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G.R. Nos. 198729-30. January 15, 2014.*

CBK POWER COMPANY LIMITED, petitioner,  vs.  COMMISSIONER OF INTERNAL REVENUE,
respondent.

Taxation; Value-Added Tax; Tax Exemption; The National Power Corporation (NPC) is an entity with a special charter,
which 

_______________
* FIRST DIVISION.

47

categorically exempts it from the payment of any tax, whether direct or indirect, including Value-Added Tax (VAT).   —As
aptly ruled by the CTA Special Second Division, petitioner's sales to NPC are effectively subject to zero percent 0% VAT.
The NPC is an entity with a special charter, which categorically exempts it from the payment of any tax, whether direct or
indirect, including VAT. Thus, services rendered to NPC by a VAT-registered entity are effectively zero rated. In fact, the BIR
itself approved the application for zero-rating on 29 December 2004, filed by petitioner for its sales to NPC covering January
to October 2005. As a consequence, petitioner claims for the refund of the alleged excess input tax attributable to its
effectively zero-rated sales to NPC.
Same; Same; Tax Refund; Tax Credit; Section 112(A) provides that after the close of the taxable quarter when the sales
were made, there is a two-year prescriptive period within which a Value-Added Tax (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.—
Section 112(A) provides that after the close of the taxable quarter when the sales were made, there is a two-year prescriptive
period 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. Our VAT Law provides for a mechanism that would allow VAT-
registered persons to recover the excess input taxes over the output taxes they had paid in relation to their sales. For the
refund or credit of excess or unutilized input tax, Section 112 is the governing law. Given the distinctive nature of creditable
input tax, the law under Section 112 (A) provides for a different reckoning point for the two-year prescriptive period,
specifically for the refund or credit of that tax only.
 
Same; Same; Same; Same; Section 112(A) is clear that for Value-Added Tax (VAT)-registered persons whose sales are
zero-rated or effectively zero-rated, a claim for the refund or credit of creditable input tax that is due or paid, and that is
attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close of the taxable quarter
when such sales were made.—The fact remains that Section 112 is the controlling provision for the refund or credit of input
tax during the time that petitioner filed its claim with which they ought to comply. It must be emphasized that the

48

Court merely clarified in  Mirant  that Sections 204 and 229, which prescribed a different starting point for the two-year
prescriptive limit for filing a claim for a refund or credit of excess input tax, were not applicable. Input tax is neither an
erroneously paid nor an illegally collected internal revenue tax. Section 112(A) is clear that for VAT-registered persons whose
sales are zero-rated or effectively zero-rated, a claim for the refund or credit of creditable input tax that is due or paid, and
that is attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close of the taxable
quarter when such sales were made. The reckoning frame would always be the end of the quarter when the pertinent sale or
transactions were made, regardless of when the input VAT was paid. 
Same; Same; Same; Section 112(D) further provides that the Commissioner of Internal Revenue (CIR) has to decide on
an administrative claim within one hundred twenty (120) days from the date of submission of complete documents in support
thereof.—Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred twenty
(120) days from the date of submission of complete documents in support thereof. Bearing in mind that the burden to prove
entitlement to a tax refund is on the taxpayer, it is presumed that in order to discharge its burden, petitioner had attached
complete supporting documents necessary to prove its entitlement to a refund in its application, absent any evidence to the
contrary. 
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Same; Appeals; The taxpayer affected by the Commissioner of Internal Revenue’s decision or inaction may appeal to the
Court of Tax Appeals (CTA) within 30 days from the receipt of the decision or from the expiration of the 120-day period
within which the claim has not been acted upon.—The taxpayer affected by the CIR’s decision or inaction may appeal to the
CTA within 30 days from the receipt of the decision or from the expiration of the 120-day period within which the claim has
not been acted upon. Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period,
compliance with both periods is jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day
period to appeal to the CTA.
49

