G.R. No. 145559 July 14, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BENGUET CORPORATION, respondent.

FACTS

Benguet Corporation, a VAT-registered mining company, sold gold to the Central Bank from January 1988 to July 1989. In reliance on a series of official BIR rulings and circulars issued from 1988 to 1990, including VAT Ruling No. 378-88 and RMC No. 59-88, it treated these sales as zero-rated export transactions. Consequently, it incurred input VAT attributable to these sales and filed applications for tax credit certificates totaling P131,741,034.22, which amount covered input taxes for both direct export sales and the gold sales to the Central Bank.
On January 23, 1992, the BIR issued VAT Ruling No. 008-92, which reclassified sales of gold to the Central Bank as domestic sales subject to 10% VAT, and mandated its retroactive application to transactions starting January 1, 1988. The Commissioner denied Benguet’s claim for refund/credit of input VAT on the gold sales, arguing the new ruling applied retroactively and that the company could credit the input taxes against output VAT from the now reclassified domestic sales. Benguet appealed to the Court of Tax Appeals and subsequently to the Court of Appeals.

ISSUE

Whether VAT Ruling No. 008-92 can be applied retroactively to deny Benguet Corporation’s claim for tax credit/refund of input VAT paid on its sales of gold to the Central Bank for the period January 1, 1988 to July 31, 1989.

RULING

No, the retroactive application is invalid. The Supreme Court affirmed the Court of Appeals’ decision granting the tax credit. The legal logic rests on the principle that revocatory rulings cannot be applied retroactively when they prejudice taxpayers who relied in good faith on previous official pronouncements. From 1988 to 1990, the BIR consistently issued rulings declaring such gold sales as zero-rated exports. Benguet justifiably relied on these rulings to its detriment by foregoing the chance to pass on the input VAT to the Central Bank, as it would have done for domestic sales. To retroactively apply the 1992 ruling revoking the zero-rating status would be manifestly unfair and inequitable.
The Court emphasized that while the BIR can interpret tax laws, such interpretations must not be applied retroactively if they would create injustice. The input VAT attributable to zero-rated sales is refundable under the law. Since the sales were correctly treated as zero-rated based on the prevailing rulings at the time of transaction, Benguet is entitled to the corresponding tax credit for the input VAT it paid, which the Court quantified at P49,749,223.31. The retroactive application would alter the tax consequences of already consummated transactions based on a changed administrative interpretation, violating basic fairness.