Jacinto-Henares v. Philippine Plaza Holdings, Inc.

EN BANC [C.T.A. EB CASE NO. 1571. August 3, 2018.] (C.T.A. Case No. 8609) HON. KIM S. JACINTO-HENARES, COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. PHILIPPINE PLAZA HOLDINGS, INC. , respondent . DECISION MINDARO-GRULLA , J p : Submitted for decision of this Court En Banc is a Petition for Review filed by the Commissioner of Internal Revenue (CIR) under Section 3 (b), Rule 8 of the 2005 Revised Rules of the Court of Tax Appeals, 1 as amended , seeking the nullification of the Decision dated April 6, 2016, 2 the subsequent Amended Decision dated August 12, 2016 3 and the Resolution dated November 23, 2016 4 rendered by the Second Division of this Court, the dispositive portions of which, respectively, read as follows: HTcADC Decision dated April 6, 2016: " WHEREFORE , premises considered, the instant Amended Petition for Review is hereby DENIED for lack of jurisdiction. SO ORDERED ." Amended Decision dated August 12, 2016: "In view of the foregoing, petitioner's Motion for Reconsideration (Re: Honorable Court's Decision dated 6 April 2016) is hereby GRANTED . Accordingly, the dispositive portion of the Decision dated April 6, 2016 is hereby modified to read as follows: WHEREFORE , premises considered, the Amended Petition for Review, filed by Philippine Plaza Holdings, Inc., claiming for refund of surcharge collected and paid in the amount of Eight Hundred Seven Thousand Nine Hundred Fifty-One Pesos and 22/100 (P807,951.22) is hereby GRANTED . Accordingly, respondent is hereby ORDERED TO REFUND in favor of petitioner the amount of P807,951.22. SO ORDERED. SO ORDERED ." CAIHTE Resolution dated November 23, 2016: " WHEREFORE , the instant Motion for Reconsideration is hereby DENIED for lack of merit. SO ORDERED ." The following facts of the case as recited by the Court in Division in its Decision 5 and as established by evidence on record, read as follows: "Petitioner (now herein respondent) Philippine Plaza Holdings, Inc. (PPHI) is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, and the owner of Sofitel Philippine Plaza, with principal office at Suite 128, Sofitel Philippine Plaza, CCP Complex, Roxas Boulevard, Pasay City. Respondent (now herein petitioner) Kim S. Jacinto-Henares is the duly appointed Commissioner of Internal Revenue (CIR), with office address at the BIR National Office Building, BIR Road, Diliman, Quezon City. After its several attempts to file its 2nd Quarterly VAT Return through the EFPS on July 25, 2011, petitioner successfully filed the same only on the following day, July 26, 2011 at 4:19 a.m. As such, petitioner incurred surcharge for late payment. On July 26, 2011, petitioner filed an application for abatement of the VAT surcharge tax liability amounting to P807,951.22. The computed interest and compromise penalty for one day in the amount of P11,770.85 was voluntarily paid on 27 July 2011, thus petitioner requested for abatement of surcharge of late payment. On September 25, 2012, respondent denied petitioner's application for abatement of surcharge, which the latter received on October 3, 2012. Thus, petitioner filed the instant Petition for Review, through registered mail, on November 5, 2012, 6 and received by the Court on February 7, 2013. On April 18, 2013, respondent filed an Answer. Subsequently, respondent and petitioner filed their respective Pre-Trial Brief on May 28, 2013 and June 14, 2013, respectively. During the pendency of this case, petitioner paid the alleged VAT surcharge liability amounting to P807,951.22 on July 16, 2013, and respondent confirmed the said payment. On September 2, 2013, petitioner filed a Motion for Leave of Court to File Amended Petition for Review, and prayed for the admission of the Amended Petition for Review attached therein. Among others, petitioner added in the Amended Petition for Review an allegation of payment of the VAT surcharge liability and a prayer to grant the petitioner's claim for refund of such payment. The Court granted the aforesaid motion for leave of court and admitted the attached Amended Petition for Review in the Resolution dated November 18, 2013. On February 19, 2014, the Court denied the Motion for Reconsideration of the said Resolution. aScITE Accordingly, respondent submitted the Answer to the Amended Petition for Review on March 3, 2014, interposing the following special and affirmative defenses: '4. Respondent hereby reiterates and repleads the preceding paragraphs of this answer as part of her Special and Affirmative Defenses; The nature of the jurisdiction of the Court of Tax Appeals is exclusively appellate. It is a court of special jurisdiction and as such it can only take cognizance of such matters as are clearly within its jurisdiction. 