REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY

FIRST DIVISION

NEGROS CONSOLIDATED CT A CASE NO. 7994

FARMERS ASSOCIATION MULTI-
PURPOSE COOPERATIVE,
Petitioner, Members:

ACOSTA, Chairperson
VY,and
-versus- FABON-VICTORINO, JJ

COMMISSIONER OF INTERNAL
REVENUE, and JOSE N. TAN, B.I.R.
REGIONAL DIRECTOR, REGION 12,
BACOLOD CITY
Respondent.

X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

DECISION

ACOSTA, P.J.

This is a Petition for Review filed on November 16, 2009 by Negros

Consolidated Farmers Association Multi-Purpose Cooperative involving a claim for
tax refund in the amount of Twenty Million Nine Hundred Ninety Eight Thousand
Six Hundred Thirty Eight Pesos (P 20,998,638.00), allegedly representing advance
value-added tax (VAT) payments on 205, 869 LKG bags of refined sugar, erroneously
or illegally collected by then Officer-In-Charge (0-1-C) Regional Director Rod ita B.
Galanto, Region No. 12, Bacolod City, before the Office of the Commissioner of
Internal Revenue, during the period covering November 19, 2007 to December 23,
2008.
DECISION
CTA CAS E NO. 7994
Page 2 of 2 I

THE FACTS

Petitioner Negros Consolidated Farmers Association Multi-Purpose

Cooperative (or Negros Consolidated Farmers Multi-Purpose Cooperative) is a multi-
purpose agricultural cooperative duly organized under the Republic Act (RA) No.
6938 or the Cooperative Code of the Philippines, as evidenced by the Cooperative
Development Authority Certificate of Registration No. IL0-3513 dated October 18,
1
1999. Its office address is at A. Chan Building, Mandalagan, Bacolod City,
Philippines. 2

Respondent Commissioner is the duly appointed Commissioner of the Bureau

of Internal Revenue (BIR), who is vested with authority to administer and enforce
national internal revenue laws. She holds office at the BIR National Office Building,
Agham Road, Diliman, Quezon City. Co-respondent Jose N. Tan, on the other hand,
is the Regional Director of BIR Region 12-Bacolod City, who replaced Rodita B.
Galanto in February 2009. 3

Petitioner posits that prior to November 2007, 0-I-C Regional Director

Rodita B. Galanto ofBIR Region 12-Bacolod City had been issuing the Authorization
Allowing Release of Refined Sugar (AARRS) to petitioner without requiring it to pay
advance VAT. However, beginning November 2007, said Regional Director Galanto
began to require petitioner to pay advance VAT before issuing to petitioner its
AARRS. This compelled petitioner to seek the legal opinion of the Legal Division of
the BIR on whether petitioner is considered the producer of the sugar product of its
members, as Regional Director Galanto interpreted the word "producer" to exclude
agricultural cooperatives that do not till the land they own or lease.

Petitioner alleged that upon receipt of a legal opinion issued by Assistant

Commissioner James Roldan confirming petitioner's opinion that its sales of sugar to

1
Exhibit "C", docket, p. 15 .
2
Par. I (a), Summary of Admitted Facts, JSFI, docket, p. 231 .
3
Par. I (c), Summary of Admitted Facts, JSFI , docket, p. 231.
DECISION
CTA CASE NO. 7994
Page 3 of2I

its members and non-members are exempt from the payment of VAT, Regional
Director Galanto resumed issuing AARRS to petitioner. However, starting November
2008, Regional Director Galanto again refused to release the AARRS of petitioner
without prior payment of the advance VAT.

Believing that it had been granted tax exemption under Article 61 of Republic
Act (R.A.) No. 6938 (Cooperative Code of the Philippines) and Section 9(r) of R.A.
No. 8424 as amended by R.A. No. 9337, 4 petitioner filed its administrative claim for
refund on November 11, 2009.5

On November 16, 2009, petitioner filed its judicial claim for refund before this
Court due to respondent Commissioner's inaction on petitioner' s claim for refund and
6
in order to toll the running of the two-year prescriptive period.

7
On December 23 , 2009, respondent filed her Answer and interposed the
following counter-arguments:

"4. Petitioner's alleged claim for refund is subject to administrative

routinary investigation by respondent Bureau of Internal Revenue (BIR).

5. The amount of Php20,998,638.00 being claimed by petitioner as

alleged overpayment of Value-Added Tax (VAT) which is erroneously,
excessively and/or illegally assessed, and collected by respondent is not
properly documented.

6. Petitioner must prove that it has complied with the provisions of

Section 229 in relation to 204(C) of the National Internal Revenue Code
of 1997 (1997 Tax).

7. Claims for refund must be in accordance with the provision of Section

229 of the National Internal Revenue Code (NIRC) of 1997, as amended,
thus :

'SEC. 229. Recovery of Tax Erroneously or Illegally

Collected. - no suit or proceeding shall be maintained in
any Court for the recovery of any national internal
revenue tax. Hereafter alleged to have erroneously or

4
Par. I (d), Summary of Admitted Facts, JSFI , docket, p. 232 .
5
Par. II (a), Proposed Stipulation ofFacts, JSFI , docket, p. 23 2.
6
Par. II (b), Proposed Stipul ation of Facts, JSFI , docket, p. 232.
7
Docket, pp. 163-177 .
DECISION
CTA CASE NO. 7994
Page 4 of21

illegally assessed or collected, or of any penalty claimed to

have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with
the Commissioner, but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
xxx xxx xxx' (Underscoring supplied.)

