For transaction deemed sale to be applicable, the first case of analysis is to determine wheter the object is subject to VAT or not. Because if the object is not subject to VAT, then the principle of transaction deemed sale is not applicable. You only apply transaction deemed sale if transaction is subject to VAT.

CIR VS MAGSAYSAY LINES

NDC is engaged in lease business not in the sale of property. This is the reason why the supreme court ruled that since NDC is engaged in the business of leasing, then the sale of vessel is not considered as incidental transaction that would fall within the ambit of the term in the ordinary course of business. And since it is not considered as incidental transaction, it would be considered as isolated transaction and being as such, it will not be subjected to value added tax. Since transaction is not subject to VAT, there is no reason to apply section 100 which covers the provision on transaction deemed sale because again section 100 is not considered as an exempting provision but only a clasification provision of the law.

Ordinary course of business relates to regularity of the conduct of business. It must be regularly done. Since here, the taxpayer is no tregulary engesged in sale, then the sale is isolted transaction.

MINDANAO GEOTHERMAL vs CIR

FACTS: This case is all about a power plant selling electricity (usual business). The transaction subjected to vat was the sale of nissan patrol owned by mindanao geothermal.

ISSUE: Can we apply the principle enunciated in the case of CIR vs MAGSAYSAY LINES where in sale of the vessel is considered as isolated transaction and being as such then it cannot be subjected to VAT and no need to apply section 100 of tax code.

RULING: No. Taxability of sale of nissan patrol is incidental transaction because first, the taxpayer is considerted as registered vat payer. Secondly, the truck was purchased in the ordinary course of business of Mindanao because they need this to operate its usual transactions. Since the property is necessary for the operation of business, then the sale thereof is considered as incicidental transaction and being as such the sale of nissan patrol is subject to vat. As stated in the case:

Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT. Section 105 of the 1997 Tax Code does not support Mindanao II’s position:

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the valueadded tax (VAT) imposed in Sections 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,

transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business. (Emphasis supplied)

Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay) 55 and Imperial v. Collector of Internal Revenue (Imperial)56 to justify its position. Magsaysay, decided under the NIRC of 1986, involved the sale of vessels of the National Development Company (NDC) to Magsaysay Lines, Inc. We ruled that the sale of vessels was not in the course of NDC’s trade or business as it was involuntary and made pursuant to the Government’s policy for privatization. Magsaysay, in quoting from the CTA’s decision, imputed upon Imperial the definition of “carrying on business.” Imperial, however, is an unreported case that merely stated that Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction. However, it does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction “in the course of trade or business” includes “transactions incidental thereto.” Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II’s business which should be liable for VAT.

NOTE: The seemingly contradiction in the two cases were resolved by the court in stating that in the case of CIR vs MAGSAYSAY, the taxpayer was forced to sale the vesssel pursuant to the policy of the government thus, there was no VAT imposed on the sale. In MINDANAO vs CIR, the sale of the patrol car was voluntary thus, it was subjected to VAT. What then to follow? If the factual milieu of the query is the same with CIR vs MAGSAYSAY, then resolve the matter within the context of that case. If instead it is akin to MINDANAO vs CIR, conclude it in the same way as the case of MINDANAO.

TRANSITIONAL INPUT TAXINPUT VAT: vat paid by the taxpayer for purchase of goods or services from a vat registered entity. If seller is not a vat registered entity, then there is no input vat to be passed on to the purchaser. And if there is no input vat to be passed on to the purchaser, the purchaser cannot avail of input vat with respect to that particular transaction that it had enetered into with a non vat registered seller.

DEFINITION: It is called transitional becasue it can be availed of by the taxpayer who had already reached the treshold amount or a taxpayer who voluntarily registers under the vat system.

Meaning, it would only apply if the taxpayer has already been in its 1st, 2nd, or 3rd operation and had decided to register under the vat system (voluntarily) or had been mandated to register under the vat system (because it reached the threshold amount).

The amount of transitional input vat is equivalent to 2 percent of the begining inventory or the actual vat paid on such goods whichver is higher.