5. In the present case, petitioner filed a Motion for Leave of Court to File Amended Petition for Review to reflect payment of the tax sought to be abated and convert its claim to a case for refund. 6. The mode of action resorted to by petitioner is against well-established procedure in claiming a refund/tax credit. 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 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 in accordance with Sections 204(C) and 229 of the NIRC, to wit: Section 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The commissioner may xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit or refund. SEC. 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, of any sum alleged to have been excessively or in any manner wrongfully 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. DETACa xxx xxx xxx 7. Petitioner in filing the instant petition hastily before this Honorable Court, attempts to circumvent well established rules. Further, petitioner violated the doctrine of exhaustion of administrative remedies. It should be emphasized that original jurisdiction over claims for refund of erroneously collected taxes is bestowed by law on respondent. 8. In accordance with the above stated provisions of law, a claim for refund or credit must be filed within two years from the date of payment. A Letter of Authority will then be issued authorizing the revenue officer to conduct audit and examination of the claimed refund. In the present case petitioner never filed any administrative claim for refund or credit, thus, no Letter of Authority was issued. Such being the case, no investigation ever commenced in the administrative level, thus no decision can be appealed to this Honorable Court. 9. The purpose of filing an administrative claim for refund/credit is to give the administrative agency the opportunity to ascertain the veracity and validity of the claim. This is the very essence, the very substance of the doctrine of exhaustion of administrative remedies. The doctrine rests upon the presumption that the administrative body, board, or officer, if given the chance to correct its mistake or error, may amend its decision on a given matter and decide it properly. Thus, non-compliance with a condition precedent renders the petition for review filed by petitioner dismissible. 10. In cases such as this, before judicial inquiry into the issue of whether taxpayers, in general, are entitled to a refund/tax credit under substantive law may be considered, they have an initial burden to discharge. Petitioner must prove that it complied with all the administrative requirements continuing up to judicial review. In other words, before trial de novo proceeds and disposes of the issue of refund entitlement under substantive law, it must first prove that there was procedural compliance in pursuing the administrative claim leading to the appellate proceedings. HEITAD 11. Clearly, the necessity of filing an administrative claim for refund is imperative. Absent these circumstances, the judicial claim merely becomes an attempt by the taxpayer to circumvent the role and duties of the Commissioner in evaluating taxpayer's claim for refund. Had petitioner filed its claim for refund/credit in the administrative level, respondent would have the opportunity to determine the veracity of its claim and might refund or issue a tax credit certificate for the claimed amount. The Honorable Court had no jurisdiction over the original petition for review from which this case emanated. 12. Section 7 of Republic Act No. 1125, as amended by Republic Act No. 3457 and further amended by R.A. No. 9282 and R.A. 9503 provides for the jurisdiction of the Court of Tax Appeals, to wit: SEC. 7. Jurisdiction. The CTA shall exercise: a. Exclusive appellate jurisdiction to review by appeal, as herein provided: 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. 13. Furthermore, Section 3(a) (1), Rule 4 of the Revised Rules of the Court of Tax Appeals provides: SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise: aDSIHc (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. 14. Respondent humbly submits that the issue of abatement may be properly passed upon by the Honorable Court if it is integrated as a collateral matter involving disputed assessments or refunds of internal revenue taxes not as a separate subject matter. 