8. In action for refund , the onus probandi is on the taxpayer to establish

its right to refund, and failure to sustain the burden is fatal to the claim for
refund. This is so because exemptions from taxation are highly disfavored
in law and he who claims exemption must be able to justify his claim by
the clearest grant of organic or statutory law. An exemption from the
common burden cannot be permitted to exist upon vague implications
(ASIATIC PETROLEUM CO. (P.J.) VS. LLANES, 49 PHIL. 466, cited in
Collector of Internal Revenue vs. Manila Jockey Club , In c., 98 Phi/.670).

9. Petitioner, in its petition, argues that respondent BIR Regional Director

Rodita Galanto of BIR Revenue Region 12, Bacolod City 'capriciously'
began to require petitioner Negros Consolidated Farmers Multi-Purpose
Cooperative (NCFMPC) to pay advance VAT beginning November 19,
2007 (Annex 'F' of petitioner's Petition for Review) before issuing the
Authorization Allowing Release of Refined Sugar (AARRS) on account
of her 'myopic' interpretation of the term 'producer' to qualify for tax
exemption, i.e., payment of the Advance VAT on refined sugar upon
withdrawal of the same from the sugar mills. This argument is devoid of
merit and should be set aside. In order to qualify for exemption from the
payment of Advance VAT on the withdrawal of refined sugar, the
cooperative has to meet the requirements set forth in Revenue
Regulations No. 13-2008, or the consolidated Regulations on Advance
Value Added Tax on the Sale of Refined Sugar; amending and/or
revoking all revenue issuances issued to this effect, and for other related
purposes. This is pursuant to the provisions of Section 6 and 244, in
relation to sections 106, 109, 110 and 111 (b)( 1) all of the National
Internal Revenue Code of 1977, as last amended by Republic Act No.
9337, in relation to Executive Order No. 18 dated May 28, 1986 (creating
the Sugar Regulatory Administration {SRA} ), Sugar Order No. I issued
every crop year to allocate the volume of and classifying the cane sugar
produced each production year, and Sugar Order No. 4, series of 2006-
2007 (Conversion of'C' or Reserve Sugar into 'D' or World Market Sugar
and the Revised Sugar Classification and Percentage Allocation).

I 0. These regulations were promulgated (a) to prescribe the updated

policies and procedures for the advance payment of value added tax
(VAT) on the sale of refined sugar, including those made by a duly
accredited and registered agricultural cooperative of good standing,
(b) to prescribe policies and procedures for the recognition of
classification of sugar and sugar products, (c) to provide for a monitoring
system in the processing of raw sugar into refined sugar and the
DECISION
CTA CASE NO. 7994
Page 5 of21

withdrawal thereof from the sugar refineries/mills, and (d) for other
related purposes. Section 3 of said Regulation provides, to wit:

'Sec. 3 Requirement to pay in Advance VAT on Sale of

Refined Sugar.- In general, the advance VAT on the sale of
refined sugar provided for under Sec. 8 hereof, shall be paid
in advance by the owner, se ll er before the refined sugar is
withdrawn from any sugar refinery/mill. Before the issuance
of Certificate of Advance Paym ent of VAT (A nnex 'E'), the
owner/seller shall file Declaration f or Advance Payment on
Refin ed Sugar ('Annex B-1') to the RD/RDO having
jurisdiction over the place where the sugar mill is physically
located and shall submit the following attachments:

1. Listing/Abstract of official Warehouse Receipt

Quedan (Annex 'B-2') in soft and hard copy;
2. Proof of Payment of Advance VAT on Sale of
Refined Sugar.

XXX XXX xxx'

11. Upon the other hand, the same RR 13-2008 provides for instances
wherein certain withdrawals of sugar from the refineries/mills shall be
exempt from the payment of the Advance VAT. Section 4, thereof,
provides thus :

'Sec. 4 Exemption from the Payment of the Advance VAT.

-Notwithstanding the provisions of the fore going Section, the
following withdrawals shall be exempt from the payment of
the Advance VAT:

(a) Withdrawal of Refined Sugar by Duly

Accredited and Registered Agricultural Producer
Cooperative of Good Standing. - In the event the
refined sugar is owned and withdrawn from the Sugar
Refinery/Mill by an agricu ltural cooperative of good
standing duly Accredited and registered with the
Cooperative Development Authority (CDA), which
cooperative is the agricultural producer of the sugar
cane that was refined into refined sugar, the
withdrawal is not subject to the payment of Advance
VAT. XXX

XXX XXX XXX

A cooperative is said to be the producer of the sugar if

it is the tiller of the land it owns, or leases, incurs cost
of agricultural production of the sugar and produces
the sugar cane to be refined.

XXX XXX XXX

DECISION
CTA CASE NO. 7994
Page 6 of2I

Thus, withdrawal of refined sugar by the

agricultural cooperative for sale to members is not subject
to advance VAT whereas sale to non-members of said
refined sugar is not subject to advance VAT only if the
cooperative is the agricultural producer of the sugar cane
that is the primary raw material in the manufacture of
refined sugar.

