One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center

July 30, 2008 BIR RULING [DA-(C-019) 093-08] Sec. 230; RR No. 5-2000 One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center Department of Finance Roxas Boulevard cor. Pablo Ocampo, Sr. St. Manila Attention: Ernesto Q. Hiansen Executive Director S i r : This has reference to your letter dated June 23, 2008 indorsing the letter of Mehitabel, Inc. (formerly Linea Fina, Inc.) (hereinafter referred to as "Mehitabel") requesting reconsideration of the legal opinion issued by this Office in a Memorandum dated December 5, 2007 to the Assessment Service of the BIR. In the said Memorandum that was issued relative to the Special Revalidation of Mehitabel's Tax Credit Certificate (TCC) Nos. 007905, 007906, 007908, 002316, 002317, 002318, and 002319, this Office opined "Based on the foregoing, this Office is of the opinion that due to the failure of Mehitabel, Inc. to apply for the regular revalidation of its TCC Nos. 007905, 007906, 007908, 002316, 002317, 002318, and 002319, these are now considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government." The above disposition was made upon considering the facts disclosed by the documents submitted. SATDEI Background TCC Nos. 007905, 007906, and 007908, having been issued on October 10, 1996, were revalidated pursuant to the general revalidation provision under Section 230 (c) of the 1997 Tax Code on December 23, 1998, thus said TCCs were valid until December 23, 2003. On the other hand, TCC Nos. 002316, 002317, 002318, and 002319 were issued May 21, 2002 and were valid until May 21, 2007. On September 25, 2003, Mehitabel, Inc. filed with the DOF-OSS a request for the transfer of its seven (7) TCCs to Pilmico Foods Corporation because of the Deed of Assignment executed between them. However, during the process of transfer, TCC Nos. 007905, 007906, and 007908 expired on December 23, 2003 since no regular revalidation was requested by Mehitabel in accordance with Section 230 1 of the 1997 Tax Code and further laid down in Sec. 5 of Revenue Regulation No. 5-2000 2 dated July 19, 2000. Consequently, the TCCs were disallowed for transfer. Mehitabel applied for special revalidation of TCC Nos. 007905, 007906, and 007908 only on March 7, 2006. Notwithstanding the fact that the TCCs were in the custody of the DOF-OSS even before its expiry, Mehitabel had the responsibility of applying for the regular revalidation of said TCCs before December 23, 2003 as provided for in the "Guidelines for Handling Applications for Special Revalidation Filed After 31 March 2004" that was approved by Executive Committee Resolution dated 02 February 2005, as specified by D.O. No. 19-03, provides: "V. Other issues 1. For TCCs jointly issued by the BIR and the Center, the TCC owner shall have the responsibility of applying for the regular revalidation as provided under RR 5-2000 prior to the expiration of the TCC, even if the subject TCC is with the custody of the DOF-OSS or the BIR." (Emphasis supplied) As for TCC Nos. 002316, 002317, 002318, and 002319 which were issued May 21, 2002, they were valid until May 21, 2007. Mehitabel filed for special revalidation of aforementioned TCCs on April 24, 2006. This was allowed under second paragraph of Sec. 3 (3) of said D.O. 19-03 3 subject to the approval of the DOF-OSS Center's Executive Committee. cDHAaT A special revalidation, nevertheless, does not have the effect of renewing the validity period of the TCCs. This is clear in the provisions of D.O. 19-03, viz.: "4. The Center shall accept applications for special revalidation in accordance with the following procedure: xxx xxx xxx c. The Center shall prepare the revalidated TCC using the new forms equivalent to the validated remaining balance. These revalidated TCCs shall be forwarded for the signature by the authorized signatory at the BIR or the BOC. The revalidated TCC shall indicate the date of original issuance, date of revalidation and the TCC maturity date. The maturity date of the TCC shall be the same as that of the original issuance and shall undergo regular revalidation as provided by law. " (Emphasis supplied) Therefore, even if TCC Nos. 002316, 002317, 002318, and 002319 have been processed for special revalidation under D.O. 19-03, the Center shall only prepare the revalidated TCCs using new forms as prescribed but the maturity date will be the same as the date of issuance because the special revalidation only verified the integrity and authenticity of the TCCs, it shall still undergo regular revalidation in accordance with Sec. 230 of the Tax Code of 1997. For failure to apply for revalidation of the TCC Nos. 002316, 002317, 002318, and 002319, they expired while being processed at the BIR. Mehitabel's Request for Reconsideration Upon denial of its request for special revalidation of TCC Nos. 007905, 007906, 007908, 002316, 002317, 002318, and 002319, Mehitabel filed a letter dated May 14, 2008 requesting reconsideration of the legal opinion contained in the Memorandum dated December 5, 2007 based on the following premises: EIAScH 1) Mehitabel was of the impression that when applications for TCC transfer were filed, the TCCs were at the same time being processed for special revalidation; 2) Sometime in June 2004, Mehitabel learned of DOF-OSS EXECOM Resolution No. 2251-31-2004, which reads in part: "RESOLVED, as it is hereby resolved, that the BIR would issue a ruling to the effect that applications for special revalidation shall be considered as requests for extension of maturity date of subject TCCs, especially if the expiry date of the TCC falls within the processing period for