15. Moreover, the authority of the Commissioner of Internal Revenue to abate surcharges is enshrined in Section 204 of the National Internal Revenue Code of 1997, as amended, which states: SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. xxx xxx xxx (B) Abate or cancel a tax liability, when: (1) The tax or any portion thereof appears to be unjustly or excessively assessed; or (2) The administration and collection costs involved do not justify the collection of the amount due. All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud. xxx xxx xxx The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are reasonably exercised and that the government is not unduly deprived of revenues. 16. In consonance with her power to abate surcharge is her duty to render a report to the Chairmen of the Committee on Ways and Means of both Senate and House of Representatives every six (6) months. ATICcS 17. The said Committee determines whether the Commissioner in the exercise of her power to abate surcharges reasonably exercised her duty and that the government is not unduly deprived of revenues. 18. The exercise of the Commissioner of her power to abate surcharges is final and executory subject only to the review of the Committee on Ways and Means for reasonableness. 19. The above-quoted provisions clearly show that the abatement of surcharges is purely executive function and cannot in any way be appealed to the Honorable Court. An administrative claim for refund is a condition sine qua non before this Honorable Court can acquire jurisdiction over the case 20. The issue in the instant case does not merely involve amendments to the original petition for review. The real issue in the instant case is the compliance with the rules and procedures for an administrative claim for refund/credit. An administrative claim for refund is a condition sine qua non before this Honorable Court can acquire jurisdiction over the case. 21. The following discussion of the Supreme Court in the case of Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue is enlightening: The charter of the CTA expressly provides that its jurisdiction is to review on appeal 'decisions of the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes.' When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no 'decision' of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the Commissioner fails to decide within 'a specific period' required by law, such 'inaction shall be deemed a denial' of the application for tax refund or credit. It is the Commissioner's decision, or inaction 'deemed a denial,' that the taxpayer can take to the CTA for review. Without a decision or an 'inaction x x x deemed a denial' of the Commissioner, the CTA has no jurisdiction over a petition for review. ETHIDa 22. It bears emphasis that petitioner never filed any administrative claim for refund/credit. Hence there is neither denial of the claim for refund or credit nor any denial by inaction made by the Commissioner. Absent such denial, there is no decision that can be appealed to this Honorable Court. It is in effect an original action which must first be filed in the administrative level. Assuming the Honorable Court has jurisdiction, respondent avers that petitioner failed to properly support its request for abatement under Revenue Regulation 13-2001. 23. Under Section 114 of the NIRC of 1997, as amended, every person liable to pay the value-added tax must file a quarterly return within twenty-five (25) days following the close of each taxable quarter. Section 114 states: SEC. 114. Return and Payment of Value Added Tax. (A) In General. Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT registered persons shall pay the value-added tax on a monthly basis. 24. Petitioner has twenty-five (25) days from the close of each taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts. In the case at bar, the taxable quarter involved was for the period of April 1, 2011 to June 30, 2011. Applying Section 114 of the 1997 NIRC, respondent had until July 25, 2011 within which to file its quarterly return for gross sales or receipts. However, petitioner failed to comply with the above stated provision thus, petitioner is liable for surcharge amounting to P807,951.22. The legal basis for the imposition of the 25% surcharge is Section 248(A) of the NIRC of 1997 as amended, which states: TIADCc SEC. 248. Civil Penalties. (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases: (1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed. 25. Petitioner on July 27, 2011 filed an application for abatement or cancellation of VAT-surcharge, which was denied in a letter, dated September 25, 2012. The said letter was received by petitioner on October 3, 2012. 26. Revenue Regulations No. 13-2001 was promulgated to provide for the implementation of Section 204(B) of the National Internal Revenue Code (NIRC) of 1997, as amended. 