Declogging CTA docket and exhaustion of administrative remedies

By Jose Jaffy Y. Azarraga, 18 September 2009 (BusinessWorld)

One of a taxpayer’s major concerns is the difficulty as well as delays involved in seeking a refund of taxes already paid.

Due to the amounts involved, the subject of refund frequently injects an element of material uncertainty in the financials of the concerned taxpayers.

Earlier this year, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 29-2009, seeking to allay the taxpayers’ collective concerns about the delay in the administrative processing of claims for tax credit certificate (TCC).

Under the said RMC, the BIR seeks to implement more effectively Section 112(C) of the National Internal Revenue Code as amended (Tax Code) which mandates the BIR to act on claims for refund or TCC of unused input VAT related to VAT zero-rated transactions within 120 days from the date of submission of complete documentation. (See our related article on "A fate worse than debt" published under this column last Sept. 3).

This RMC is laudable and if implemented seriously, would be favorable to the taxpayer since a claim which is approved at the administrative level at the earliest possible time would no longer require the taxpayer to resort to judicial remedy, i.e., to elevate the claim to the Court of Tax Appeals (CTA), which is costly. Hence, in principle, RMC 29-2009 should work effectively.

However, an important aspect in a refund case that taxpayers should be concerned about is the two-year prescriptive period for refunds, as prescribed under Section 229 of the Tax Code, which has likewise been applied to claims for refund of input taxes under Section 112.

The CTA has consistently held that the two-year prescriptive period for refund applies to both the administrative and judicial aspects of the refund. As explained by the CTA in one case, "a taxpayer is given only two years from the payment of a tax or liability, regardless of any supervening event, to file its claim for refund. The claim should first be filed before the Commissioner who shall decide the same within 60 days. If the Commissioner denies the claim, the taxpayer has 30 days from receipt of denial to appeal before the CTA. If the Commissioner does not act on the claim within the sixty-day period, the taxpayer may go directly to the CTA provided it is still within the two years mandated by Section 229." (CTA Case No. 7657)

In other words, a taxpayer must file his claim for refund with the BIR within the two-year prescriptive period and, if his claim is not acted upon or is denied, he must timely elevate his claim to the CTA before the expiration of the two-year prescriptive period; otherwise, he would be forever barred from further pursuing his judicial remedy to refund.

More often than not, taxpayers elevate their refund claims to the CTA if there is no assurance as to the outcome of the BIR’s action on their claim for refund, and this becomes mandatory when the two-year prescriptive period is about to lapse, with or without any action on the part of the BIR.

This apparently resulted in the filing of numerous Petitions for Review with the CTA even before the resolution of their administrative claims.

Petitions for Review filed before the end of the 120 days have been consistently objected to by the BIR on the grounds of failure to exhaust administrative remedies and that the filing is premature since the law allows them 120 days to act on the refund claim.

However, the CTA has consistently held that the taxpayers need not wait for the lapse of the 120 days before lodging their judicial claim.

As a consequence, the numerous Petitions for Review filed with the CTA has clogged its dockets. In effect, the CTA has taken over the administrative task of evaluating the refunds when it should not be strictly doing this since it is an appellate court having the same level and equal footing as the Court of Appeals (CA) on tax matters by virtue of Republic Act No. 9282.

The processing of the claims should be done by the BIR and the CTA should merely review the legal and factual findings of the BIR.

Given the foregoing, taxpayers are well-advised to file their claims for refund well ahead of the two-year prescriptive period, with complete documentary support, to allow the BIR sufficient time to process the claim.

Allowing the BIR sufficient time to process and dispose of the refund at their level should contribute much in de-clogging the court dockets, which should also benefit taxpayers in the form of faster disposition of cases.

At any rate, the taxpayer has 30 days from receipt of the decision of the BIR denying the request, or upon the expiration of the 120-day period, to elevate the matter to the CTA.

Another alternative to ease the congestion in the CTA’s dockets is to relax the said requirement insofar as refunds of input VAT under Section 112 are concerned. Section 112, as noted in the dissenting opinion in CTA E.B. No. 426, provides only for the filing of the application for refund within two years, but is silent on whether said two-year period would also cover the appeal to the CTA.

Be that as it may, allowing the BIR the full use of the 120-day period to resolve the claim as long as the claim is filed within the 2-year period should result in less appeals to the CTA. After all, the taxpayer should prefer to recover at the BIR level rather than on the appeal due to the costs involved in litigating a claim.

Furthermore, if the BIR is able to dispose of the refund due to longer processing time, then this would also go a long way in achieving the objective of clearing and de-clogging CTA dockets.