  Civil Law; Quasi-Contracts; Solutio Indebiti; According to the principle of solutio indebiti, if something is received when
there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.—Also devoid of
merit is the applicability of the principle of solutio indebiti to the present case. According to this principle, if something is
received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In
that situation, a creditor-debtor relationship is created under a quasi-contract, whereby the payor becomes the creditor who
then has the right to demand the return of payment made by mistake, and the person who has no right to receive the payment
becomes obligated to return it. The quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich
oneself unjustly at the expense of another. There is solutio indebiti when: (1) Payment is made when there exists no binding
relation between the payor, who has no duty to pay, and the person who received the payment; and (2) Payment is made
through mistake, and not through liberality or some other cause.
Taxation; Tax Refund; Tax Credit; Tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.—Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer. The burden is on the taxpayer to show strict compliance with the conditions for the grant of the tax refund or credit. 

PETITION for review on certiorari of the decision and resolution of the Court of Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
      V.C. Mamalateo & Associates for petitioner.
       Litigation Division for respondent.

 
SERENO,  CJ.:
This is a Petition for Review on Certiorari[1] under Rule 45 of the 1997 Rules of Civil Procedure filed by
CBK Power Com-

_______________

[1] Rollo, pp. 94-160.

50

pany Limited (petitioner). The Petition assails the Decision[2]  dated 27 June 2011 and Resolution[3]  dated 16
September 2011 of the Court of Tax Appeals En Banc  (CTA  En Banc)  in C.T.A. EB Nos. 658 and 659. The
assailed Decision and Resolution reversed and set aside the Decision[4]  dated 3 March 2010 and
Resolution[5] dated 6 July 2010 rendered by the CTA Special Second Division in C.T.A. Case No. 7621, which
partly granted the claim of petitioner for the issuance of a tax credit certificate representing the latter’s alleged
unutilized input taxes on local purchases of goods and services attributable to effectively zero-rated sales to
National Power Corporation (NPC) for the second and third quarters of 2005.
 
The Facts
Petitioner is engaged, among others, in the operation, maintenance, and management of the Kalayaan II
pumped-storage hydroelectric power plant, the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I
hydroelectric power plants and their related facilities located in the Province of Laguna.[6]

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On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal
Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal

_______________

[2] Id., at pp. 11-36; penned by Associate Justice Caesar A. Casanova and concurred in by Presiding Justice Ernesto D. Acosta, Associate
Justices Juanito C. Castañeda Jr., Erlinda P. Uy and Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla and
Amelia Contangco-Manalastas with Associate Justice Lovell R. Bautista, dissenting.
[3] Id., at pp. 39-42.
[4] Id., at pp. 63-83; penned by Associate Justice Erlinda P. Uy and concurred in by Associate Justices Juanito C. Castañeda Jr. and Olga
Palanca-Enriquez.
[5] Id., at pp. 85-92.
[6] Id., at pp. 98-99; Petition for Review on Certiorari Under Rule 45 of the Revised Rules of Court.

51

51

Revenue Code (NIRC) of 1997, as amended. The application was duly approved by the BIR. Thus,
petitioner’s sale of electricity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to
the benefit of effectively zero-rated value added tax (VAT).[7]
Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged unutilized
input taxes on its purchase of capital goods and alleged unutilized input taxes on its local purchases and/or
importation of goods and services, other than capital goods, pursuant to Sections 112(A) and (B) of the NIRC of
1997, as amended, with BIR Revenue District Office (RDO) No. 55 of Laguna, as follows:[8]
 

Period Covered Date of Filing

1st quarter of 2005 30-Jun-05

2nd quarter of 2005 15-Sep-05

3rd quarter of 2005 28-Oct-05

 
Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner filed a Petition for Review with
the CTA on 18 April 2007.
 
The CTA Special Second Division Ruling
After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010.
Applying  Commissioner of Internal Revenue v. Mirant Pagbilao Corporation  (Mirant),[9]  the court  a
quo  ruled that petitioner had until the following dates within which to file both administrative and judicial
claims:

_____________
[7] Id., at p. 220; CTA Special Second Division Decision.
[8] Id., at p. 221.
[9] G.R. No. 172129, 12 September 2008, 565 SCRA 154.