27. Section 2 thereof provides for instances when the penalties and/or interest imposed on the taxpayers may be abated or cancelled on the ground that the imposition thereof is unjust or excessive, to wit: SECTION 2. Instances When the Penalties and/or Interest Imposed on the Taxpayer May Be Abated or Cancelled on the Ground That the Imposition Thereof Is Unjust or Excessive. 2.1 When the filing of the return/payment of the tax is made at the wrong venue; 2.2 When taxpayer's mistake in payment of his tax is due to erroneous written official advice of a revenue officer; 2.3 When taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute, force majeure , legitimate business reverses such as in the following instances, provided, however, that the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Section 249 of the Code: cSEDTC 2.3.1 Labor strike for more than six (6) months which has caused the temporary shutdown of business; 2.3.2 Public turmoil; 2.3.3 Natural calamity such as lightning, earthquake, storm, flood and the like; 2.3.4 Armed conflicts such as war or insurgency; 2.3.5 Substantial losses sustained due to fire, robbery, theft, embezzlement; 2.3.6 Continuous heavy losses incurred by the taxpayer for the last two (2) years; 2.3.7 Liquidity problem of the taxpayer for the last three (3) years; or 2.3.8 Such other instances which the Commissioner may deem analogous to the enumeration above. 2.4 When the assessment is brought about or the result of taxpayer's non-compliance with the law due to a difficult interpretation of said law; 2.5 When taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control, provided, however, that abatement shall cover only the surcharge and the compromise penalty and not the interest; 2.6 Late payment of the tax under meritorious circumstances such as those provided hereunder: 2.6.1 One day late filing and remittance due to failure to beat bank cut-off time; 2.6.2 Use of wrong tax form but correct amount of tax was remitted; AIDSTE 2.6.3 Filing an amended return under meritorious circumstances, provided, however, that abatement shall cover only the penalties and not the interest; 2.6.4 Surcharge erroneously imposed; 2.6.5 Late filing of return due to unresolved issue on classification/valuation of real property (for capital gains tax cases, etc.); 2.6.6 Offsetting of taxes of the same kind, i.e. , overpayment in one quarter/month is offset against underpayment in another quarter/month; 2.6.7 Automatic off-setting of overpayment of one kind of withholding tax against the underpayment in another kind; 2.6.8 Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines pending the issuance by the Securities and Exchange Commission of the license to the Philippine branch office or subsidiary, provided, however, that the abatement shall only cover the surcharge and the compromise penalty and not the interest; 2.6.9 Wrong use of Tax Credit Certificate (TCC) where Tax Debit Memo (TDM) was not properly applied for; and 2.6.10 Such other instances which the Commissioner may deem analogous to the enumeration above. 2.7 Other cases similar or synonymous thereto. 28. The circumstances surrounding petitioner's failure to file the quarterly VAT within the required period is not one of those mentioned in Section 2 of Revenue Regulations No. 13-2001. 29. One day late filing mentioned in RR No. 13-2001 must be due to the failure to beat bank cut-off. SDAaTC 30. Petitioner had ample time from July 1, 2011 to July 25, 2011 within which to file its quarterly VAT return. 31. Contrary to petitioner's allegation, no reported case of system unavailability was recorded in the BIR-EFPS Help Desk Facility and no other error logs were available to show that technical problems were actually experienced by the system and/or the taxpayer. 32. Timely filing and payment of tax is important to maintain the proper functioning of the government. Thus, for failure of petitioner to timely comply with its obligation, imposition of surcharge is nothing but a consequence of its own act.'" After trial on the merits, petitioner's Memorandum was filed through registered mail on January 10, 2015, and received by the Court on January 14, 2015. As per Records Verification dated February 6, 2015, no memorandum was filed by respondent, thus, the case was submitted for decision on February 10, 2015. However, respondent filed on March 6, 2015, a Motion to Admit Attached Memorandum, which the Court granted in a Resolution dated on April 10, 2015. Accordingly, on the same date, the case was submitted for decision. On April 6, 2016, the Court in Division denied the Amended Petition for Review for lack of jurisdiction. Aggrieved, PPHI filed a Motion for Reconsideration, which the Court in Division granted ordering the CIR to refund PPHI the