The Supreme Court ruled that a taxpayer’s judicial claim for a tax refund, filed with the Court of Tax Appeals (CTA) after an administrative claim with the Bureau of Internal Revenue (BIR) remained unacted upon, was valid despite the BIR’s lack of a formal decision. The Court emphasized that the two-year prescriptive period for filing a refund claim is crucial and that taxpayers should not be penalized for the Commissioner of Internal Revenue’s (CIR) inaction, which could effectively bar them from seeking judicial recourse. This decision clarifies the interplay between administrative and judicial remedies in tax refund cases, protecting taxpayers’ rights to recover erroneously paid taxes.

Unlocking Tax Refunds: When Inaction Speaks Louder Than Denial

This case revolves around Univation Motor Philippines, Inc.’s (formerly Nissan Motor Philippines, Inc.) claim for a tax refund. The core legal question is whether the CTA prematurely assumed jurisdiction over the judicial claim for a tax refund when the Commissioner of Internal Revenue (CIR) had not yet acted on the administrative claim. The CIR argued that Univation Motor prematurely filed its judicial claim with the CTA, depriving the BIR of the opportunity to act on the administrative claim. The CIR also argued that Univation Motor’s administrative claim was deficient due to incomplete documentation, violating the doctrine of exhaustion of administrative remedies.

Sections 204 and 229 of the National Internal Revenue Code (NIRC) govern tax refund claims. Section 204 pertains to administrative claims filed with the CIR, while Section 229 addresses judicial claims pursued in courts. The NIRC states the significance of the two-year period for filing a claim for tax refund:

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. — The Commissioner may —

x x x x

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

The Supreme Court has clarified that the two-year prescriptive period begins from the filing of the final adjusted tax return, which reflects the audited results of a business’s operations. In this instance, Univation Motor filed its administrative claim on March 12, 2012, and its judicial claim on April 12, 2013, both within the two-year window from the filing of the final adjustment return on April 15, 2011. If the company had waited for the CIR’s decision, the prescriptive period might have lapsed, resulting in the loss of their right to seek judicial recourse.

The Court addressed the CIR’s argument regarding the exhaustion of administrative remedies, explaining that the law only requires the prior filing of an administrative claim to give the BIR an opportunity to act. Inaction by the CIR does not preclude a taxpayer from seeking judicial relief, especially when the prescriptive period is nearing its end. Section 7 of Republic Act No. 9282 reinforces this by granting the CTA exclusive appellate jurisdiction over tax refund claims when the CIR fails to act.

Sec. 7. Jurisdiction. —The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction.

Regarding the CIR’s claim that Univation Motor’s failure to submit complete documents at the administrative level warranted dismissal, the Court clarified that the CTA can consider evidence not initially presented to the BIR. Proceedings before the CTA are not strictly bound by technical rules of evidence, prioritizing the ascertainment of truth.

Cases filed in the CTA are litigated de novo, allowing the taxpayer to present all necessary evidence. Jurisprudence dictates the basic requirements for claiming a tax credit or refund: timely filing, proof of withholding, and declaration of income. The Court affirmed the CTA’s finding that Univation Motor had adequately substantiated its claim with supporting documents, even though some income payments related to the withheld taxes spanned multiple years. The key requirement is that the income upon which taxes were withheld was duly declared in the company’s returns.

FAQs

What was the key issue in this case?	The key issue was whether the Court of Tax Appeals (CTA) prematurely assumed jurisdiction over a judicial claim for a tax refund when the Commissioner of Internal Revenue (CIR) had not yet acted on the administrative claim.
What is the two-year prescriptive period for tax refund claims?	The National Internal Revenue Code (NIRC) requires that a claim for tax refund be filed within two years from the date of payment of the tax, but jurisprudence clarifies that this period starts from the filing of the final adjusted tax return.
What happens if the CIR doesn’t act on an administrative claim?	Inaction by the CIR can be deemed a denial, allowing the taxpayer to seek judicial recourse with the CTA, especially if the prescriptive period is about to expire.
Can the CTA consider evidence not presented to the BIR?	Yes, the CTA is not strictly bound by the technical rules of evidence and can consider new evidence presented during the judicial proceedings.
What are the basic requirements for claiming a tax credit or refund?	The requirements are: timely filing, proof of withholding (BIR Form 2307), and demonstration on the income returns that the income received was declared as part of the gross income.
What if the income payments span multiple years?	The critical factor is whether the income upon which taxes were withheld was duly declared in the company’s income tax returns, regardless of when the payments were made.
What is the significance of litigating cases de novo in the CTA?	Litigating cases de novo means that the CTA can consider all evidence presented, including those not initially submitted during the administrative claim.
What is the role of Revenue Memorandum Order (RMO) No. 53-98 and Revenue Regulations No. 2-2006?	RMO No. 53-98 and Revenue Regulations No. 2-2006 outline the documentary requirements for administrative claims. However, failure to comply at the administrative level does not necessarily bar the CTA from considering the claim if the inaction of the CIR prompts the judicial recourse.
Why is the CTA’s expertise on tax matters important?	The Supreme Court recognizes the CTA’s expertise in tax matters and gives weight to its conclusions, unless there is an abuse or improvident exercise of authority.

This case underscores the importance of timely filing tax refund claims and the taxpayer’s right to seek judicial relief when the CIR fails to act on an administrative claim. It reinforces the principle that the CTA can consider all evidence presented, even if not initially submitted to the BIR, ensuring a fair and just resolution of tax disputes.

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: Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc., G.R. No. 231581, April 10, 2019