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Timely Filing of Input VAT Refunds

The prescriptive periods for the filing of claims for tax refunds—may it be a claim for
taxes erroneously paid, excess taxes withheld or excess input value-added tax (VAT)—
had been governed by a uniform rule: that both the administrative and judicial claims
must be filed within two years from the filing of the tax returns subject to a claim.
However, the decision of the Supreme Court in the Mirant Case (Commissioner of
Internal Revenue vs. Mirant Pagbilao Corporation, G.R. No. 172129) issued in
September 2008 changed the rule.

The Mirant Case adopted a different rule for claims involving refunds of excess input
VAT. Using Section 112 of the Tax Code as basis, the Mirant Case said that claims
involving refunds of excess input VAT must be filed with the Bureau of Internal Revenue
(BIR) and with the courts within two years from the close of the taxable quarter when the
relevant sales were made regardless of when the input VAT was paid.

The Mirant ruling differs significantly from the general rule in that, while the reckoning
point for the two-year prescriptive period under the general rule is counted from the filing
of the tax return, the Mirant Case adopted the “close of the taxable quarter when the
sales were made” for VAT refund claims. In short, the Mirant Case carved out the claims
involving excess input VAT refunds from the coverage of the general rule and put it
under a special rule governed by Section112 of the Tax Code.
Prior to the Mirant case was a Supreme Court decision in the Atlas Case (Atlas
Consolidated Mining and Development Corporation vs. the Commissioner of Internal
Revenue, G.R. Nos. 141104 and 148763, June 8 2007) which confirmed the applicability
of the general rule even to claims involving excess input VAT refunds. In the Atlas Case,
the Court ruled that the reckoning point for counting the two-year prescriptive period is
from the filing of the VAT returns and not from “the close of the taxable quarter when the
sales were made.” The Court of Tax Appeals (CTA) adopted this decision in many of its
subsequent cases.

Relying on the Atlas Case and many CTA decisions adopting the same, taxpayers filed
their claims following the general rule. The big question now is, what will happen to the
claims filed relying on the Atlas Case after the Mirant Case changed the rule? Many
claims for VAT refunds are now being dismissed in court as being filed out of time. But
is it the taxpayer’s fault to follow the prevailing decision of the Courts at the time of filing?
In fact, shouldn’t the Court be estopped from dropping claims for refunds which relied on
its very own decision? Shouldn’t taxpayers be protected and not be prejudiced by the
fickle-mindedness of the courts? Perhaps we have to study deeper and ask, did the
Mirant Case really reverse the Atlas Case?

In relation to this topic, there is another brewing issue involving Section 112. Section
112(D) gives the BIR, under the principle of exhaustion of administrative remedies, a
120-day period to decide on a claim for excess input VAT refund before the same can be
elevated to the courts.

However, a majority of the CTA justices still believe that the 120-day period may be
dispensed with and that the claim is considered timely filed as long as the case is filed
with the BIR and the CTA within two years from “the close of the taxable quarter in which
the sales were made.” On the contrary, the Presiding Justice has a strong dissenting
opinion. He believes that the 120-day period given to the BIR to decide on a case is
mandatory. It is only in case of full or partial denial of the claim by the BIR, or the failure
on the part of the BIR to act on the application within the prescribed 120-day period, that
the case can be elevated with the CTA, even beyond the two-year prescriptive period.
Thus, if this dissenting opinion will be sustained by the Supreme Court, cases elevated
to the CTA without observing this 120-day period for administrative exhaustion can be
dismissed for lack of jurisdiction.

Meantime, while the issue is not yet resolved with finality, it is a prudent measure to
prepare for any eventuality. The safest thing to do is to file our claims for VAT refund
with the BIR at least 121 days earlier than the two-year prescriptive period and at the
same time, to file with the CTA within the two-year prescriptive period counted from the
close of the taxable quarter when the sales were made. This will ensure compliance with
both the majority and dissenting opinions.