ILLUSTRATION: A is a non vat entity engaged in restaurant business in which case, A purchased ingredients from a vat registered entity and some ingredients from non vat registered entity. A decided to register under the vat system during the next succeeding taxable year. A have begining inventory meaning goods or items considered unused during the previous taxable year amounitng to 1million. Can A avail of Transitional Input Vat?

Yes. Note that TIV applies to taxpayers who became vat registered either because dit ecided to register under the vat system (voluntarily) or had been mandated to register under the vat system (because it reached the threshold amount). A registered voluntarily. A can avail of TIV.

Reason: To lessen the burden of paying vat for those who were encouraged to register under the vat system or those mandated to register under the vat system.

FORT BONIFACIO CORPORATION vs CIR, April 2, 2009SUPREME COURT: The payment or previous payment of VAT is not a pre requisite in the availment of TIV. Becasue at the onset TIV has been granted granted under the law in order to alivaite the impact of VAT.Thus TIV can be calimed by a newly vat reg person who presumedbly paid the vat. Fort boni can calim TIV being a newly reg vat person despite the fact that for boni had not paid any input vat from purchas e it made from the national government because previuos payment is no a pre requisite in the availment of TIV.

Tax base for compuatatipon of TIV. SC, it is just a matter of imposing a celling. So if there is 2percent of the beginning inventory and there is no actual input vat paid, then the taxpayer can avial of TIV equivalent to 2 percent of begining inventory becasue there is no value of actaul input vat paid.

NOTE: In Fort bonifacio case, 8 percent was mentioned but RA 9337 already changed it to 2 percent.

PRESUMPTIVE INPUT VAT Input vat that applies to persons or firms engaged in the processing of sardines, mackerel

and milk, and in manufacturing refined sugar, cooking oil and packed noodles. The enumeration is exclusive.

Equivalent to four percent (4%) of the gross value of the purchases We call it PIV because there is no actual input vat payment. The law merely presumes

that input vat could have been paid.

Main ingredient in here pertains to agri products. If the individuals engaged in the manufacturing of these products would purchase from fishermen, will the fishermen pass on input vat to them so that they can avail of input vat? No. This is the reason why the congress granted PIV. It is presumptive because it is presumed that the amount of input vat that should have been passed on to them by those indviuduals who sale products in their original state would be equivalent to 4 percent of the total value of their gross purchases.

IMPORTATION AND EXPORTATION Importation: Subject to vat whether done in the ordinary course of business or not Exportaiton: Not subject to vat

QUERY: If goods were exported and the exported goods were on consignment, will we immediately consider that as export sales? Or we apply the principle that if they were not sold within 60 days then they are considered as sold?

No. Do not apply the 60 day period here. You only apply that if the consignment of goods pertains to transactions deemed sale. Under transaction deemed sale, the requirement so that the consignment of goods will be considered as transanction subject to vat are: a) goods are consigned and b) were not sold within a period of 60 days and the goods were not also returned within the same period in which the goods are considered sold. Do not apply this principle to export sales. Because in exportation of goods on consginment, it is necessary that the export sales must in fact be sold before they would be considered as export sales. This is the rule with respect to export sales of goods on consignment. Do no apply the 60 day period rule.

PROCEDURE re REFUND OF VATSEC. 112. REFUNDS OR TAX CREDITS OF INPUT TAX. -

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 of 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.

(B) Capital Goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.

(C) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes.

(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 certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of compete 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.-

(E) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the Commission on Audit.

SECTION 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 filed 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 been erroneously paid.

Section 112 Pertains to unutilized input vat derived from either zero rated transaction or an effectively

zero rated transaction There is only a refund of creditable input vat if it concerns zero rated transaction or an

effectively zero rated transaction

In the claim for tax refund or application of credit certificate, it must be filed within 2 years from the close of the taxable quarter when the sale has been made. Therefore, if the sale was made on the month of February 2, 2012, the last day for filing a written claim for refund is March 31, 2014. Do not count it from February 2 but count it after the close of taxable quarter when the sale was made and that is on March 31 which is the close of the first quarter. (QUARTERS: MARCH, JUNE, SEPTEMBER, DECEMBER)

NOTE: CARRY OVER: Taxpayer reflects excess payment in his tax return and relfect the same

in its tax return for the succeeding taxable year. That is all he has to do. To reflect them in his tax return.

