Two year prescriptive period for VAT refund applies to administrative claim, not judicial claim for refund

Under Section 112 (A) of the Tax Code, an application for refund of un-utilized input VAT attributable to zero-rated sales may be made within two years after the close of the taxable quarter when the sales were made. In case of application for VAT refund filed in accordance with Section 112(A) of the Tax Code, Section 112(C) of the Tax Code provides that the Commissioner of Internal Revenue must decide within the 120-day period from the date of submission of complete documents.

In case of full or partial denial of the claim for tax refund or credit or failure on the part of the Commissioner of Internal Revenue to act on the application for refund within the prescribed period, Section 112(C) of the Tax Code further provides that the taxpayer may, within 30 days from the receipt of the decision denying the claim or after the expiration of the 120-day period, appeal the decision or the inaction with the CTA.

The SC held that the 30-day period for filing judicial claim for refund under Section 112(C) need not fall within the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. The SC cited the following reasons for holding that the 30-day period is not bound by the two-year prescriptive period.

1. Under Section 112(A) of the Tax Code, a taxpayer with unutilized input VAT incurred from zero-rated sales may apply with the Commissioner for refund or credit “within two years” after the close of the taxable quarter when the sales were made. According to the SC, this means that the taxpayer may apply for refund or credit at any time within two years. Thus, an application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will strictly comply with the law.

2. Section 112(C) of the Tax Code, which provides that the Commissioner shall decide “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,” means that the application in Section 112(A) is the administrative claim that the Commissioner of Internal Revenue must decide within the 120-day period. In short, the two-year period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner of Internal Revenue.

3. If the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the SC held that the filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period.

According to the SC, the theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner of Internal Revenue.

(Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation and Philex Mining Corporation, G.R. Nos. 187485, 196113, and 197156, February 12, 2013)

Tax Brief – March 2013

Punongbayan and Araullo