amount of P807,951.22. The assailed Amended Decision was promulgated on August 12, 2016. Unsatisfied, the CIR filed a Motion for Reconsideration, but the same was denied in a Resolution dated November 23, 2016. Hence, this Petition for Review was filed. In the instant Petition for Review, the CIR posits that an administrative claim for refund is a condition sine qua non before this Court can acquire jurisdiction over the case. We rule to DENY the Petition for Review. We acknowledge that the very provision of the NIRC of 1997 that the CIR relies on is unequivocal with regard to its power to decide on claims for refund of internal revenue taxes. Section 4 of the NIRC, as amended, provides as follows: "SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. x x x The power to decide disputed assessments, refunds of internal revenue taxes , fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals ." AaCTcI As an administrative agency, the power to implement and interpret a law which the CIR has been entrusted to enforce has the force of law and is entitled to respect. However, such authority, no matter how vast, does not automatically give them vested discretion or right on how such rules and regulations should be implemented. Moreover, a reading of the provision above limits such authority when the law subjected such power to the review and appellate jurisdiction of this Court. Section 7 (a) (1) of R.A. 1125, 7 as further amended by R.A. 9282, expressly provides that the Court of Tax Appeals has exclusive appellate jurisdiction to review decisions and inactions by the CIR in cases involving refunds of internal revenue taxes, fees, and other charges and penalties in relation thereto . Notably, in the case of Vda. De San Agustin vs. Commissioner of Internal Revenue , 8 as cited by the Court in Division, it reiterated the doctrine embodied in the case of Roman Catholic Archbishop of Cebu vs. Commissioner of Internal Revenue , 9 which provides as follows: " To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case , for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities. The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's appeal to it." In the case at bar, records reveal that PPHI filed an Application for Abatement 10 of the Value-Added Tax (VAT) Surcharge in the amount of P807,851.22. In a letter dated September 25, 2012, 11 the CIR denied its application. A close scrutiny of the foregoing circumstances would show that PPHI's filing of an administrative claim would be a futility because the same office where such administrative claim will be filed is the same office which denied the application for abatement. Evidently, a ruling in favor of PPHI is not to be expected. Based on the afore-mentioned circumstances, it can already be inferred that there is a denial of PPHI's claim for refund. Therefore, it places the issue at hand already within the jurisdiction of this Court. Even so, Sections 204 (C) 12 and 229 13 of the NIRC of 1997, as amended, provide no other requirements or further qualifications in connection with refund of taxes other than the existence of internal revenue taxes alleged to have been erroneously or illegally assessed or collected . 14 acEHCD In the same vein, the CIR's insistence that PPHI is not entitled to the claim for refund on the ground that it failed to properly substantiate its application for abatement pursuant to Section 2.5 of Revenue Regulations (RR) No. 13-2001 is without merit. Section 2.5 of Revenue Regulations (RR) No. 13-2001 provides as follows: " Sec. 2. Instances when the penalties and/or interest imposed on the taxpayer may be abated or cancelled on the ground that the imposition thereof is unjust or excessive . xxx xxx xxx 2.5 When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control , provided, however that the abatement shall cover only the surcharge and the compromise penalty and not the interest; 2.6 Late payment of the tax under meritorious circumstances such as those provided hereunder: 2.6.1 One day late filing remittance due to failure to beat bank cut-off time ; xxx xxx xxx 2.7 Other cases similar or synonymous thereto ." A careful consideration of all the facts and evidence presented, the Court En Banc agrees with the Court in Division that the case falls within the purview of the above-cited Revenue Regulation. While it is true that PPHI belatedly filed its tax return, it is also undisputed that there were repeated attempts to timely file such tax return. Regrettably, due to a system error in the BIR-EFPS facility, PPHI was prevented from fully complying with the mandate of the law and was constrained to pay the VAT Surcharge. The Court in Division clearly laid out pertinent