The Supreme Court clarified the application of the 120-day period rule in claiming value-added tax (VAT) refunds, emphasizing the principle of equitable estoppel. The Court held that during the period from December 10, 2003, to October 6, 2010, taxpayers could file judicial claims for VAT refunds without waiting for the 120-day period to lapse, due to a BIR ruling that served as a valid claim for equitable estoppel. This decision provides clarity on the timeline for filing VAT refund claims and protects taxpayers who relied on official government pronouncements.

VAT Refund Timelines: Did a BIR Ruling Create a Window of Opportunity?

This case, Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue, revolves around the issue of prematurely filed judicial claims for VAT refunds. The petitioner, Mindanao II Geothermal Partnership, sought a refund of excess input VAT. The core legal question is whether the petitioner’s judicial claim was prematurely filed for failure to observe the 120-day period prescribed under Section 112(D) of the National Internal Revenue Code (NIRC), as amended.

The facts show that Mindanao II Geothermal Partnership filed its administrative claim for refund/credit of its input VAT on December 28, 2009, and its judicial claim on March 30, 2010. The Commissioner of Internal Revenue (CIR) argued that the judicial claim was filed prematurely because it was filed only 107 days after the administrative claim, thus violating the 120-day period requirement under Section 112(D) of the NIRC. The Court of Tax Appeals (CTA) agreed with the CIR and dismissed the judicial claim.

However, the Supreme Court reversed the CTA’s decision, citing the case of CIR v. San Roque Power Corporation (San Roque), which recognized an exception to the mandatory nature of the 120-day period. The Court emphasized that BIR Ruling No. DA-489-03 dated December 10, 2003, provided a valid claim for equitable estoppel under Section 246 of the NIRC. This ruling essentially stated that taxpayers need not wait for the lapse of the 120-day period before seeking judicial relief with the CTA.

Building on this principle, the Supreme Court reconciled its pronouncements in the Aichi and San Roque cases. It held that during the period from December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated), taxpayers were not required to observe the 120-day period before filing a judicial claim for a VAT refund. The Court stated that:

Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10, 2003 to October 6, 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such claim.

The Court also cited Section 112 of the NIRC, as amended by RA 9337, which provides the rules and guidelines for refunds or tax credits of input tax:

SEC. 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: x x x.

x x x x

(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.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

x x x x

The Supreme Court emphasized that the observance of the 120-day period is generally mandatory and jurisdictional. However, in this case, the Court found that Mindanao II Geothermal Partnership filed its claims during the period covered by BIR Ruling No. DA-489-03. As such, the Court concluded that the petitioner’s judicial claim was timely filed and that the CTA erred in dismissing the claim based on prematurity. The court stated that the taxpayer need not wait for the expiration of the 120-day period before filing its judicial claim before the CTA.

The Court clarified that equitable estoppel prevents the government from taking a position contrary to a prior representation on which a taxpayer relied in good faith. Because the petitioner filed their claim within the window of time of the BIR ruling, it was in good faith.

However, the Supreme Court refrained from granting the refund outright, recognizing that the determination of the petitioner’s entitlement to the refund involved questions of fact that were not reviewable under Rule 45 of the Rules of Court. Consequently, the Court remanded the case to the CTA for resolution on the merits. This means that the CTA will now have to assess whether the petitioner is indeed entitled to the refund based on the evidence presented.

This ruling has significant implications for taxpayers seeking VAT refunds. It clarifies the exception to the 120-day rule during the period when BIR Ruling No. DA-489-03 was in effect. The case serves as a reminder that while the 120-day period is generally mandatory, equitable estoppel may apply when taxpayers rely on official government pronouncements.

FAQs

What was the key issue in this case?	The key issue was whether the CTA correctly dismissed the taxpayer’s judicial claim for VAT refund for being prematurely filed due to non-compliance with the 120-day period under Section 112(D) of the NIRC. The Supreme Court ultimately decided that equitable estoppel applied.
What is the 120-day period rule in VAT refund claims?	The 120-day period refers to the period within which the CIR must act on an administrative claim for VAT refund. Taxpayers must generally wait for this period to expire before filing a judicial claim with the CTA.
What is equitable estoppel?	Equitable estoppel is a legal principle that prevents a party from taking a position contrary to a prior representation on which another party relied in good faith. In this case, the BIR’s prior ruling prevented the CIR from enforcing the 120-day rule.
What was BIR Ruling No. DA-489-03?	BIR Ruling No. DA-489-03 stated that taxpayers need not wait for the 120-day period to lapse before seeking judicial relief with the CTA. This ruling formed the basis for the equitable estoppel argument in this case.
During what period was BIR Ruling No. DA-489-03 in effect?	The Supreme Court held that BIR Ruling No. DA-489-03 was in effect from December 10, 2003, to October 6, 2010. This is the period during which taxpayers could file judicial claims without waiting for the 120-day period to expire.
What was the outcome of the case?	The Supreme Court reversed the CTA’s decision and remanded the case to the CTA for resolution on the merits. This means the CTA will now determine whether the taxpayer is entitled to the VAT refund.
What is the significance of the San Roque case?	The San Roque case recognized the exception to the mandatory nature of the 120-day period based on equitable estoppel. This case paved the way for the Supreme Court’s decision in Mindanao II Geothermal Partnership.
What happens if a claim is filed outside the period covered by DA-489-03?	If a claim is filed outside the period from December 10, 2003, to October 6, 2010, the observance of the 120-day period is mandatory and jurisdictional to the filing of such claim. Failure to comply with the period is fatal to the claim.

The Mindanao II Geothermal Partnership case provides valuable guidance on the application of the 120-day rule and the principle of equitable estoppel in VAT refund claims. Taxpayers should carefully consider the timeline of their claims and whether they fall within the period covered by BIR Ruling No. DA-489-03. It’s important to note that this case hinges on specific dates and circumstances. Therefore, each case must be assessed individually.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Mindanao II Geothermal Partnership vs. CIR, G.R. No. 204745, December 08, 2014