It is hereby made clear that if the refined sugar is

owned and withdrawn from the Sugar Refinery/Mill by a
duly accredited cooperative of good standing with the
CDA, which cooperative is not the agricultural
producer of the sugar cane, the withdrawa l of the
refined sugar shall, in all instances, be subject to
adva nce payment of VAT, unless the buyer who
withdraws the refined sugar from the sugar Refinery/Mill
is a member of the cooperative. (Underscoring and
Emphasis supplied)

12. A further perusal of the said Revenue Regulations, Section 7 thereof

requires proof of exemption from the advance payment of VAT. If the
duly accredited and registered agricultural producer cooperative of good
standing is allowed to withdraw refined sugar without advance payment
of VAT and said agricultural cooperative claims ownership of the refined
sugar stocked in the sugar Refinery/Mill , the latter shall not release the
said refined sugar unless an Authorization Allowing the Release of the
Refined Sugar is first secured from the concerned RD/RDO having
jurisdiction over the owner of the refined sugar. In securing such
authorization, the cooperative-owner shall, in addition to that of satisfying
VAT-exemption requirements under RR No. 20-2001 , submit to the
concerned RDO a Sworn Statement to the effect that:

(a) The cooperative-owner of the refined sugar is an

agricultu ra l producer as defined in RR No. 13-2008; and(b)
The refined sugar is the property of the cooperative at the time
of removal and it wi II not charge advance VAT or any other
tax to the future buyer.

13. Petitioner likewise anchors its arguments on a BrR ruling dated

December 27, 2007 it has secured claiming exemption from the payment
of the advance VAT on withdrawal of its refined sugar from the Sugar
Refinery/Mill. Said ruling was issued on the basis of the facts as
presented by petitioner, giving emphasis on the provision of Section 14 of
RR No. 4-2007, implementing RA 9337, and amending Section 4-109-
1(8)(1) of RR No. 16-2005 on VAT exempt transactions. It is worthy of
emphasis that based on said ruling, an agricultural cooperative can only
be exempted from VAT, more so on the payment of advance VAT on
withdrawal of refined sugar, if the producer of the agricultural products
sold is the cooperative itself. ff the cooperative is not the producer (e.g.,
trader), then only those sales to its members shall be exempt from VAT.
DECISION
CT A CASE NO. 7994
Page 7 of21

Moreover, the said ruling was issued on the basis of the facts as
represented by petitioner and if, upon investigation, it shall be disclosed
that the facts are different, it would result in the ruling being considered
null and void.

14. It is in this context that respondent asserts that petitioner has failed
miserably to prove that it is entitled to the exemption it now claims.

Petitioner now assails the validity of RR No. 13-2008, stating that

the same should not be allowed to enlarge or extend the law or RA 6938,
otherwise known as the Cooperative Code of the Philippines, it has no
legal basis and to give validity to it is to repeal a duly enacted law of
Congress. However, petitioner also upheld its validity and clearly
comp li ed with said regulations by paying the advance VAT. It now
adopts inconsistent postures by questioning the validity of said
regulations in order to escape if not defeat its tax li ab ilities.

15. Moreover, issues not raised in the administrative level cannot be

raised for the first time on appeal, as in the case of Aguinaldo Industries
Corporation Fishing Nets Division vs. Commissioner of Internal
Revenue, et. al., L-29 790, February 25,1982.

16. Anent the passage of Republi c Act No. 9520, otherwise known as the
'PHILIPPINE COOPERATIVE CODE OF 2008,' agai n petitioner
anchored its claim for refund on what it believes as the clarification of its
exemption from the payment of advance VAT on its withdrawals of
refined sugar which it incurred between the periods from November 16,
2007 to February 13, 2009 . It is worthy of emphasis that the new law, RA
9520 was approved by Congress on 17 February 2009 and its effectivity
was indicated as fifteen (15) days from its publication in a newspaper of
general circulation. Otherwise stated, said law became effective only after
the questioned payments of the advance VAT on refi ned sugar were made
by petitioner. It fo llows therefore that since laws, as provided in Article 4
of the New Civil Code of the Philippines, have no retroactive effect as a
rule unless the contrary is provided, petitioner cannot now claim its status
of exemption under the new law. Nowhere in the text of RA 9250 does it
contain a provision for retroactive applicability, to do so would have the
effect of condoning tax liability of petitioner. It would be unfair to the
government if the Honorable Court would permit the application of a
subsequent law in order to make petitioner's claim for tax exemption
proper. Allowing such situation may give precedent to others easily
escape their liability or vio lation by merely invoking the retroactive
app li cation of a favorable act or law wh ich the Honorable Court should
not all ow. Petitioner's all egat ions on the invalidity of RR I 3-2008 are
highly misplaced . The said regulations did not repeal a duly enacted law
of Congress, the Cooperative Code of the Philippines. It merely provided
the guidelines by which said law wou ld be impl emented . Neither did it
enlarge or extend the law. It is well settled in this jurisdiction that:

'Laws are repealed only by subsequent ones, and their violation

or non-observance shall not be excused by disuse, or custom or
DECISION
CTA CASE NO. 7994
Page 8 of2I

practice to the contrary. When the court declared a law

inconsistent with the Constitution, the former shall be void and
the latter shall govern. Administrative or executive acts,
orders a nd r egulations sha ll be va lid only when th ey a r e not
co ntrary to the la ws or the Co nstitution.' (Article 7, New
Civil Code of the Phils.)(Emphasis supplied)

The burden of proving that a law or act is unconstitutional is reposed in

the individual suitor or challenger because of the presumption of
constitutionality of a law (Occena vs. Co melec, 104 SCRA 1, April 2,
1981 ). When Congress delegates its power, it can only delegate to others
how the law may be enforced based on 'standards' but not the substantive
matters (Eastern Shippin g Lines, Inc. vs. POEA 166 SCRA 533).