52

Taxable Quarter Last Day to File Claim

2005 Close of the quarter for Refund
1st quarter 31-Mar-05 31-Mar-07
2nd quarter 30-Jun-05 30-Jun-07

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3rd quarter 30-Sep-05 30-Sep-07

 
Accordingly, petitioner timely filed its administrative claims for the three quarters of 2005. However,
considering that the judicial claim was filed on 18 April 2007, the CTA Division denied the claim for the first
quarter of 2005 for having been filed out of time.
After an evaluation of petitioner’s claim for the second and third quarters of 2005, the court  a quo  partly
granted the claim and ordered the issuance of a tax credit certificate in favor of petitioner in the reduced amount
of P27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration, which were both denied by the CTA
Division.
 
The CTA En Banc Ruling
On appeal, relying on  Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi),
[10] the CTA En Banc ruled that petitioner’s judicial claim for the first, second, and third quarters of 2005 were
belatedly filed.
The CTA Special Second Division Decision and Resolution were reversed and set aside, and the Petition for
Review filed in CTA Case No. 7621 was dismissed. Petitioner’s Motion for Reconsideration was likewise denied
for lack of merit.
Hence, this Petition.

_____________
[10] G.R. No. 184823, 6 October 2010, 632 SCRA 422.

53

 
Issue
 
Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on its claim
for refund of unutilized input VAT for the first to third quarters of 2005.[11]
 
The Court’s Ruling  
The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides: 
SEC.  112.  Refunds or Tax Credits of Input Tax.—
(A)  Zero-rated or Effectively Zero-rated Sales.—Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That
in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-
rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales.
        x x x x
(D)  Period within which Refund or Tax Credit of Input Taxes shall be Made.—In proper cases, the Commissioner
shall grant a refund or issue the tax credit cer-

_______________
[11] Supra note 6, at pp. 116-117.

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tificate 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 Subsections (A) and (B) 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. 

Petitioner’s sales to NPC

are effectively zero-rated

As aptly ruled by the CTA Special Second Division, petitioner’s sales to NPC are effectively subject to zero
percent (0%) VAT. The NPC is an entity with a special charter, which categorically exempts it from the payment
of any tax, whether direct or indirect, including VAT. Thus, services rendered to NPC by a VAT-registered entity
are effectively zero-rated. In fact, the BIR itself approved the application for zero-rating on 29 December 2004,
filed by petitioner for its sales to NPC covering January to October 2005.[12] As a consequence, petitioner claims
for the refund of the alleged excess input tax attributable to its effectively zero-rated sales to NPC.
In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,
[13] this Court ruled: 

Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input

 
______________
[12] Supra note 7, at pp. 220, 231-233.
[13] G.R. No. 178090, 8 February, 2010, 612 SCRA 28, 34, citing Commissioner of Internal Revenue v. Seagate Technology (Philippines), 491 Phil. 317,
333; 451 SCRA 132, 142-143 (2005).

55

taxes that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input
taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment
shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer.

 
The crux of the controversy arose from the proper application of the prescriptive periods set forth in Section
112 of the NIRC of 1997, as amended, and the interpretation of the applicable jurisprudence.
Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day
period as prescribed in Section 112, with the finality of the Court’s pronouncement on the consolidated tax
cases  Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal
Revenue[14] (hereby collectively referred as San Roque), we are constrained to apply the dispositions therein to
the facts herein which are similar.
 
Administrative Claim
Section 112(A) provides that after the close of the taxable quarter when the sales were made, there is a two-
year prescriptive period 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.

_______________

[14] G.R. Nos. 187485, 196113 and 197156, 12 February 2013, 690 SCRA 336.

