Dear Atty. Gab,

Musta Atty! I hope this letter finds you well. My name is Roberto Valdez, and I run a small export business based in Cebu, registered as Valdez Export Goods. We primarily export handmade furniture.

Over the past year, specifically for the four quarters of 2022, we accumulated significant input VAT from our local purchases of materials like wood, rattan, and finishing supplies, amounting to roughly P850,000. Since all our sales are zero-rated exports, we don’t have output VAT to offset this against.

On March 15, 2023, I filed an application for a VAT refund with the BIR RDO here in Cebu, submitting all the invoices, receipts, and schedules required. My accountant mentioned something about a two-year deadline to claim refunds, and I also read online that you need to go to court within two years from the end of the quarter the sales were made.

Because the BIR hadn’t responded and I was worried about missing this supposed two-year court deadline (especially for the earlier quarters of 2022), I decided to file a Petition for Review with the Court of Tax Appeals (CTA) on June 10, 2023. This was only about 87 days after I submitted my complete documents to the BIR.

Now, I’m hearing conflicting information. Someone told me I should have waited longer for the BIR to act before going to the CTA. Did I make a mistake by filing with the CTA after only 87 days? Will my refund claim be dismissed because I filed too early? I’m really confused about the correct timing and procedure. Any guidance you could offer would be greatly appreciated.

Respectfully yours,

Roberto Valdez

Dear Mr. Valdez,

Thank you for reaching out. I understand your concern regarding the timing of your VAT refund claim filed with the Court of Tax Appeals (CTA). Navigating tax refund procedures, especially the specific timelines involved, can indeed be confusing.

The core issue here revolves around the mandatory periods prescribed by the National Internal Revenue Code (NIRC) for claiming refunds of input VAT attributable to zero-rated sales. Specifically, there’s a period the law gives the Bureau of Internal Revenue (BIR) to process your administrative claim, and a subsequent period within which you can elevate the matter to the CTA if necessary. Failing to observe these specific timeframes, unfortunately, can affect the CTA’s ability to hear your case.

Understanding the Clock: Timelines for VAT Refund Claims

The process for claiming refunds or tax credits for input VAT, particularly for zero-rated sales like your exports, is primarily governed by Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended. It’s crucial to distinguish this from the general provision for recovering erroneously paid taxes under Section 229, as the rules and timelines differ significantly.

First, you correctly filed your administrative claim with the BIR. Section 112(A) provides a two-year prescriptive period for this initial step. This two-year period is counted from the close of the taxable quarter when the zero-rated sales (your exports) were made. It appears you met this deadline for your 2022 claims by filing administratively in March 2023.

However, the critical part relevant to your situation comes from what used to be Section 112(D) (now Section 112(C) after amendments by RA 9337). This provision outlines the specific procedure and timelines after you’ve filed your administrative claim.

“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.”
(Section 112(C), NIRC, as amended by RA 9337, emphasis supplied)

Jurisprudence has firmly established that these periods – the 120 days for the BIR Commissioner to act and the subsequent 30 days to appeal to the CTA – are mandatory and jurisdictional. This means strict compliance is required for the CTA to acquire the authority to hear your case. You must wait for the BIR Commissioner to either deny your claim within the 120-day period or for the 120-day period to expire without any action from the BIR.

Filing a Petition for Review with the CTA before the expiration of this 120-day waiting period is considered premature. The CTA’s jurisdiction is appellate in nature; it reviews the decisions (or inaction deemed a denial) of the Commissioner. If you file before the Commissioner has had the legally mandated time to decide, there is technically no decision or inaction yet to review.

“Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition.”

The two-year period you were concerned about applies specifically to the filing of the administrative claim with the BIR, not the judicial claim with the CTA. The law ensures you always have 30 days to file with the CTA after the 120-day period, even if this 30-day window falls beyond the initial two years from the close of the relevant quarter.

“Stated otherwise, the two-year prescriptive 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. As held in Aichi, the ‘phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA.’”

In your case, you filed your judicial claim with the CTA only 87 days after submitting your complete documents to the BIR on March 15, 2023. This filing on June 10, 2023, was made before the expiration of the 120-day period granted to the BIR Commissioner (which would have ended around July 13, 2023). Based on the mandatory and jurisdictional nature of the 120-day waiting period, your filing appears premature.

There was a period where certain BIR rulings (like BIR Ruling No. DA-489-03 issued on December 10, 2003) suggested that taxpayers didn’t need to wait for the 120 days. Taxpayers who filed prematurely during the effectivity of such rulings and before the Supreme Court’s clarification in the Aichi case (October 6, 2010) could potentially invoke equitable estoppel under Section 246 of the NIRC, which deals with the non-retroactivity of rulings if it prejudices taxpayers who relied on them in good faith.

“Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of the rules and regulations promulgated x x x or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers x x x”

However, your filing in June 2023 occurred long after the Supreme Court had definitively ruled that the 120+30 day periods are mandatory and jurisdictional. Therefore, reliance on older, superseded interpretations or rulings would likely not be considered valid. The prevailing rule applicable to your situation mandates waiting for the 120-day period to lapse before initiating a judicial claim.

Practical Advice for Your Situation

• Acknowledge Prematurity: Recognize that filing the CTA petition after only 87 days, before the 120-day period for the BIR expired, is likely considered premature based on current jurisprudence.
• Monitor BIR Action: Even though you filed with the CTA, continue to monitor any action from the BIR on your administrative claim filed on March 15, 2023. The 120-day period ended around July 13, 2023.
• Possible CTA Action: The CTA, upon determining that the petition was filed prematurely, may dismiss the case for lack of jurisdiction. This dismissal would typically be without prejudice to refiling, assuming other prescriptive periods haven’t lapsed.
• Evaluate Refiling Options: If the CTA dismisses your case due to prematurity, consult with your legal counsel immediately. Since the 120-day period has now lapsed (after July 13, 2023), the 30-day window to appeal the BIR’s inaction to the CTA would have also likely passed (around August 12, 2023). This might mean your judicial remedy for the 2022 claims is unfortunately barred.
• Future Claims Strategy: For future VAT refund applications, strictly adhere to the 120+30 day rule. File your administrative claim within the 2-year period. Wait for the BIR’s decision or the full 120 days to pass. Then, file your appeal with the CTA within 30 days from receiving the decision or from the 120th day if no decision is received.
• Document Completeness: Ensure that when you file administrative claims, you submit truly complete documents. The 120-day countdown starts from the submission of complete documents. Disputes about completeness can affect the timeline calculation.
• Consult Legal Counsel: Given the potential jurisdictional issue with your current CTA case, it is highly advisable to consult with a tax lawyer immediately to discuss the status of your petition and explore any remaining options, however limited they may be.

I understand this is likely not the news you hoped for, Mr. Valdez. The rules on tax refund timelines are strict, and failure to comply can unfortunately lead to the loss of the right to judicial recourse. Moving forward, meticulous adherence to the prescribed periods is essential for your future claims.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.