17. Petitioner should have questioned and/or assailed the validity of said
RR 13-2008 before the proper forum , i.e. , the Secretary of Finance; if it
felt and be lieved that the same was prejudicial to its interests. This,
petitioner did not do and instead paid the assailed advance VAT on its
withdrawals of refined sugar. This act is tantamount to an admission on
its part that the assailed regulation is valid. Petitioner should not be
allowed to adopt inconsistent postures regarding said regulations and is
estopped from denying or assai ling its validity.

18. Finally, the principle of strictissimi juris is applied in the

interpretation of tax laws. The power of taxation is the prerogative of the
sovereignty. The relinquishment of the power to tax is never presumed .
Any reduction or diminution thereof with respect to its mode or its rate
must be strictly construed and the same must be couched in clear and
unmistakable terms. He who claims an exemption must be able to point
out some provision of the law creating the ri ght; it cannot be allowed to
exist upon mere implication or inference (Floro Cem ent Corporation vs.
Judge Gorospe and th e M unicipality of L ugait, 200 S CRA 480, 1991).
Exemptions from taxation are highly disfavored in law and he who claims
exemption must be able to justify his claim by the clearest grant of
organic or statutory law. An exemption from the common burden cannot
be permitted to exist upon vague implications (Asiatic Petroleum Co.
(P.I.) vs. Llanes, 49 Phil.466 cited in Collector of Internal R evenue vs.
Manila Jockey Club, In c., 98 Phil. 670).

During trial, petitioner presented documentary and testimonial evidence. On

the other hand , respondent's counse l man ifested that he is dispensing with the
presentation of evidence on the ground that on ly legal issues are invo lved in this
8
case.

8
Docket, p. 328; TSN , December 2, 2010.
DEC ISION
CTA CASE NO. 7994
Page 9 of2 1

On February 23, 2011, the case was submitted for decision, considering
petitioners Memorandum 9 filed on December 16, 2010 and respondent's
10
Manifestation filed on December 21, 2010, stating that she is adopting her Answer
as her Memorandum .

Hence, this Deci sion.

THE ISSUES

The issues, as jointly stipulated by the parties, are the followin g:

"a) Whether or not petitioner is deemed a 'PRODUCER' to be entitled

to exemption from payment of Advance VAT for its sale to non-
members of its refined sugar produce.

b) Whether or not Sec. 4 of Revenue Regulation 13-2008 requiring

agricultural cooperatives to be the tiller of the land it owns or leases to
be considered a 'Producer' is legally valid.

c) Whether or not Sec. 3 of RR 13-2008 requmn g payment of

Advance VAT by the owner/seller before their refined sugar is
withdrawn from the Mill/Refinery is legall y valid.

d) Whether or not the Advance VAT paid 'Under Protest' by petitioner

was erroneously and/or illega ll y collected.

e) Whether or not this Honorable Court has Juri sdiction over the
in stant petition for review."

In sum, the postulated issues may be si mplified as follows :

a) Whether or not Revenue Regulations No. 13-2008, particularly

Sections 3 and 4, is valid; and,

b) Whether or not petitioner is entitled to a refund in the amount of P

20,998,638 .00, representing its advance VAT payment on 205,869
LKG bags of refined sugar, erroneously or illegally collected for
the taxable period covering November 19, 2007 to December 23,
2008.

9
Docket, pp. 343-35 1.
10
Docket, pp.360-361.
DECISION
CT A CASE NO. 7994
Page 10 of21

THE RULING OF THE COURT

In the prese nt case, petitioner assails the validity of Revenue Regul at ions No.
13-2008, particularly, Sections 3 and 4 thereof, viz:

"SECTION 3. Requirement to Pay in Advance VAT on Sale of Refined

Sugar. - In general, the advance VAT on the sale of refined sugar for under
Sec. 8 hereof, shall be paid in advance by the owner/seller before the
refined sugar is withdrawn from any sugar refinery/mill. Before the
issuance of Certificate of Advance Payment (Annex 'E') , the owner/sell er
shall fi le a Declaration for Advance Payment on Refined Sugar (Annex 'B-1
')to the RD/RDO having jurisdiction over the place where the sugar mill is
physically located and shall submit the following attachments:

1. Listing/Abstract of official Warehouse Receipt Quedan (Annex

'B-2') in soft and hard copy;

2. Proof of Payment of Advance VAT on Sale of Refined Sugar.

XXX XXX XXX

SECTION 4. Exemption from the Payment of the Advance VAT. -

Notwithstanding the provisions of the foregoing Section, the following
withdrawals shall be exempt from the payment of the advance VAT:

(a) Withdrawal of Refined Sugar by Duly Accredited and

Registered Agricultural Producer Cooperative of Good
Standing. - In the event the refined sugar is owned and
withdrawn from the Sugar Refinery/Mi II by an agricu ltural
cooperative of good standing duly accredited and registered
with the Cooperative Development Authority (CDA), which
cooperative is the agricultural producer of the sugar cane that
was refined into refined sugar, the withdrawal is not subject to
the payment of advance VAT. The cooperative shall file an
appli cation for withdrawal using Annex 'A-1 '. Upon
presentation of the Authorization Allowing the Release of
Refin ed Sugar (Ann ex ''A '') and other documents prescribed in
Sec. 5 hereof, the Sugar Refinery/Mill shall release the same
but on ly after notifying the Revenue Officer On Mi ll Sites
(ROOMS) ofthe time and date of the release ofthe sugar from
the Sugar Refinery/Mill and the names and plate numbers of the
sugar-carrying vehicles/trucks so that the release can be given
proper supervision and that the advance VAT was co ll ected
from the transferee shou ld ev idence show that the refined sugar
has already been so ld under a circumstance that makes the sale
thereof a taxable transaction.
DECISION
CTA CASE NO. 7994
Page II of21

A cooperative shall be considered in good standing if it is a

holder of a 'Certificate of Good Standing' issued by the CDA. A
copy of the same shall be submitted to the BIR on or before
April 30 of the followin g year.

A cooperative is said to be the producer of the sugar if it is

the tiller of the land it owns, or leases, incurs cost of
agricultural production of the sugar and produces the sugar
cane to be refined.

Sale of sugar in its original form is always exempt from VAT

regardless of who the seller is pursuant to Sec. I 09 (A) of the
Tax Code. On the other hand, sale of sugar, in its processed
form , by a cooperative is exempt from VAT if the sale is made
to members of the cooperative. Whereas, if the sale of sugar in
its processed form is made by the cooperative to non-members,
said sale is exempt from VAT only if the cooperative is an
agricultural producer of the sugar cane that has been converted
into refined sugar as herein defined and discussed.

Thus, withdrawal of refined sugar by the agricultural

cooperative for sale to members is not subject to advance VAT
whereas sale to non-members of said refined sugar is not
subject to advance VAT only if the cooperative is the
agricultural producer of the sugar cane that is the primary raw
material in the manufacture of refined sugar.

It is hereby made clear that if the refined sugar is owned and

withdrawn from the Sugar Refinery/Mill by a duly accredited
cooperative of good standing with the CDA, which cooperative
is not the agricultural producer of the sugar cane, the
withdrawal of the refined sugar shall, in all instances, be subject
to advance payment of VAT. unless the buyer who withdraws
the refined sugar from the Sugar Refinery/Mill is a member of
the cooperative."

At this point, it is material to determine whether this Court has jurisdiction to

rule on the validity of a revenue regulation iss ued by the Commissioner of Internal
Revenue. The jurisdiction ofthe Court ofTax Appeals as provided under Section 7 of
Republic Act No . 1125, as amended by Republic Act Nos. 3457, 9282 and 9503,
states that:

"SEC. 7. Jurisdiction. -The CT A shall exercise:

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

provided :
DECISION
CT A CASE NO. 7994
Page I2 of21

(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;"
11
In the case of Commissioner of Internal Revenue vs. Josefina Lea/ , the
Supreme Court had the occasion to rule that the Court of Tax Appeals has jurisdiction
to review the rulings of the Commissioner of Internal Revenue in the exercise of his
or her power to make rulings or opinions in connection with the implementation of the
provisions of internal revenue laws. In the aforementioned Leal case, the Commissioner
of Internal Revenue issued Revenue Memorandum Order (RMO) No. 15-91 imposing
5% lending investor's tax on pawnshops based on their gross income, and Revenue
Memorandum Circular (RMC) No. 43-91 subjecting the pawn ticket to the
documentary stamp tax based on the Commissioner's interpretation of Section 157(u)
of the Tax Code, specifically, his evaluation that the nature of pawnshop business is
akin to that of "lending investors". Therein respondent Josefina Leal filed a petition
for prohibition in the Regional Trial Court for prohibition seeking to prohibit
petitioner from implementing the revenue orders. In granting the appeal of the
Commissioner oflnternal Revenue, the Supreme Court ruled in this wise:

"The questioned RMO No. 15-91 and RMC No. 43-91 are
actually rulings or opinions of the Commissioner implementing the Tax
Code on the taxability of pawnshops. This is clear from petitioner's RMO
No. 15-91, pertinent portion of which reads:

XXX XXX XXX

11
G.R. No. 113459, November 18, 2002 .
DECISION
CT A CASE NO. 7994
Page 13 of21

Such revenue orders were issued pursuant to petitioner's powers

under Section 245 of the Tax Code, which states:

"SEC. 245 . Authority of the Secretary of Finance to

promulgate rules and regulations. - The Secretary of
Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective
enforcement ofthe provisions of this Code.