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Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input
taxes over the output taxes they had paid in relation to their sales. For the refund or credit of excess or unutilized
input tax, Section 112 is the governing law. Given the distinctive nature of creditable input tax, the law under
Section 112 (A) provides for a different reckoning point for the two-year prescriptive period, specifically for the
refund or credit of that tax only.
We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed in
2005; thus, it should not retroactively be applied to the instant case.
However, the fact remains that Section 112 is the controlling provision for the refund or credit of input tax
during the time that petitioner filed its claim with which they ought to comply. It must be emphasized that the
Court merely clarified in Mirant that Sections 204 and 229, which prescribed a different starting point for the
two-year prescriptive limit for filing a claim for a refund or credit of excess input tax, were not applicable. Input
tax is neither an erroneously paid nor an illegally collected internal revenue tax.[15]
Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated, a
claim for the refund or credit of creditable input tax that is due or paid, and that is attributable to zero-rated or
effectively zero-rated sales, must be filed within two years after the close of the taxable quarter when such sales
were made. The reckoning frame would always be the end of the quarter when the pertinent sale or transactions
were made, regardless of when the input VAT was paid.[16]
Pursuant to Section 112(A), petitioner’s administrative claims were filed well within the two-year period
from the close of the taxable quarter when the effectively zero-rated sales were made, to wit:

_______________
[15] Supra note 9.
[16] Id.

57

Last day to File

Close of the Date of 
Period Covered Administrative
Taxable Quarter Filing

Claim

1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05

2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05

3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05

Judicial Claim
 
Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred
twenty (120) days from the date of submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is presumed that in
order to discharge its burden, petitioner had attached complete supporting documents necessary to prove its
entitlement to a refund in its application, absent any evidence to the contrary.
Thereafter, the taxpayer affected by the CIR’s decision or inaction may appeal to the CTA within 30 days
from the receipt of the decision or from the expiration of the 120-day period within which the claim has not been
acted upon.
Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period,
compliance with both periods is jurisdictional. The period of 120 days is a prerequisite for the commencement of
the 30-day period to appeal to the CTA.

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Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. Commissioner

of Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue,[17]  this
Court has ruled thus:

_______________
[17] G.R. Nos. 193301 and 194637, 11 March 2013, 693 SCRA 49.

58

Notwithstanding a strict construction of any claim for tax exemption or refund,  the Court in San Roque
recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers. BIR Ruling No.
DA-489-03 expressly states that the “taxpayer-claimant need not wait for the lapse of the 120-day period before
it could seek judicial relief with the CTA by way of Petition for Review.” This Court discussed BIR Ruling No.
DA-489-03 and its effect on taxpayers, thus: 

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a

difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the
reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to
return the tax refund or credit they received or could have received under Atlas prior to its abandonment. This
Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by
this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling
under Section 246, should also apply prospectively. x x x.
x x x x
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all
taxpayers or a specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general
interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a government
agency asked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and
Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact
asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc.,
where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.
(Emphasis supplied) 

  In applying the foregoing to the instant case, we consider the following pertinent dates:

 Period  Administrative  Expiration  Last day to file  Judicial

Covered
Claim Filed of 120-days Judicial Claim Claim Filed
 1stquarter 30-Jun-05 28-Oct-05  27-Nov-05  18-Apr-07
2005

2ndquarter 15-Sep-05 13-Jan-06 13-Feb-06

2005

 3rdquarter 28-Oct-05 26-Feb-06 28-Mar-06

2005

 
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It must be emphasized that this is not a case of premature filing of a judicial claim. Although petitioner did
not file its judicial claim with the CTA prior to the expiration of the 120-day waiting period, it failed to observe
the 30-day prescriptive period to appeal to the CTA counted from the lapse of the 120-day period.
Petitioner is similarly situated as Philex in the same case, San Roque,[18] in which this Court ruled:  
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days
after the expiration of the 120-day period. Philex filed its judicial claim  long after  the expiration of the 120-day
period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence
before, during, or after the  Atlas  case, Philex’s judicial claim will have to be rejected because of late
filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were made
following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner
on Philex’s claim during the 120-day period is, by express provision of law, “deemed a denial” of Philex’s claim.
Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to
do so rendered the “deemed a denial” decision of the Commissioner final and inappealable. The right to appeal to the
CTA from a decision or “deemed a denial” decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such 

_______________
[18] Supra note 14.

 
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statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. Philex failed
to comply with the statutory conditions and must thus bear the consequences. (Emphases in the original) 

