A taxpayer is entitled to a refund either by: (i) authority of a statute expressly granting such right, privilege or incentive in his favor; or (ii) under the principle of solution indebiti requiring the return of taxes erroneously or illegally collected.
In both cases, the taxpayer must prove not only his entitlement to a refund but also his compliance with procedural due process. Note that non-observance of the prescriptive periods within which to file the administrative and judicial claims would result in denial of the claim for refund.
Generally, an administrative claim for value-added tax (VAT) refund or credit must be filed with the Bureau of Internal Revenue (BIR) within two years after the close of the taxable quarter when the sales were made. Thereafter, the BIR has 120 days from the date of submission of complete documents in support of the administrative claims within which to decide whether to grant a refund or issue a tax credit certificate (TCC).
The lapse of the 120-day period within which the BIR is required to decide the administrative claim for refund gives the taxpayer the right to elevate the matter to the Court of Tax Appeals (CTA) within 30 days from the lapse of the 120-day period.
Thus, the right of the taxpayer to file a claim in the CTA will only arise upon inaction of the BIR with regard to the claim within the required period.
Under the old rules, the mere filing of a case in court after the lapse of the 120-day period does not terminate or dismiss the application initially lodged in the BIR.
However, Revenue Memorandum Circular (RMC) No. 54-2014 issued by the BIR last June 11 equated such inaction with denial of the claim.
The new RMC states that if the claim for VAT refund or credit is not acted upon by the Commissioner of Internal Revenue (CIR) within the 120-day period, as required by law, such “inaction shall be deemed a denial” of the application for tax refund or credit.
Simply put, the claim is denied due to inaction of the BIR and such denial constitutes as denial based on the merits of the application. Consequently, the BIR will no longer act on the claim for refund or tax credit when the period has already lapsed.
This should not be the case.
While it was not explicitly stated in the RMC, the “deemed denial” due to inaction must be interpreted to apply only for the purpose of filing a judicial claim. Note that under the Tax Code and established jurisprudence, the taxpayer seeking a refund or tax credit needs not to wait for the BIR to issue an actual denial of the administrative claim before filing the case in the courts when the 120-day period has already expired.
Nevertheless, the lapse of the 120-day period should not be construed as a denial based on the merits of the application for refund. As far as the BIR is concerned, it must still conduct its audit investigation despite the filing of the case in the CTA. Otherwise, some indifferent BIR personnel may opt not to act at all on the claim, wait for the period to lapse and then, upon the filing of a judicial claim, defer to the judgment of the courts.
Taxpayers are granted an unmistakable right to avail of the remedy of judicial action in case of an adverse decision of an administrative body such as the BIR. However, such right is not cheap and some taxpayers cannot afford the fees attendant to the filing of a court case. Also, the amount of the claim for refund or credit might not be commensurate to the cost of bringing the matter to the courts.
Thus, the taxpayer who filed the claim for refund must not be left to the mercy of the BIR which fa iled to act on the application. The merits of the case must still be the ultimate consideration in deciding whether or not the taxpayer is entitled to a tax refund or credit.
As if the fact inaction of the BIR now constitutes denial of the claim were not enough, RMC 54-2014 further provides the list of the documents that must accompany the application. Included in the said list are documents which must be certified by the BIR itself, i.e., verification of delinquent accounts by the revenue district officer concerned and certified true copy of the approved application for zero-rating issued by the BIR for effectively zero-rated transactions, among others.
It does not make sense that a taxpayer who will file an application for refund is now being required to submit documents that must come from the BIR. Such circuitous requirement necessarily burdens a taxpayer even more when the information contained in such documents are properly within the BIR’s reach.
While it is a generally accepted principle that refund cases are construed strictly against the taxpayer, this should not be taken to mean that the BIR can pose all obstacles at its disposal.
Refund cases should not be tests to see the lengths that the taxpayer is prepared to go to get what is rightfully his.
Rather, it is a remedy based on equity pursuant to the time-honored principle that no one should be unjustly enriched at the expense of another -- certainly not the government most of all.
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