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SC decision on prescriptive period for tax refunds

The Supreme Court (SC) is the final arbiter of any legal controversy. That is why decisions of the SC are final and should be respected by courts subordinate to it, including the Court of Tax Appeals (CTA). The CTA has been split in many of its decisions as regards the issue of prescription in claims for value-added tax (VAT) refund. There are lingering issues of whether the twoyear prescriptive period in filing for a VAT refund pertains only to the administrative claim or to both the administrative and judicial claims for refund; and whether in claims for VAT refund, judicial recourse should be filed only within 30 days after the lapse of the 120day period of filing an administrative claim for refund (120-30 day rule). It appears that this issue has been settled by the SC in a recent case (GR 182364, August 3, 2010). In this case, the taxpayer filed with the Bureau of Internal Revenue (BIR) its administrative claim for refund of its unutilized VAT input taxes paid in the calendar year ending December 31, 2002 on March 26, 2004. In order to suspend the running of the prescriptive period, the taxpayer filed the petition for review with the CTA on March 31, 2004. Although these dates were not among the issues resolved, it is important to note the material dates of this case. The administrative claim for refund was filed by the taxpayer on March 26, 2004, while the judicial claim was filed only five days after, or on March 31, 2004. Clearly, the taxpayer did not follow the 120-30 day rule when it elevated its claim to the CTA. Nonetheless, the SC still gave due course to the taxpayers claim for refund by not ruling that the taxpayers claim was prematurely filed for not waiting after the lapse of 120 days from March 26, 2004, to elevate the claim to the CTA.

The SC did not even consider prescription as an issue in this case or whether the case was prematurely filed with the CTA. If it has considered the same as an issue and found that the claim was prematurely filed or has prescribed, the SC could have had just simply dismissed the case and ruled that the taxpayer is not entitled to a refund. But it did not. Essentially, in this case the SC has granted the claim for VAT refund. But since it is not a trier of facts, it remanded the case to the CTA, only for determination and computation of the amount to be refunded. What may be the implications of this decision? Two lingering issues that confound taxpayers may have been finally resolved. First, it can be said that the two-year prescriptive period in filing for a VAT refund pertains to both the administrative and judicial claims. Second, judicial recourse within 30 days only after the lapse of the 120-day period in a VAT refund is directory and permissive and neither mandatory nor jurisdictional as long as the period is within the two-year prescriptive period. Many cases have been dismissed by the CTA because of the alleged failure by a taxpayer to comply with the 120-30 day rule and for filing an administrative claim for VAT refund a few days before or even on the same day as the judicial claim, because the two-year prescriptive period is about to lapse. With this decision, the CTA has no choice but to give due course to claims for VAT refund as long as both the administrative claim and judicial claim were filed within the two-year prescriptive period, pursuant to Section 112 of the Tax Code. Like any other major, major mistakes in life, it is not too late to rectify decisions that are found wanting. After all, our laws evolve. The evolution of our laws would not happen if not fuelled by different interpretations initiated by brilliant minds. But when the SC decides what the final interpretation of a law is, it becomes the law. As officers of the court and law-abiding citizens, we are mandated to follow whatever that interpretation may be.

The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law). If you have any comments or questions concerning the article, you can e-mail the author at irwin.c.nideajr@bdblaw.com.ph or call 403-2001 local 330.