special revalidation." Mehitabel relied on the aforestated Resolution in good faith such that its request for special revalidation will be considered submitted for regular revalidation; 3) Neither the OSS Center nor the BIR immediately notified Mehitabel of the expiration of the various TCCs; and 4) Mehitabel applied for transfer in 2003 and it took close to 5 years for the Government to process the same resulting to expiration of the TCCs while in the possession and custody of the Government. BIR Position on the Request for Reconsideration In reply, please be informed that when TCC Nos. 007905, 007906, 007908 were revalidated pursuant to the general revalidation provided under Section 230 (c) of the 1997 Tax Code, the new TCCs issued were marked "Valid Until December 28, 2003" . Mehitabel is aware of the TCCs expiry dates. The OSS-Center, meanwhile, suspended processing of Mehitabel's application due to incomplete documents. 4 By the time Mehitabel complied with the requirements, TCC Nos. 007905, 007906, 007908 expired. Consequently, only TCC Nos. 002316, 002317, 002318, and 002319 were recommended for the approval of its transfer. The BIR Ruling or issuance referred to in the EXECOM Resolution which Mehitabel asserts to have relied upon has not come into existence yet, hence, this Office has no legal basis to consider Mehitabel's applications for special revalidation as requests for extension of the maturity dates of subject TCCs. HcaDIA However, it is noted that the period for processing of Mehitabel's TCC Nos. 002316, 002317, 002318, and 002319 was protracted. The chronology of events shows that after Mehitabel's compliance in March 2004 until the May 8, 2007 Memorandum of Assistant Commissioner Simple of the Assessment Service requesting legal opinion on the issue of Mehitabel's TCCs, more than 3 years have passed and the subject TCCs were close to expiring. This is an unreasonable delay on the part of the BIR and DOF-OSS in dealing with Mehitabel's request considering that the requirements were complete. There should have been no reason why Mehitabel's TCCs could not be promptly dealt with. Had the TCCs been processed in due time, Mehitabel's TCCs could have been returned earlier and Mehitabel could have timely filed for their regular revalidation upon advise before the TCCs' expiration on May 21, 2007. Mehitabel should not be prejudiced by the delay on the part of the Government in processing its requested transfer. In the case of Mirant (Navotas II) Corporation (Southern Energy Navotas II Power, Inc. [formerly Hopewell Energy Philippines] Corporation) vs. Commissioner of Internal Revenue (CA-G.R. SP No. 64811, October 9, 2002), the Court of Appeals held "Still and all, this Court resolves to grant petitioner Mirant its refund. Just as the government is entitled to expect taxpayers to pay their taxes promptly, taxpayers are similarly entitled to expect that the government, through the BIR, shall also act promptly and expeditiously on their pending applications or papers. Respondent CIR's inaction or undue delay in approving petitioner Mirant's application cannot prejudice the latter's right to earned input VAT to which it is already entitled having already complied with the requirements set forth by law." Also in Philex Mining Corporation vs. Commissioner of Internal Revenue, et al., (G.R. No. 125704, August 28, 1998) the Supreme Court emphasized the government's duty to provide fair service to taxpayers, to wit: "In no uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's development." CSIcTa In view of the foregoing and after a careful re-study of this case as well as the previously issued Memorandum, this Office hereby partially grants Mehitabel's request for reconsideration such that TCC Nos. 007905, 007906, and 007908, having expired on December 23, 2003 before Mehitabel's compliance of the requirements, are now considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government. On the other hand, applying the principles of equity and fairness and considering that TCC Nos. 002316, 002317, 002318, and 002319, that were valid until May 21, 2007, have undergone special revalidation, the same may be considered as revalidated pro hac vice for purposes of extending its validity period. Thus, the said TCCs may now be replaced with new TCCs indicating the new expiry date, May 21, 2012. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. "SEC. 230. Forfeiture of Cash Refund and of Tax Credit. IaHAcT xxx xxx xxx (B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provision of this Code, which remains unutilized after five (5) years from date of issue shall, unless revalidated before the end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government." (Emphasis supplied) 2. "SECTION 5. Period of Validity, Conversion and Revalidation. a) Validity Period. Any Tax Credit Certificate (TCC) issued in accordance with the pertinent provision of the Tax Code of 1997 which remains unutilized after five (5) years from date of issue shall, unless revalidated before the end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government. The revalidated TCC shall be valid for a period of five years from the date of issue." (Emphasis supplied) 3. "Section 3. General Procedures on the Special Revalidation. The Center, BOC and the BIR shall require the holders of outstanding TCCs to surrender the same to the Center for special revalidation starting October 1, 2003 up to March 31, 2004. Outstanding TCCs not submitted within the revalidation period shall still be allowed for revalidation subject to approval of the Center's Executive Committee." 4. Refer to the Chronology of Events.