sufficient
to warrant the granting of its prayer lies within the sound discretion and
judgment of the Court. 21 (emphasis and underscoring in the original)
There is no showing in the present case that an audit had been
conducted by the BIR against TMC for RMO No. 53-98 to apply. It is worth
reiterating that TMC did not receive any written notice from the BIR requiring it
to submit additional supporting documents to comply with RMO No. 53-98.
Thus, per jurisprudence, the noncompliance by TMC with all the requirements
listed in RMO No. 53-98 should not be taken against it and should not be fatal
to its claim for tax refund/credit; more so in this case, wherein the CTA
Division and En Banc found, based on the evidence presented during trial,
that TMC was able to substantiate its claim.
The tax credit/refund of input VAT
on depreciable capital goods
attributable to zero-rated sales, with
aggregate monthly acquisition cost
of more than P1 Million, is subject to
amortization.
In its petition, docketed as G.R. Nos. 219635-36, TMC asserts that the
CTA En Banc committed reversible error in affirming the CTA Division ruling
that the refund granted to a 100% zero-rated taxpayer of its input tax on
depreciable goods amounting to more than P1 Million is subject to
amortization. It questions the application by the CTA Division and En Banc of
only Sec. 110 (A) of the Tax Code of 1997, as amended, asserting that Sec.
110 of the said Code, including paragraphs (B) and (C) thereof, should be
applied as a whole. TMC differentiates between "creditable input tax"
governed by Sec. 110 (A) and "input tax credit" attributable to zero-rated sales
referred to in the proviso in Sec. 110 (B). "Creditable income tax" in Sec. 110
(A) is the input tax on purchases which can be credited against output VAT. In
contrast, the proviso in Sec. 110 (B) pertains to any input tax attributable to
zero-rated sales which may be refunded or credited by the zero-rated
taxpayer at its option. It is the submission of TMC herein that the provisions
on depreciation and amortization of the Tax Code of 1997, as amended, as
well as of Revenue Regulations (RR) No. 16-2005, 22 as amended, 23 cover
only creditable input tax, and not input tax attributable to zero-rated sales
being claimed for tax refund/credit; so that the application by the CTA of the
said provisions to the latter constitutes judicial legislation.
The Court is not persuaded.
Sec. 110 of the Tax Code of 1997, as amended, quoted in full below,
provides for tax credits in general:
Section 110. Tax Credits. —
(A) Creditable Input Tax. —
(1) Any input tax evidenced by a VAT invoice or official receipt
issued in accordance with Section 113 hereof on the
following transactions shall be creditable against the output
tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a
finished product for sale including packaging
materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of
service; or
(v) For use in trade or business for which deduction
for depreciation or amortization is allowed
under this Code.
(b) Purchase of services on which a value-added tax has
actually been paid.
(2) The input tax on domestic purchase or importation of goods or
properties by a VAT-registered person shall be creditable:
(a) To the purchaser upon consummation of sale and on
importation of goods or properties; and
(b) To the importer upon payment of the value-added tax
prior to the release of the goods from the custody of
the Bureau of Customs.
Provided, That the input tax on goods purchased or
imported in a calendar month for use in trade or
business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost
for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000): Provided,
however, That if the estimated useful life of the capital
 good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided,
finally, That in the case of purchase of services, lease or
use of properties, the input shall be creditable to the
purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee.
(3) A VAT-registered person who is also engaged in transactions
not, subject to the value-added tax shall be allowed tax
credit as follows:
(a) Total input tax which can be directly attributed to
transactions subject to value-added tax; and
(b) A ratable portion of any input tax which cannot be
directly attributed to either activity.
The term "input tax" means the value-added tax due from
or paid by a VAT-registered person in the course of his
trade or business on importation of goods or local
purchase of goods or services, including lease or use of
property, from a VAT-registered person. It shall also
include the transitional input tax determined in accordance
with Section 111 of this Code.
The term "output tax" means the value-added tax due on
the sale or lease of taxable goods or properties or services
by any person registered or required to register under
Section 236 of this Code.
(B) Excess Output or Input Tax. — If at the end of any taxable
quarter the output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters: Provided, That the
input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall
not exceed seventy percent (70%) of the output
VAT: Provided, however, That any input tax attributable
to zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other
internal revenue taxes, subject to the provisions of
Section 112.
(C) Determination of Creditable Input Tax. — The sum of the
excess input tax carried over from the preceding month or
quarter and the input tax creditable to a VAT-registered
person during the taxable month or quarter shall be
reduced by the amount of claim for refund or tax credit for
value-added tax and other adjustments, such as purchase
 returns or allowances and input tax attributable to exempt
sale.