provisions of the Memorandum dated May 28, 2012 issued by the LTS Sub-Technical Working Committee, to show proof of such fact and its recommendation to approve the abatement requested, to wit: "IV. Explanations/Justifications of the Offer: Philippine Plaza thru its A/P Accountant filed on July 25, 2011, its 2nd quarter VAT Return covering the period April 01, 2011 to June 30, 2011 thru EFPS. However, due to intermittent internet connection resulting to system error , the filing was not successfully complied until 4:19am of July 26, 2011. The officer in-charge of filing the said quarterly VAT Return exerted diligent effort including staying overnight in the office just to file the said return within the prescribed period, however, it ended to no avail . Please refer to the attached Endorsement letter of Ms. RAQUEL CRISTINA V. BALTAZAR, Head, ISOS Data Center dated May 24, 2012, wherein system logs of the BIR-EFPS facility showed that the taxpayer started and was continuously using the facility from July 25, 2011 at 10:51 A.M. up to July 26, 2011 at 4:19 AM . Further, the taxpayer called up the EFPS hotline on July 25, 2011, between 1:00pm to 6pm but failed to request for a trouble ticket from the BIR-EFPS Help Desk Facility. The said VAT Return was successfully filed only at 4:19am of July 26, 2011 and ITS verification showed that payment was posted on the same day. The computed interest and compromise penalty for one (1) day in the amount of Eleven Thousand Seven Hundred Seventy and 85/100 pesos (Php11,770.85) was voluntarily paid on July 25, 2011. It is for this reason that subject taxpayer is requesting for abatement of surcharge on late payment amounting to Eight Hundred Seven Thousand Nine Hundred Fifty One & 22/100 Pesos (Php807,951.22). V. Recommended Action EcTCAD A. Evaluator In view of the foregoing, it is respectfully recommended that the taxpayers request for abatement and/or cancellation of surcharge amounting to Eight hundred seven thousand nine hundred fifty one and 22/100 pesos (P807,951.22) be approved pursuant to Section 204(B) of the NIRC and in relation to Section 2.5 of RR 13-2001 dated September 27, 2001 . (signed) BELEN C. SEVILLA Evaluator (signed) OSCAR A. SABLE Group Supervisor (signed) MELINDA ANNE A. PEREZ Section Chief B. LTS, Sub-Technical Working Committee In view thereof, it is hereby recommended that the aforesaid application for abatement of the surcharge in the amount of Eight hundred seven thousand nine hundred fifty one and 22/100 pesos (P807,951.22) be approved pursuant to Section 204 (B) and in relation to Section 2.5 of RR 13-2001 dated September 27, 2001. SDHTEC (signed) EDWIN T. GUZMAN Chief, LTRAL 2 (signed) AMELIA C. RIVERA Asst. Chief, LT CED (signed) VIRGILIO R. CEMBRANO Chief, LT CED (signed) MAGDALENA A. ANCHETA Chief, LT Programs Div. (signed) BEATRIZ S. PELINO Chief, LT DP QAD (signed) TERESITA M. DIZON HREA, Large Taxpayers Service (signed) ALFREDO V. MISAJON OIC Assistant Commissioner Large Taxpayers Service" In view of the foregoing, there is no doubt that the CIR acknowledged the fact that there has been a system error and that PPHI exerted diligent efforts to timely file its tax return. There is also nothing on record which would convince the Court En Banc otherwise. Lastly, the CIR's argument that PPHI should have strictly complied with the revenue regulation baffles this Court as it contradicts the very action exhibited by him. A scrutiny of the letter dated June dated September 25, 2016 shows that the application for abatement was plainly denied on account of "factual and legal basis." Section 4.1 of the Revenue Regulations No. 13-2001 clearly requires as follows: "SEC. 4. THE COMMISSIONER HAS THE SOLE AUTHORITY TO ABATE OR CANCEL TAX, PENALTIES AND/OR INTEREST. xxx xxx xxx The application for abatement or cancellation of tax, penalties and/or interest should state the reasons and causes for such request. Documentary proofs for the underlying reasons and causes afore-stated should be appended to the "Application for Abatement or Cancellation of Tax, Penalties and/or Interest" (Annex "A"). On the other hand, denial of the application for abatement or cancellation of tax, penalties and/or interest should state the reasons therefor ." (emphasis supplied) In this regard, it bears emphasis that the CIR has an equally important responsibility of contradicting PPHI's claim by providing it with sufficient details as to the reason for the denial of its application for abatement. By simply stating in the letter that the application lacks legal and factual basis shows that the CIR himself failed to comply with the very same Revenue Regulation which he completely relied upon in denying PPHI's