The authority of the Secretary of Finance to determine articles

similar or analogous to those subject to a rate of sales tax
under certain category enumerated in Section 163 and 165 of
this Code shall be without prejudice to the power of the
Commissioner of Internal Revenue to make rulings or
opinions in connection with the implementation of the
provisions of internal revenue laws, including ruling on the
classification of articles of sales and similar purposes."
(Emphasis added)

Under Republic Act No. 1125 (An Act Creating the Court of Tax
Appeals [CT A for brevity]), as amended, such rulings of the
Commissioner of Internal Revenue are appealable to that court, thus:

"SEC. 7. Jurisdiction. - The Court of Tax Appeals shall

exercise exclusive appellate jurisdiction to review by appeal,
as herein provided-

(I) Decisions of the Commissioner of Internal Revenue

in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National
Internal Revenue Code or other laws or part of law
administered by the Bureau of Internal Revenue;

XXX XXX xxx." (Emphasis added)

"SEC. II. Who may appeal; effect of appeal. - Any

person, association or corporation adversely affected by a
decision or ruling of the Commissioner of Internal Revenue,
or the Commissioner of Customs or any provincial or city
Board of Assessment Appeals may file an appeal in the Court
of Tax Appeals within thirty days after the receipt of such
decision or ruling.

XXX XXX xxx." (Emphasis added)

"SEC. 18. . .. - No judicial proceeding against the

Government involving matters arising under the National
Internal Revenue Code, the Customs Law or the Assessment
Law shall be maintained, except as herein provided, until and
DECISION
CTA CASE NO. 7994
Page 14of2 1

unless an appeal has been previously filed with the Court of

Tax Appeals and disposed of in accordance with the
provisions of this Act.

XXX XXX xxx." (E mphas is add ed)

The Court, in Rodriguez, etc. vs. Bl aq uera, etc., rul ed :

"Pl ainti ff maintains that thi s is not an appeal fro m a ruling of

the Co ll ector of Internal Revenue, but mere ly an attempt to
null ify General C ircul ar No. V- 148, whi ch does not
adjudi cate or settl e any controversy, and that, accordingly,
thi s case is not within the juri sdicti on of the Court of Tax
Appeals.

"We fi nd no meri t in th is pretense. General Circul ar No. V-

148 directs the officers charged with the collection of taxes
and license f ees to adhere strictly to the interpretation given
by the def endant to the statutory provisions abovementioned,
as set forth in the Circular. The same incorporates, therefore,
a decision of the Collector of Int ernal Revenue (now
Commissioner of Internal Revenue) on the manner of
enforc ement of the said statute, the administration of which is
entrusted by law to the Bureau of Internal Revenue. As such,
it comes within the purview of Republic Act No. 1125, Section
7 of which provides that the Court of Tax Appeals 'shall
exercise exclusive appellate jurisdiction to review by appeal .
. . decisions of th e Collector of Internal Revenue in . . .
matters arising under the National Internal Revenue Code or
other law or part of the law administered by the Bureau of
Internal Revenue.' . . . "(Emphas is added)

It is clear the refore that this Court has jurisdiction to rule o n the validity of a
rule o r regulati o n issued by the Bureau of Intern a l Revenue, in thi s case, Revenue
Regulati ons N o. 13-2 008.

According to petitio ner, it has been granted tax exempti on under A rti c le 6 1 of
Republic Act N o. 693 8 (Cooperati ve Code of the Ph ilippin es) a nd Secti on I 09(r) of
Republic A ct N o. 8424 as amended by Secti o n 109( L) ofR .A. No. 933 7, to w it:

"ARTICLE 61 . Tax Treatment of Cooperative. - Dul y registered

cooperatives under thi s Code whi ch do not transact any business with
non-members or the general public shall not be subj ect to any government
taxes and fees imposed under the internal revenue laws and other tax
laws. Cooperati ves not falling under thi s article shall be governed by the
succeed ing section."
DECISION
CTA CASE NO. 7994
Page 15 of21

"SECTION 7. Section 109 of the same Code, as amended, is hereby

further amended to read as follows:

'SEC. 109. Exempt Transactions.-

( 1) Subject to the provisions of Subsection (2) hereof, the following

transactions shall be exempt from the value-added tax:

XXX XXX XXX

(L) Sales by agricultural cooperatives duly registered with the

Cooperative Development Authority to their members as well as sale
of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;"

XXX XXX xxx (Emphasis added)

In support of its contention, petitioner presented its Certificate of Registration

CIN-01 03060352 with the Cooperative Development Authority with Registration No.
9520-06000814 12 as well as a Certificate of Tax Exemption No. ECCP-004-2003
dated April 23, 2003 issued by Assistant Commissioner Milagros V. Regalado,
containing a declaration that petitioner, as a primary agricultural cooperative which is
dealing/transacting business with members only, is exempt from VAT pursuant to
Section 109(r), (t), and (u) of the Tax Code of 1997, among others. 13 On the other
14
hand, respondent, in waiv ing her right to present evidence , was not able to present
evidence to refute the presumption that petitioner is a tax exempt agricultural
cooperative and that petitioner's Certificate of Tax Exemption has been revoked or
nullified by respondent.

This Court finds the position ofthe petitioner meritorious.

lt is clear from a cursory reading ofthe aforecited Article 61 of Republic Act

No. 6938 (Cooperative Code of the Philippines) and Section 109(r) of Republic Act
No. 8424 as amended by Section 109(L) of R.A. No. 9337 aforequoted, as well as in

12
Exhibit "C", docket, p. 15.
13
Exhibit " E", docket, pp. 17-19.
14
Docket, p. 328; TSN, December 2, 2010.
DECISION
CTA CAS E NO. 7994
Page 16 of21

the documentary evidence presented that petitioner's sale of sugar produce made by
petitioner to its members as well as non-members is exempt from the payment of

In declaring that in order to be exempt from VAT, a cooperative must be the

agricultural producer of its sugar produce, i.e. the tiller oftlte land it owns, or leases,
incurs cost of agricultural production of the sugar and produces the sugar cane to be
refined, the Commissioner has not engaged in mere interpretation but has gone into
unauthorized modification or amendment of the law. Only Congress can do this . Sections
3 and 4 of Revenue Regulations No. 13-2008, insofar as it imposes this requirement is,
therefore, ultra vires and invalid.