The claim for tax credit referred to in the foregoing
paragraph shall include not only those filed with the Bureau
of Internal Revenue but also those filed with other
government agencies, such as the Board of Investments
and the Bureau of Customs. (emphases supplied)
At the outset, it is established that the Philippine VAT system adheres
to the tax credit method. The following discussion in Commissioner of Internal
Revenue v. Seagate Technology (Phils.) 24 is instructive on the matter:
Viewed broadly, the VAT is a uniform tax ranging, at
present, from 0 percent to 10 percent levied on every importation
of goods, whether or not in the course of trade or business, or
imposed on each sale, barter, exchange or lease of goods or
properties or on each rendition of services in the course of trade
or business as they pass along the production and distribution
chain, the tax being limited only to the value added to such
goods, properties or services by the seller, transferor or lessor. It
is an indirect tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. As such, it
should be understood not in the context of the person or entity that is
primarily, directly and legally liable for its payment, but in terms of its
nature as a tax on consumption. In either case, though, the same
conclusion is arrived at.
The law that originally imposed the VAT in the country, as
well as the subsequent amendments of that law, has been drawn
from the tax credit method. Such method adopted the mechanics
and self-enforcement features of the VAT as first implemented and
practiced in Europe and subsequently adopted in New Zealand and
Canada. Under the present method that relies on invoices, an
entity can credit against or subtract from the VAT charged on its
sales or outputs the VAT paid on its purchases, inputs and
imports.
If at the end of a taxable quarter the output taxes charged by a
seller are equal to the input taxes passed on by the suppliers, no
payment is required. It is when the output taxes exceed the input taxes
that the excess has to be paid. If, however, the input taxes exceed the
output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of capital
goods, any excess over the output taxes shall instead be refunded to
the taxpayer or credited against other internal revenue
taxes. 25 (citations omitted; emphases supplied)
 TMC is of the mistaken notion that input VAT attributable to zero-rated
sales is not creditable input VAT. Zero-rated sales or transactions are
described as follows:
Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero. When applied
to the tax base, such rate obviously results in no tax chargeable
against the purchaser. The seller of such transactions charges no
output tax, but can claim a refund of or a tax credit certificate for the
VAT previously charged by suppliers. 26
The tax credit method still applies to zero-rated sales; and input VAT
attributable to such zero-rated sales also constitute creditable input VAT, i.e.,
input VAT evidenced by VAT invoice or official receipt which is creditable
against output VAT. Zero-rated sales are distinct only because with tax rate
set at zero percent, then no output tax shall be due on such sales. Without
any output VAT against which the input VAT can be credited, the VAT-
registered taxpayer is then allowed to apply for tax refund/credit of the input
VAT from such sales.
In fact, Sec. 112 (A) of the Tax Code of 1997, as amended, states that,
"[a]ny VAT-registered person, whose sales are zero-rated or effectively zero-
rated may x x x apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales x x x to the extent
that such input tax has not been applied against output tax." This means
that input VAT attributable to zero-rated sales may, at the option of the
taxpayer, be (a) applied directly against output VAT due on other transactions,
or (b) claimed as tax refund/credit. The second option is the only one
available for taxpayers whose transactions are 100% zero-rated as it will not
have any output VAT against which it may apply its input VAT. It may also be
the more favorable option for taxpayers with mixed transactions as the
refunded amount will be cash on hand, while the TCC issued may be applied
to all national internal revenue taxes (not just limited to output VAT). When the
taxpayer avails itself of the second option, it must prove that it has not
previously availed itself of the first option. The necessary implication of all this
is that input VAT attributable to zero-rated sales is still creditable input VAT,
and having the second option available to the taxpayer does not change its
nature.
Per the mandate of Sec. 110 (A) of the Tax Code of 1997, as amended,
input VAT shall be amortized when: (a) the goods purchased or imported are
capital goods, i.e., used in the taxpayer's trade or business; (b) deduction for
depreciation of the capital goods are allowed under the Tax Code of 1997, as
amended; and (c) the aggregate acquisition cost of the depreciable capital
goods for the calendar month they were purchased or imported exceeds P1
Million. Notably, the provision refers to "input tax" in general, without making
any distinctions, exceptions, or exclusions.
