Reckoning of two-year period for VAT refund due to cancellation of business

In the case of claims for refund of unutilized VAT on account of cessation of business, the two-year period shall commence from the date of cancellation of registration of the taxpayer, and not from the close of the taxable quarter when the sales were made.

Under Section 112(B) of the Tax Code, a taxpayer whose registration has been cancelled due to, among others, cessation of business, may, within two years from the date of cancellation of its registration, apply for the issuance of TCC for any unused input tax, which may be used to pay for other internal revenue taxes. Where the taxpayer has no internal revenue tax liabilities, it shall be entitled to refund in accordance with Section 204 of the Tax Code.

As provided under Section 236(F)(1) and (2) of the Tax Code, as amended, the registration of a taxpayer who ceases to be liable to a tax type shall be cancelled upon filing with the RDO where he is registered, an Application for Registration Information Update (BIR Form 1905), while the cancellation of the taxpayer’s registration will be effective from the first day of the following month

In the instant case, the taxpayer-refund claimant filed its Application for Registration Information Update (BIR Form 1905) on July 1, 2008 with the BIR. Accordingly, the cancellation of the taxpayer’s registration as a VAT-registered taxpayer took effect on the first day of the following month, which fell on August 1, 2008. However, considering that the taxpayer filed its administrative claim for refund as early as July 7, 2008, its claim for refund was deemed premature considering that the two-year  prescriptive period had yet to commence on August 1, 2008, the date of effectivity of the cancellation of its registration.

(Associated Swedish Steels Phils., Inc., v. Commissioner of Internal Revenue, CTA EB 854, re CTA Case No. 7850, August 23, 2012)

Tax Brief - September 2012

Punongbayan and Araullo