In the case of Commissioner of Internal Revenue vs. American Express Int '1,
Inc. 15, the Supreme Court held that"

"Although "[i]t is widely accepted that the interpretation placed upon a

statute by the executive officers, whose duty is to enforce it, is entitled to
great respect by the courts," this interpretation is not conclusive and will
have to be "ignored if judicially found to be erroneous" and "clearly
absurd .. . or improper." An administrative issuance that overrides the
law it merely seeks to interpret, instead of remaining consistent and in
harmony with it, will not be countenanced by this Court."

The Court will now determine petitioner's entitlement to a refund in the

amount of P 20,998,638.00, representing its advance VAT payment on 205 ,869 LKG
bags of refined sugar, erroneously or illegally collected for the taxable period
covering November 19, 2007 to December 23 , 2008.

Although, in the case at bar, petitioner seeks the refund of advance VAT it
paid under protest on the basis of Revenue Regulations No. 13-2008, the claim is not
governed by Sec. 112 of the 1997 Tax Code, as amended, as this does not involve a
refund of unutilized input VAT arising from zero-rated or effectively zero-rated sales.
This is a claim for refund from an erroneous collection and payment of advance VAT.

15
G.R. No. I52609, June 29, 2005 .
DECISION
CTA CAS E NO. 7994
Page I7 of2I

An application for refund of erroneously paid tax is governed by Sections

204(C) and 229 of the National Internal Revenue Code of I 997, which read as
follows:
"SEC. 204. Authority of the Commissioner to Compromise, Abate
and Refund or Credit Taxes. -The Commissioner may-

XXX XXX XXX

(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
11
claim for credit or refund.

"SEC. 229. Recovery of Tax Erroneously or Illegally Collected-

No suit or proceeding shall be maintained in any court for the recovery of

any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to
have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be fi led after the
expiration of two (2) years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment:
Provided, however, That the Commissioner may, even without a written
claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have
11
been erroneously paid.

Based on the foregoing provisions, the administrative and judicial remedies of

filing a c laim for refund of erroneously paid tax must be done within two years from
the payment of the tax. The two-year period is a limitation of action not only in
subm itting the written c laim for refund to the Commissioner, but likewise in
instituting an action with the Court of Tax Appeals.
DECISION
CTA CASE NO. 7994
Page 18 of21

Accordingly, the taxpayer must file its administrative claim for refund with the
Commissioner within two (2) years after the payment of the tax; however, if the
Commissioner takes time in deciding the claim and the period of two years is about to
end, the suit or proceeding must be started in the Court of Tax Appeals before the end
ofthe two-year period, without awa iting the decision ofthe Commissioner. This is so
because of the positive requirement of Section 204 and the doctrine that delay of the
Commissioner in rendering a decision does not extend the peremptory period fixed by
the statute. 16 Thus, when the two-year period is about to prescribe and the claim for
refund with the Commissioner remains unacted upon, the taxpayer should file a
Petition for Review with this Court in order to preserve its right to seek judicial
recourse.

The instant c laim in vo lves payment of advance VAT on refined sugar

alleged ly made by petitioner on various dates from November 19, 2007 to December
23, 2008. Reckoned from November 19, 2007, petitioner had until November 19,
2009 within which to file both its administrative and judicial claims. Clearly, the
administrative claim filed on November II , 2009 and the judicial claim via a Petition
for Review filed before this Court on November 16, 2009 fall within the two-year
prescriptive period.

Anent petitioner's evidence submitted in support of its claim, the Court took
17
into consideration the Summary of VAT Payments Under Protest with the related
BIR Certificates of Advance Payment of VAT, Revenue Official Receipts (ROR),
Payment Forms, and letters to BIR Regional Director Rodita B. Galanto, to show that
petitioner actually paid the amount of P 20,998,638 .00, representing advance VAT on
205 ,869 LKG bags of refined sugar from November 19, 2007 to December 23 , 2008,
summarized as follows :
Exhibits BIR Date Paid No. of VAT per VAT Paid
ROR!Bank Bags Bag
"1-1 ", " 1-2" 02920749 11 / 19/2007 10,500 102.00 I ,071 ,000 .00
"J", "J-1 ", " J-2" 02920855 11 /26/2007 8,107 102.00 826,914 .00
" K", " K-1 ", " K-2" 02920856 11 /26/2007 1,000 102.00 102,000.00
" L", " L-1 ", " L-2" 02920869 11 /29/2007 9,000 102.00 918,000.00

16
Gibbs and Gibbs vs. Commi ssioner of Internal Revenue, et. al. , IS SCRA 318.
17
Exhibit " H", docket, p. 24 .
DECISION
CTA CASE NO. 7994
Page I9 of2 I

