G.R. No. 151413 ; February 13, 2008
CAGAYAN VALLEY DRUG CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

FACTS

Petitioner Cagayan Valley Drug Corporation, a retailer operating under the name “Mercury Drug,” granted 20% sales discounts to qualified senior citizens in 1995 pursuant to Republic Act No. 7432 . Initially, it treated these discounts as deductions from gross sales following Revenue Regulation No. 2-94. However, on December 27, 1996, petitioner filed a claim with the BIR for a tax refund or credit of PhP 123,083, representing the total discounts, arguing that under Section 4 of RA 7432, the benefit should be treated as a tax credit. Due to BIR inaction, petitioner filed a petition for review before the Court of Tax Appeals (CTA) to prevent prescription.
The CTA, in its decision, agreed that RA 7432 grants a tax credit, not a deduction, and that RR 2-94 was an invalid interpretation. However, it dismissed the claim because petitioner incurred a net loss in 1995 and thus paid no income tax. The CTA ruled that a tax credit presupposes a tax liability against which it can be applied. Petitioner appealed to the Court of Appeals, which dismissed the petition on a procedural ground, holding that the verification and certification against forum shopping signed by the corporation’s president, Jacinto J. Concepcion, lacked proof of authorization from the board of directors.

ISSUE

The issues are: (1) whether the CA correctly dismissed the petition due to a defective verification and certification against forum shopping; and (2) whether the CTA correctly denied the claim for tax credit.

RULING

The Supreme Court granted the petition, reversing both the CA and the CTA. On the procedural issue, the Court held that the CA erred in applying Premium Marble Resources, Inc. v. Court of Appeals. The president of a corporation, by virtue of his general authority to manage corporate affairs, can sign the verification and certification without need for a specific board resolution. The signature of a corporate officer, who has personal knowledge of the facts, substantially complies with the rules.
On the substantive issue, the Court ruled that the CTA committed reversible error. RA 7432 explicitly grants the 20% sales discount as a tax credit, not a refund. The tax credit is a statutory entitlement that arises from the act of granting the discount; it is not contingent upon the existence of a tax liability or a profitable operation for the year. The government’s obligation to grant the credit is immediate upon compliance with the law. The CTA’s requirement of an existing tax liability erroneously imported a condition not found in the statute. Therefore, petitioner is entitled to a tax credit certificate for the full PhP 123,083.