TAX CREDIT: Taxpayer writes a claim for tax credit certificate. A request is filed before the CIR.

Use carry over in setting off the excess payment to the tax liability of the succeeding taxable year. Do not use tax credit, it might give impression that you are pertaining to the application of tax certificate.

Section 229 Pertains not to unutilized input vat but to overpayment, erroneous or illegal payment of

taxes or penalty not authorized by law It pertains then to internal revenue taxes that had been erronoeuosly paid, overpaid, or

illegally paid Refund is two years from date of payment of tax regardless of any supervening cause

Who can file for refund in section 112? By vat registered persons

How about in Section 229? May be filed by any tax payer

EXAMPLE: A is a taxpayer engaged in retail business. During the taxable year, the taxpayer availed of 1 million worth of transitional input vat because it is his first time to register under the vat system. During the taxable year, it paid input vat amounting to 2 million. During the taxable year there is out put vat amounintg to 500k pesos. Can he claim refund with respect to the transitional input vat he reflected in his return during the taxable year?

ANSWER: No. Under sec 112, claim for refund shall only cover input vat derived from either zero rated transaction or an effectively zero rated transaction excluding transitional input vat.

QUESTION: Can he claim the unutilized input vat (section 112) he paid during the taxable year?

ANSWER: Even if there is output vat, the taxpayer is not engaged in a zero rated transaction or an effectively zero rated transaction. tHus he cannot claim for refund under section 112. Again section 112 applies only when it pertains to unutilized input vat derived from either zero rated transaction or an effectively zero rated transaction. Since there is output vat of the taxpayer, it is

obvious that the transaction is subject to vat which means that it does not fall within the scope of zero rated transaction or an effectively zero rated transaction.

EXAMPLE: Taxpayer paid income taxes amounting to 1million during the 3 quarters of taxable year 2014. But in the computation of the taxpayers annual income tax return, it appeared that he had compuitated no tax liability at all. Can he pray for refund of tax amounitng to 1 million pesos? ANSWER: Yes under section 76 of taxcode. The section speaks of remedies of corporate taxpayer when it had excess payments. If there are excess payments over tax due then the taxxpayer can:

a. File or apply for tax refund or issuance of a tax credit certificateb. Carry over the excess payments to the next succeeding taxable period

QUESTION: Now, if the taxpayer will file a claim for refund, will it file the claim under section 112 or 229? Section 229 because the ground of refund is overpayment of taxes.

SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor.

CIR VS MIRANT 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. Thus, if it pertains to second quarter of 1998, the last day for filling a written claim for

refund would be on June 30, 2000 precisely because the close of the second qurater is June and the close of such quarter would be on June 30, 2000.

CIR v. AICHI FORGING COMPANY OF ASIA, INC We do not follow leap year because as between the Civil Code, which provides that a

year is equivalent to 365 days, and the Administrative Code of 1987, which states that a

year is composed of 12 calendar months, it is the latter that must prevail being the more recent law.

QUESTION: A taxpayer entered into a zero rated transaction for which it paid input tax amounitng to 1 million pesos. The sale was made during the third quarter of 2012. On September 29, 2014, the taxpayer filed a written claim for refund before the CIR, (a written claim for refund before the comissioner is called an administrative claim. If elevated to CTA, the petition is considered as judicial claim for refund). On December 31, 2014, the lawyer filed a petition for review before CTA because of the inaction of BIR on the claim for refund. Will it prosper? No. Ground of denial is premature because the 120 days has not yet expired.

What if the the written claim for refund or judicial claim was filed on March 31, 2015? If law speaks of days, then we must count it by number of days. In this case, there is presmuption that all the documents necessary for the claim for refund has been submitted on September 29, 2014. Thus, September 29, 2014 is the date from whihc the 120 day is to be counted.

September 1October 31November 30December 31January 31February 28March 31TOTAL: 183

Here, there is already 183 days; obviously the 120 days already lapsed. But also even the 120 day lapsed, consider the 30 day period within which to file the judicial claim for refund. Obviously, though, still the judicial claim for refund was filed out of time of the 30 day period when the judicail claim for refund was filed on March 31, 2015.