Indeed, pursuant to the proviso in Sec. 110 (B) of the Tax Code of
1997, as amended, the input VAT attributable to zero-rated sales may be
credited against all other internal revenue taxes, as opposed to creditable
input VAT in general which, under Sec. 110 (A) of the same Code, is
creditable only against output VAT. Nonetheless, this express difference
pertains only to the type of taxes against which the input VAT may be
credited. No other distinction between input VAT attributable to zero-rated
sales and creditable input VAT can be deduced from the proviso, especially
as to the amount thereof on depreciable capital goods which can be credited
or refunded.
There is likewise no merit in the assertion of TMC that amortization
violates the right accorded to the VAT-registered taxpayer by the proviso in
Sec. 110 (B) of the Tax Code of 1997, as amended, to claim, at its option,
either the refund or credit of "any input tax" attributable to its zero-rated sales.
It is apparent that to TMC, the word "any" is synonymous to "all" and
amortization unduly limits the input tax on zero-rated sales which the taxpayer
can claim as refund or credit.
The Court, in Abakada Guro Party List v. Ermita 27 (Abakada), upheld
the validity of such amortization of input VAT on depreciable capital goods
with aggregate acquisition cost of more than P1 Million for the month of
purchase or importation, as it does not deprive the taxpayer of any tax credit,
but merely delays the crediting of the same by spreading it out over the
amortization period. In the words of the Court in Abakada:
The foregoing section imposes a 60-month period within which
to amortize the creditable input tax on purchase or importation of
capital goods with acquisition cost of P1 Million pesos, exclusive of the
VAT component. Such spread-out only poses a delay in the
crediting of the input tax. Petitioners' argument is without basis
because the taxpayer is not permanently deprived of his privilege
to credit the input tax.
It is worth mentioning that Congress admitted that the spread-
out of the creditable input tax in this case amounts to a 4-year interest-
free loan to the government. In the same breath, Congress also
justified its move by saying that the provision was designed to raise an
annual revenue of 22.6 billion. The legislature also dispelled the fear
that the provision will fend off foreign investments, saying that foreign
investors have other tax incentives provided by law, and citing the case
of China, where despite a 17.5% non-creditable VAT, foreign
investments were not deterred. Again, for whatever is the purpose of
the 60-month amortization, this involves executive economic
 policy and legislative wisdom in which the Court cannot
intervene. 28 (citations omitted; emphases supplied)
For the same reasons as the foregoing, TMC herein is not deprived of
any of the input tax attributable to its zero-rated sales when the amount of tax
refund or credit granted to it for the input VAT on depreciable capital goods
attributable to its zero-rated sales, with aggregate acquisition cost exceeding
P1 Million for the month of purchase or importation, is amortized for 60
months or the estimated useful life of the capital goods, whichever is shorter.
Ultimately, TMC will still be able to receive the full amount of the input VAT
granted as tax refund or credit by the end of the amortization period.
Sec. 4.110-3 of RR No. 16-2005, as amended, merely fills in the details
necessary for the implementation of Sec. 110 (A) of the Tax Code of 1997, as
amended, thus:
Section 4.110-3. Claim for Input Tax on Depreciable Goods. —
Where a VAT-registered person purchases or imports capital goods,
which are depreciable assets for income tax purposes, the aggregate
acquisition cost of which (exclusive of VAT) in a calendar month
exceeds One Million pesos (P1,000,000.00), regardless of the
acquisition cost of each capital good, shall be claimed as credit against
output tax in the following manner:
(a) If the estimated useful life of a capital good is five (5) years
or more — The input tax shall be spread evenly over a period of sixty
(60) months and the claim for input tax credit will commence in the
calendar month when the capital good is acquired. The total input
taxes on purchases or importations of this type of capital goods shall
be divided by 60 and the quotient will be the amount to be claimed
monthly.
(b) If the estimated useful life of a capital good is less than five
(5) years — The input tax shall be spread evenly on a monthly basis by
dividing the input tax by the actual number of months comprising the
estimated use life of a capital good. The claim for input tax credit shall
commence in the month that the capital goods were acquired.
Where the aggregate acquisition cost (exclusive of VAT) of the
existing or finished depreciable capital goods purchased or imported
during any calendar month does not exceed one million pesos
(P1,000,000.00), the total input taxes will be allowable as credit against
output tax in the month of acquisition; Provided, however, that the total
amount of input taxes (input tax on depreciable capital goods plus
other allowable input taxes) allowed to be claimed against the output
tax in the quarterly VAT Returns shall be subject to the limitation
prescribed under Sec. 4.110-7 of these Regulations.
 Capital goods or properties refers to goods or properties with
estimated useful life greater than one (1) year and which are treated as
depreciable assets under Sec. 34(F) of the Tax Code, used directly or
indirectly in the production or sale of taxable goods or services.