"M", "M-1 ", "M-2" 02920878 11 /29/2007 10,607 102.00 1,08 1,914.00
"N", ''N-1 ", "N-2" 02920904 12/6/2007 10,168 102.00 I ,037,136 .00
"0-1 ", "0-2", 0-3" 02920957 12/ 13/2007 10,000 102.00 I ,020,000.00
" P-I ", " P-2" 01007029 1/2/2008 7,300 102.00 744,600.00
"Q-1 ", "Q-2" 01007050 1/4/2008 8,800 102.00 897,600.00
"R", "R-1 ", " R-2" EPCIB 1/8/2008 500 102.00 51 ,000.00
"S", "S-2" BOOBAC 9/8/2008 6,000 102.00 612,000.00
"T", "T- 1", "T-2" BOO 9/ 10/2008 1,889 102.00 192,678.00
"U", "U-1 ", "U-2" BOO 9/ 12/2008 2,819 102.00 287,538.00
"V", "V-I", "V -2" BOO 9/ 12/2008 3,600 102.00 367,200.00
"W", "W-1 ", "W-2" BOO 9/22/2008 5,588 102.00 569,976.00
"X", "X- 1", "X-2" BOO 9/22/2008 8,485 102.00 865,470.00
"Y", "Y- 1", "Y-2" BOO 9/26/2008 3,000 102.00 306,000.00
"Z", "Z-1 ", "Z-2" BOO 9/26/2008 3,899 102.00 397,698.00
"AA", "AA- 1", BOO 9/26/2008 3,676 102.00 374,952.00
"AA-2"
"BB", "BB-1 ", "BB- BOO 9/26/2008 2,466 102.00 251 ,532.00
2"
"CC", "CC-2" BOO 9/26/2008 4,434 102.00 452,268.00
"DO" BOO 10/3/2008 3,500 102.00 357,000.00
"EE", "EE-2" BDO 10/8/2008 2,271 102.00 231,642.00
"FF", "FF-2" BOO 10/8/2008 1,523 102.00 155,346.00
"GG", "GG-2" BOOBAC 10/8/2008 5,500 102.00 561,000.00
"HH", " HH-2" BDO I 0/ 10/2008 4,000 102.00 408,000.00
" II", " II-2", " II-3 " LBP I 0/ 16/2008 3,500 102.00 357,000.00
" ]]", "JJ-2", "JJ-3 " BDOBAC 10/27/2008 6,280 102.00 640,560.00
"KK", "KK-2" BDO I 0/31 /2008 6,000 102.00 612,000.00
"LL", "LL-2" BDO 11 /4/2008 7,677 102.00 783,054.00
"MM", "MM-2" BDO 11 /4/2008 3,735 102.00 380,970.00
"NN- 1", "NN-2", BDO 11 /28/2008 5,818 102.00 593,436.00
"NN-3"
"QQ", "QQ-2" BDOBAC 11 /22/2008 7,000 102.00 714,000.00
" PP", "PP-2", "PP-3" BOO 12/5/2008 4,000 102.00 408,000.00
"00", "00-2" BOO 12/12/2008 7,000 102.00 714,000.00
"IT", "TT-2" BOO 12/ 12/2008 2,727 102.00 278,154.00
"UU", "UU-1 ", BDO 12/ 19/2008 7,000 102.00 714,000.00
"UU-2", "UU-3"
"VV", "VV-1 ", BOO 12/23/2008 6.500 102.00 663,000.00
"VV-2", "VV-3"
Total: 70-" RI\Q 20. QQR I\1R 00
LESS: Disallowed
"0-1 ", "0-2", 0-3 " 02920957 12/ 13/2007 10,000 I ,020,000.00
195.869 19.978.1\1R 00

The advance VAT payment dated December 13, 2007 under BIR ROR No.
02920957 in the amount of PI ,020,000.00 shall be disallowed because petitioner's
evidence in support of the claim, consisting of Exhibits "0-1 ", "0-2", and 0-3 ", were

a.~~
DECISION
CT A CASE NO. 7994
Page 20 of2 1

disallowed by this Court for fai lure to present the original documents under the Best
Evidence Rule (Section 3, Rule 130 ofthe Revised Rules ofCourt).

After careful scrutiny of the evidence submitted, this Court finds that
petitioner has sufficiently proven that it is entitled to a refund of the erroneously paid
advance VAT for taxable period covering November 19, 2007 to December 23, 2008
in the reduced amount of Nineteen Million Nine Hundred Seventy Eight Thousand
Six Hundred T hi rty Eight Pesos (lll9,978,638.00).

WHEREFORE, the instant Petition for Review is hereby PARTIALLY

GRANTED . Accordingly, respondent Commissioner of Internal Revenue is hereby
ORDERED TO REFUND in favor of petitioner Negros Consolidated Farmers
Multi-Purpose Cooperative the amount of Nineteen Million Nine Hundred Seventy
Eight Thousand Six Hundred Thirty Eight Pesos (P 19,978,638.00), representing
erroneously paid advance VAT for taxable period covering November 19, 2007 to
December 23, 2008.

SO ORDERED.

~J6 .~
ERNESTO D. A COST A
Presiding Justice

WE CONCUR:

E-~.UY
A~tice
 DECISION
CTA CASE NO. 7994
Page2 I of2 I
•
CERTIFICATION

I hereby certify that the decision was reached after due consultation with the
members of the division of the Court of Tax Appeals in accordance with Section 13,
Article VIII ofthe Constitution.

r~ ~. a.........-t_
ERNESTO D. A COST A
Presiding Justice