GR 134587; (July, 2005) (Digest)
G.R. No. 134587 & 134588. July 8, 2005.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BENGUET CORPORATION, Respondent.
FACTS
Benguet Corporation, a VAT-registered mining company, applied for and was granted zero-rated status for its sales of gold to the Central Bank based on BIR VAT Ruling No. 3788-88 and several subsequent issuances. Relying on these rulings, Benguet sold gold to the Central Bank from August 1989 to July 1991 and incurred substantial input VAT on related purchases. It subsequently filed claims for tax refund or credit corresponding to this input VAT, as it had no output VAT against which to credit them due to its zero-rated status.
The BIR, however, disallowed these claims. It issued VAT Ruling No. 008-92 in January 1992, which reclassified the sale of gold to the Central Bank as a domestic transaction subject to 10% VAT, not a zero-rated export sale. The BIR applied this new ruling retroactively to the period covering Benguet’s sales, thereby revoking the prior zero-rating and denying the refund claims. The Court of Tax Appeals upheld the BIR’s retroactive application, prompting Benguet to appeal to the Court of Appeals, which reversed the CTA.
ISSUE
Whether BIR VAT Ruling No. 008-92, which revoked the zero-rating of sales of gold to the Central Bank, can be applied retroactively to the prejudice of Benguet Corporation.
RULING
No, the ruling cannot be applied retroactively. The Supreme Court affirmed the Court of Appeals, ruling that the retroactive application of VAT Ruling No. 008-92 violated Section 246 of the National Internal Revenue Code. This provision prohibits the retroactive application of rulings or circulars issued by the Commissioner of Internal Revenue that would prejudice the taxpayer.
The Court held that Benguet was clearly prejudiced. It relied in good faith on the prior official rulings declaring the transactions as zero-rated. This reliance induced Benguet to structure its business transactions, sell its gold, and incur input VAT with the legitimate expectation of claiming corresponding refunds. The subsequent retroactive revocation of the zero-rating status deprived Benguet of these substantial refunds, constituting definitive financial prejudice. The BIR’s argument that no prejudice existed because Benguet could have passed on the tax burden was speculative and disregarded the actual financial injury from the disallowed claims. Therefore, the BIR ruling could only be applied prospectively from its issuance in 1992.