The aggregate acquisition cost of depreciable assets in any
calendar month refers to the total price, excluding the VAT, agreed
upon for one or more assets acquired and not on the payments
actually made during the calendar month. Thus, an asset acquired on
installment for an acquisition cost of more than P1,000,000.00,
excluding the VAT, will be subject to the amortization of input tax
despite the fact that the monthly payments/installments may not
exceed P1,000,000.00.
xxx xxx xxx
If the depreciable capital good is sold/transferred within a period
of five (5) years or prior to the exhaustion of the amortizable input tax
thereon, the entire unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit during the
month/quarter when the sale or transfer was made but subject to the
limitation prescribed under Sec. 4.110-7 of these Regulations.
Construction in progress (CIP) is the cost of construction work
which is not yet completed. CIP is not depreciated until the asset is
placed in service. Normally, upon completion, a CIP item is reclassified
and the reclassified asset is capitalized and depreciated.
CIP is considered, for purposes of claiming input tax, as a
purchase of service, the value of which shall be determined based on
the progress billings. Until such time the construction has been
completed, it will not qualify as capital goods as herein defined, in
which case, input tax credit on such transaction can be recognized in
the month the payment was made; Provided, that an official receipt of
payment has been issued based on the progress billings.
In case of contract for the sale of service where only the labor
will be supplied by the contractor and the materials will be purchased
by the contractee from other suppliers, input tax credit on the labor
contracted shall still be recognized on the month the payment was
made based on a progress billings while input tax on the purchase of
materials shall be recognized at the time the materials were
purchased.
Once the input tax has already been claimed while the
construction is still in progress, no additional input tax can be claimed
upon completion of the asset when it has been reclassified as a
depreciable capital asset and depreciated.
It is beyond dispute that Sec. 224 of the Tax Code of 1997, as
amended, grants the Secretary of Finance, upon recommendation of the CIR,
the authority to promulgate all needful rules and regulations for the effective
enforcement of the provisions of said Code. RR No. 16-2005 and its
subsequent amendments, issued by the Secretary of Finance upon the CIR's
recommendation, enjoy a strong presumption of validity. 29 The Court has
extended the presumption of validity accorded to legislative issuances also to
rules and regulations issued by administrative agencies with its
pronouncement in ABAKADA Guro Party List v. Purisima 30 that:
Administrative regulations enacted by administrative agencies to
implement and interpret the law which they are entrusted to enforce
have the force of law and are entitled to respect. Such rules and
regulations partake of the nature of a statute and are just as binding as
if they have been written in the statute itself. As such, they have the
force and effect of law and enjoy the presumption of constitutionality
and legality until they are set aside with finality in an appropriate case
by a competent court. 31 (citations omitted)
A perusal of Sec. 4.110-3 of RR No. 16-2005, as amended, shows that
it is consistent with Sec. 110 (A) of the Tax Code of 1997, as amended, and it
does not in any way override, supplant, or modify the latter.
Having settled in the preceding paragraphs that input VAT attributable
to zero-rated sales is still creditable input VAT, then the CTA Division and En
Banc did not commit judicial legislation in applying the provisions of Sec. 110
(A) of the Tax Code of 1997, as amended, and Sec. 4.110-3 of RR No. 16-
2005, as amended, on the amortization of input VAT on depreciable capital
goods attributable to its zero-rated sales, with aggregate acquisition cost
exceeding P1 Million for the month of purchase or importation, to the tax
refund/credit of input VAT attributable to zero-rated sales.
Lastly, the Court is well aware that with the further amendment of Sec.
110 of the Tax Code of 1997, as amended, by R.A. No. 10963, 32 which took
effect on January 1, 2018, the amortization of input VAT shall only be allowed
until December 31, 2021; after which taxpayers with unutilized input VAT on
capital goods purchased or imported shall be allowed to apply the same as
scheduled until fully utilized. This latest amendment of the Tax Code,
however, will not apply retroactively to this case which involves the question
of the amount of amortized refund/credit of excess or unutilized input VAT for
the calendar year 2008.
WHEREFORE, the respective Petitions for Review of the Commissioner
of Internal Revenue in G.R. Nos. 219630-31, and Taganito Mining
Corporation in G.R. Nos. 219635-36, are both DENIED for lack of merit.
The Decision dated December 16, 2014, and Resolution dated August 3,
2015 of the Court of Tax Appeals En Banc in CTA EB Case Nos. 935 and 936
are AFFIRMED.
 (Commissioner of Internal Revenue v. Taganito Mining Corp., G.R. Nos.
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219630-31 & 219635-36, [December 7, 2021])