Dissension in the Court: February 2013

The primary issue in the three (3) consolidated cases involving San Roque Power, Taganito Mining and Philex Mining decided last February 12, 2013 revolves around the proper period for filing the judicial claim for refund or credit of creditable input tax. Under Section 112(A) and 112(C) of the Tax Code, a taxpayer whose sales are zero-rated or effectively zero-rated can file his administrative claim for refund or credit at anytime within two (2) years after the taxable quarter when the sales were made and, after full or partial denial of the claim or failure of the Commissioner to act on his application within 120 days from submission of the same, he may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, file his judicial claim with the CTA.

These cases all involved the timely filing by the taxpayers of their administrative claims with the Commissioner of Internal Revenue. However, San Roque and Taganito both prematurely filed their judicial claims without waiting for the 120-day period (for the Commissioner to act on their administrative claims) to lapse, whereas Philex was a case of late filing since it did not file its judicial claim until after 426 days beyond the 120 + 30 day periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio, denied tax refund or credit to San Roque and Philex, but granted the same to Taganito.

The majority denied refund to San Roque on the basis, among others, that the waiting period for filing a judicial claim is mandatory and jurisdictional and has been in the Tax Code for more than 15 years before San Roque filed its judicial claim in April 10, 2003 (barely 13 days after it filed its administrative claim). The majority, however, granted refund to Taganito who, although like San Roque filed its judicial claim without waiting for the 120-day period to lapse, was deemed to have filed its judicial claim on time since it was filed on February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 (which states that the taxpayer need not wait for the 120-day period to lapse before it could seek judicial relief with the CTA) but before the October 6, 2010 Supreme Court (SC) decision in Commissioner of Internal Revenue v. Aichi Forging Company of Asia (reinstating the 120+30 day periods as mandatory and jurisdictional). The majority held that since the Commissioner has exclusive and original jurisdiction to interpret tax laws under Section 4 of the Tax Code, a taxpayer should not be prejudiced by an erroneous interpretation by the Commissioner and, under Section 246, a reversal of a BIR ruling cannot adversely prejudice a taxpayer like Taganito who in good faith relied on it prior to its reversal.

In denying Philex’s judicial claim for refund filed on October 17, 2007, the majority ruled that the inaction of the Commissioner during the 120-day period is a “deemed denial” and Philex’s failure to file an appeal within 30 days from the expiration of the 120-day period rendered the “deemed denial” decision of the Commissioner final and inappealable.

In his dissenting opinion, J. Velasco, joined by J. Mendoza and J. Perlas-Bernabe, suggested that the doctrine applicable to a claim for refund depends on the operative case and the prevailing rulings and practices at the time of filing the claim. In San Roque, since both the administrative and judicial claims were filed during the effectivity of RR 7-95 (which still applied the 2-year prescriptive period to judicial claims), San Roque can claim good faith reliance on RR 7-95 and the then prevailing practices of the BIR and CTA to believe that the 120 + 30-day periods are dispensable so long as both administrative and judicial claims are filed within the 2-year period. In denying refund to Taganito, however, the dissenter pointed out that Taganito cannot claim reliance in good faith on RR 7-95 since it filed its judicial claim after November 1, 2005 when RR 16-2005 took effect and superseded RR 7-95 (including BIR Ruling No. DA-489-03 relied upon by the majority in granting refund to Taganito and which this dissenter believed was a mere application of RR 7-95), deleting the reference therein to the 2-year period for filing judicial claims. Philex, on the other hand, filed its claim belatedly under both the superseded RR 7-95 and the effective RR 16-2005. This dissenter thus voted to grant refund to San Roque, but to deny it to Taganito and Philex.

In his separate dissenting opinion, CJ Sereno, concurred with J. Velasco’s dissent in San Roque and Philex but disagreed with the latter’s stand in Taganito since, at the time Taganito filed its administrative and judicial claims for refund, the 2-year prescriptive period remained the unreversed interpretation of the court. Thus, Taganito cannot be faulted for relying on court interpretations even with the existence of RR 16-2005, and for preferring to abide by court interpretations over mere administrative issuances as the latter’s validity is still subject to judicial determination. This dissenter believed that the mandatory and jurisdictional nature of the 120+30 day periods was only definitely and categorically declared by the SC in Aichi on October 6, 2010 and should only be applied prospectively from that time, and that previous regard to the 120+30-day periods is an exceptional circumstance which warrants procedural liberality to taxpayers who relied on such interpretations.

In his separate dissenting opinion, J. Leonen, joined by J. del Castillo, disagreed that SC interpretations of the law take effect only prospectively, since the SC’s duty is to construe and not to make law, and its interpretation became part of the law from the date it was originally passed. This dissenter further reminds us that an “erroneous application of the law by public officers does not preclude a subsequent correct application of the statute, and the Government is never estopped by mistake or error on the part of its agents.” Accordingly, while the Commissioner is given power and authority to interpret tax laws, it cannot legislate guidelines contrary to the law it is tasked to implement. Hence its interpretation is not conclusive and will be ignored if judicially found to be erroneous. And while concededly any reversal of any BIR ruling cannot adversely prejudice a taxpayer who in good faith relied on it prior to its reversal, if it is patently clear that the ruling is contrary to the text itself, there can be no reliance in good faith. Further, that it is the duty of the lawyers of private parties to best discern the acceptable interpretation of legal text and, in doing so, they take the risk that the SC will rule otherwise, especially if the text of the law – as in this case – is very clear. This dissenter thus voted to deny refund to all three taxpayers.

(Commissioner of Internal Revenue vs San Roque Power Corporation (G.R. No. 187485), Taganito Mining Corporation vs. Commissioner of Internal Revenue (G.R. No. 196113), Philex Mining Corporation vs. Commissioner of Internal Revenue (G.R. No. 197156)’ dissenting opinions: Sereno, CJ; Velasco, J., Leonen, J.