request for abatement and cancellation of the VAT surcharge. HSAcaE Further, the fact that there was unanimous recommendation for the approval of PPHI's request for abatement or cancellation of the surcharge also debunks the CIR's contention that there is no factual or legal basis for the application. In light of the factual circumstances, PPHI having complied with the requirements provided for under the NIRC, and without the CIR showing contrary evidence other than the bare assertion that the application for abatement lacks factual and legal basis, the burden of proof of establishing the propriety of PPHI's claim has been sufficiently discharged. Hence, the cancellation/abatement of the payment made by PPHI and the grant of refund is proper. Accordingly, this Court maintains that substantial justice, equity and fair play take precedence over technicalities and legalisms. To deny the claim for refund where an erroneous collection of taxes clearly exists would be tantamount to unjust enrichment on the part of the government. It is a long standing principle in our legal system that no one should unjustly enrich himself at the expense of another. This is known as the principle of solutio indebiti , and the pertinent laws governing this principle are found in Articles 2142 15 and 2154 16 of the New Civil Code of the Philippines. It must be stressed that this applies not only to individuals but to the State as well. In the field of taxation where the State exacts strict compliance upon its citizens, the State must likewise deal with taxpayers with fairness and honesty. The harsh power of taxation must be tempered with evenhandedness. Therefore, under the principle of solutio indebiti , the Government has to restore to PPHI the sums representing its erroneous payment of the VAT surcharge. 17 Under the premises, We find no cogent reason to deviate from the rulings of the Court in Division. WHEREFORE , the petition is DENIED . The Amended Decision dated August 12, 2016 and the Resolution dated November 23, 2016 of the Second Division of this Court in CTA Case No. 8609 are hereby AFFIRMED . No pronouncement as to costs. SO ORDERED. (SGD.) CIELITO N. MINDARO-GRULLA Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino and Ma. Belen M. Ringpis-Liban, JJ. , concur. Lovell R. Bautista, J. , is on leave. Catherine T. Manahan, J. , with Dissenting Opinion. Separate Opinions MANAHAN , J., dissenting opinion : The majority of my esteemed colleagues hold the view that a written claim for refund filed with the Bureau of Internal Revenue (BIR) is no longer required in cases where the taxpayer filed an Application for Abatement of VAT surcharge and the same was denied by the Commissioner of Internal Revenue (CIR). They went on to state that to require the filing of an administrative claim in this case would be a useless formality or an absurdity as it would just be disallowed by the BIR in the same way as the application for abatement. AScHCD I respectfully dissent from the majority view and the reasons adduced for the conclusion as it has no basis in law. Section 204 (C) of the 1997 National Internal Revenue Code (1997 NIRC) specifically requires that a written claim for refund must first be filed with the Commissioner of Internal Revenue (CIR) within two (2) years after the payment of the tax. Section 229 further adds that a judicial claim for refund (or a proceeding in court) must be preceded by a written claim for refund duly filed with the CIR otherwise the same will not prosper. For clarity, we quote the pertinent portions of the cited provisions of the law: "Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . -The Commissioner may- xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided , however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. 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 of Internal Revenue; but such suit or proceeding may be maintained whether or not such tax, penalty or sum has been paid under protest or duress. x x x 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." HESIcT The aforecited laws admit only of two exceptions where a written claim for refund is no longer required and these are as follows: 1) That the return filed showing an overpayment, shall be considered a written claim for refund (Section 204 (C)); and 2) That the CIR, even without a written claim for refund, may grant the same, where on the face of the return, such payment appears clearly to have been erroneously paid (Section 229). Neither of the above instances exists in the instant case because it involves an alleged overpayment of surcharges due to the peculiar circumstances attendant to the online filing of the VAT return. Although, a surcharge