Likewise, while petitioner filed its administrative and judicial claims during the period of applicability of BIR
Ruling No. DA-489-03, it cannot claim the benefit of the exception period as it did not file its judicial claim
prematurely, but did so long after the lapse of the 30-day period following the expiration of the 120-day period.
Again, BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of
the 120-day period for the Commissioner to act on an administrative claim,[19] but not its late filing.
As this Court enunciated in  San Roque, petitioner cannot rely on  Atlas  either, since the latter case was
promulgated only on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year period from the
date of filing of the return and payment of the tax, does not interpret — expressly or impliedly — the 120+30
dayperiods.[20]  Simply stated,  Atlas  referred only to the reckoning of the prescriptive period for filing an
administrative claim.
For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period, petitioner lost its
right to claim a refund or credit of its alleged excess input VAT.
With regard to petitioner’s argument that  Aichi  should not be applied retroactively, we reiterate that even
without that ruling, the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period.
Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. According to
this principle, if something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obliga-

_______________
[19] Id.
[20] Id.

 
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tion to return it arises. In that situation, a creditor-debtor relationship is created under a quasi-contract, whereby
the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the
person who has no right to receive the payment becomes obligated to return it.[21] The quasi-contract of solutio
indebiti is based on the ancient principle that no one shall enrich oneself unjustly at the expense of another.[22]
There is solutio indebiti when:
(1)  Payment is made when there exists no binding relation between the payor, who has no duty to
pay, and the person who received the payment; and
(2)  Payment is made through mistake, and not through liberality or some other cause.[23]
Though the principle of  solutio indebiti  may be applicable to some instances of claims for a refund, the
elements thereof are wanting in this case.
First, there exists a binding relation between petitioner and the CIR, the former being a taxpayer obligated to
pay VAT.
Second, the payment of input tax was not made through mistake, since petitioner was legally obligated to pay
for that liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature
of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper.[24] 

______________
[21] Siga-an v.
Villanueva, G.R. No. 173227, 20 January 2009, 576 SCRA 696, 708.
[22] Id., citing Moreño-Lentfer v. Wolff, 484 Phil. 552, 559-560; 441 SCRA 584, 591 (2004).
[23] BPI v. Sarmiento, 519 Phil. 247, 256; 484 SCRA 261, 271 (2006).
[24] Supra note 14.

63

Finally, equity, which has been aptly described as “a justice outside legality,” is applied only in the absence
of, and never against, statutory law or judicial rules of procedure.[25] Section 112 is a positive rule that should
preempt and prevail over all abstract arguments based only on equity.
Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.[26] The burden is on the taxpayer to show strict compliance with the conditions for the grant of the tax
refund or credit.[27]
 
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.

Leonardo-De Castro, Bersamin, Villarama, Jr. and Reyes, JJ., concur.

Petition denied.

  Notes.―A Value-Added Tax (VAT)-registered taxpayer is required to comply with all the VAT invoicing
requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to
zero-rated sales; A “VAT invoice” is an invoice that meets the requirements of Section 4.108-1 of RR 7-95.
(Microsoft Philippines, Inc. vs. Commissioner of Internal Revenue,647 SCRA 398 [2011])

_______________
[25] Mendiola v. Court of Appeals, 327 Phil. 1156, 1166; 258 SCRA 492, 502 (1996), citing Causapin v. Court of Appeals, 233 SCRA
615, 625; 233 SCRA 615, 625 (1994).
[26]  Commissioner of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 178490, 7 July 2009, 592 SCRA 219,
235; Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corp., G.R. Nos. 83583-84, 25 March 1992, 207 SCRA 549, 552;  La
Carlota Sugar Central v. Jimenez, 112 Phil. 232, 235; 2 SCRA 295, 299 (1961).
[27] Supra note 14.

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  The appearance of the word “zero-rated” on the face of invoices covering zero-rated sales prevents buyers from
falsely claiming input Value-Added Tax (VAT) from their purchases when no VAT is actually paid. (Id.)
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