CIR vs Benguet Corp.
- GR 145559, 14 July 2006
Non-retroactive application of taxes; “Passing on” of indirect taxes like VAT
FACTS: Since the inception of the VAT in 1988, sale of gold to Central Bank has been considered by the
BIR to be zero-rated. (VAT Ruling 378-88 and RMC No. 59—88). On January 23, 1992, Commissioner Ong
issued VAT Ruling No. 008-92 declaring and holding that the sale of gold to the CB are considered
domestic sales subject to the 10% VAT. Subsequently, VAT Ruling No. 59-92 dated April 28, 1992 was
issued reiterating the treatment of sales of gold to CB and expressly countenancing the retroactive
application of VAT Ruling No. 008-92 to all such sales made starting January 1, 1988.
ISSUES:
(1) Can a ruling, changing the tax treatment of a transaction from one subject to 0% to one subject
to 10%, be given a retroactive application?
(2) Is there really an actual and imminent injury to the taxpayer if the ruling is given a retroactive
application?
RULING:
(1) The SC ruled in the negative. Well-entrenched is the rule that rulings and circulars, rules and
regulations, promulgated by the Commissioner of Internal Revenue, would have no retroactive
application if to so apply them would be prejudicial to the taxpayers. There is no question,
therefore, as to the prohibition against the retroactive application of the revocation,
modification or reversal, as the case maybe, of previously established Bureau on Internal
Revenue (BIR) Rulings when the taxpayer's interest would be prejudiced thereby.
Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered
taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-
added tax paid by a VAT-registered person/entity in the course of his/its trade or business on the
importation of goods or local purchases of goods or services from a VAT-registered person.9
On the other hand, when that person or entity sells his/its products or services, the VAT-registered
taxpayer generally becomes liable for 10% of the selling price as output VAT or output tax.10 Hence,
"output tax" is the value-added tax on the sale of taxable goods or services by any person registered or
required to register under Section 107 of the (old) Tax Code
The CIR is precluded from adopting a position inconsistent with one previously taken where injustice
would result therefrom, or when there has been a misrepresentation to the taxpayer. (citing ABS-CBN
Broadcasting Corp. vs. CTA and CIR, 108 SCRA 142)
(2) While the CTA said there is none, the CA had taken a contrary view which was affirmed by the
SC. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either
by (1) passing on the 10% output VAT on the gross selling price or gross receipts, as the case
may be, to its buyer, or (2) if the input tax is attributable to the purchase of capital goods or to
zero-rated sales, by filing a claim for refund or tax credit with the BIR. Simply stated, a taxpayer
subject to 10% output VAT on its sales of goods and services may recover its input VAT costs by
passing on said costs as output VAT to its buyers of goods and services but it cannot claim the
same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services
may only recover its input costs by filing a refund or tax credit with the BIR.
The SC is correct in holding that a retroactive imposition of the VAT on the sale of gold to Central Bank
will definitely result to substantial economic prejudice to respondent. First, the respondent could no
longer pass-on to CB the 10% output VAT which would be retroactively imposed on said transactions,
and second, it will also be prevented from claiming the refund because the sale is no longer zero rated.
If this happens the entire cost of the input VAT will be borne by respondent Benguet without any
avenue for recovery. Indeed, respondent stands to suffer substantial economic prejudice by the
retroactive application of the VAT Ruling in question.
