Saturday, February 1, 2014

Applied Food Ingredients Company, Inc. vs. Commissioner of Internal Revenue, G.R. No. 184266, November 11, 2013



Petitioner Applied Food Ingredients Company, Inc. (AFIC) alleged that from September 1998 to December 31, 2000, it paid an aggregate sum of input taxes of P9,528,565.85 for its importation of food ingredients, as reported in its Quarterly VAT Return. Subsequently, these imported food ingredients were exported between the periods of April 1, 2000 to December 31, 2000. AFIC claimed that the export sales which transpired from April 1, 2000 to December 31, 2000 were “zero-rated” sales pursuant to Section 106 (A) (2)(a)(1) of the NIRC of 1997.

On March 26, 2002 and June 28, 2002, AFIC filed two separate applications for issuance of tax credit certificates amounting to a total of P9,528,565.85. Without waiting for the Commissioner's decision, AFIC elevated the case before the CTA on July 24, 2002.

The CTA First Division denied AFIC’s claim for failure to comply with invoicing requirements prescribed under Section 113 in relation to Section 237 of the NIRC  and Section 4.108-1 of RR 7-95. The CTA En Banc likewise denied AFIC’s claim on the same ground and further ruled that AFIC’s sales for the subject period could not qualify for VAT zero-rating, as the export sales invoices did not bear the following: 1.) the imprinted word “zero-rated;” 2) “TIN-VAT;” and 3) BIR’s permit number, all in violation of the invoicing requirements.


Whether or not petitioner is entitled to the issuance of a tax credit certificate amounting to P9,528,565.85 representing creditable input taxes attributable to zero-rated sales for the period April 1, 2000 to December 31, 2000.


AFIC’s petition has no merit.

For Zero-rated sales or Effectively Zero-rated sales, the sellers can claim a refund of the VAT that their suppliers charged them. Tax refunds or credits – just like tax exemptions – are strictly construed against taxpayers, the taxpayers have the burden to prove strict compliance with the conditions for the grant of the tax refund or credit.

Section 112(A) provides for a two-year prescriptive period after the close of the taxable quarter when the sales were made, within which a VAT-registered person whose sales are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax.

In this case, the claimed zero-rated sales occurred on April 2000 to December 2000, within the two-year prescriptive period. However, the Commissioner had one hundred twenty (120) days from the date of submission of complete documents in support of the application within which to decide on the administrative claim. Records of the case showed that the judicial claim of AFIC was filed on July 24, 2002. AFIC clearly failed to observe the mandatory 120-day waiting period. Consequently, the premature filing of its claim for refund/credit of input VAT before the CTA warranted a dismissal, inasmuch as no jurisdiction was acquired by the CTA. 

The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction. Section 7 (a)(2) of R.A. 1125, as amended by R.A. 9282, provides that the CTA shall exercise exclusive appellate jurisdiction to review by appeal the inaction by the Commissioner of Internal Revenue which is deemed a denial. “Inaction by the CIR” in cases involving the refund of creditable input tax, arises only after the lapse of 120 days.  Thus, prior thereto and without a decision of the CIR, the CTA, as a court of special jurisdiction, has no jurisdiction to entertain claims for the refund or credit of creditable input tax. 

The 120+30 day period is mandatory and jurisdictional, compliance of which is necessary for AFIC’s claim to prosper. Failure of AFIC to observe the mandatory 120-day period is fatal to its claim and rendered the CTA devoid of jurisdiction over the judicial claim. PETITION DENIED.

(Disclaimer: Although this digest was based on the actual decision, it is not 100% identical. Copy at your own risk for your pleadings or for classroom purposes. This is only intended to give you a preview of the case before reading the details in the entire text.)