is not a tax, such is considered a "penalty" which is covered under the relevant provisions of the law. The need to exhaust administrative remedies before recourse to the courts is the underlying reason for the requirement of a written claim for refund with the administrative body, the essence of which is explained clearly by the Supreme Court in the case of Philippines vs. Catungal Jr., et al. , 1 thus: "The underlying principle of the rule on exhaustion of administrative remedies rests on the presumption that the administrative agency, if afforded a complete chance to pass upon the matter, will decide the same correctly. There are both legal and practical reasons for the principle." More than just a discourse on the exhaustion of administrative remedies, my dissent spreads further to the issue of jurisdiction which is intimately linked to a written claim for refund. It is quite clear that Section of RA 1125 as amended by RA 9282, speaks of "decisions of the Commissioner of Internal Revenue" on claims for refund which bespeaks of a prior claim for refund with the BIR before the Court can acquire jurisdiction and we quote: AcICHD "Section 7. Jurisdiction . The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto , or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;" (emphasis supplied). The decision may be in the form of an outright written denial or a "deemed denial" in cases where the CIR fails to act on the claim and the two-year prescriptive period is about to expire. To take cognizance of a claim for refund filed directly with the Court without a prior written claim with the BIR (which imposed the surcharge), in my humble opinion, divests this Court of jurisdiction over the subject matter. To say that a written claim for refund will be absurd in cases where the CIR will just deny it in the same manner as it denied the application for abatement, is to belabor the issue and contravenes the purpose and essence of the law, especially the law on jurisdiction which, by its nature, is always strictly construed. Basic is the precept that "jurisdiction is conferred by law." 2 No amount of reasoning, e.g. , absurdity or useless exercise etc., can work to confer jurisdiction on a case if the law strictly imposes a condition before a court can hear and determine a particular controversy. Wherefore, I vote to grant the Petition for Review filed by the Commissioner of Internal Revenue. Footnotes 1. RULE 8, Sec. 3. Who may appeal; period to file petition. xxx xxx xxx (b) A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court by filing before it a petition for review within fifteen days from receipt of a copy of the questioned decision or resolution. Upon proper motion and the payment of the full amount of the docket and other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed, the Court may grant an additional period not exceeding fifteen days from the expiration of the original period within which to file the petition for review. (Rules of Court, Rule 42, Sec. 1a) xxx xxx xxx 2. Penned by Associate Justice Caesar A. Casanova, concurred in by Associate Justice Juanito C. Castaeda and Associate Justice Amelia R. Cotangco-Manalastas, En Banc Docket, pp. 25-47. 3. Id. , pp. 48-60. 4. Penned by Associate Justice Caesar A. Casanova, concurred in by Associate Justice Juanito C. Castaeda, En Banc Docket, pp. 62-64. 5. Supra note 2. 6. November 2, 2012 falls on a special non-working Holiday, PPHI has until November 5, 2012, which is the next working day within which to file its Petition for Review pursuant to Section 1, Rule 22 of the Rules of Court. 7. Section 7. Jurisdiction. The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto , or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. 8. Vda. De San Agustin vs. Commissioner of Internal Revenue , G.R. No. 138485, September 10, 2001. 9. Roman Catholic Archbishop of Cebu vs. Commissioner of Internal Revenue , G.R. No. L-16683, January 31, 1962. 10. Exhibit "P-8", Division Docket, pp. 491. 11. Exhibit "P-9", Division Docket, p. 482. 12. Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority , refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. 13. 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. 14. CIR vs. George T. Olivo and Cash World Lending, Inc. , CTA EB No. 1286, September 2, 2016. 15. Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another . 16. Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises . 17. Filinvest Development Corporation v. Commissioner of Internal Revenue , G.R. No. 146941, August 9, 2007. MANAHAN, J., dissenting opinion: 1. G.R. No. 121863, May 5, 1997. 2. Angelito P. Magno vs. People of the Philippines , G.R. No. 171542, April 6, 2011.