The Court of Tax Appeals (CTA) has ordered the Bureau of Internal Revenue (BIR) to refund a sugar trader P46 million for the erroneously collected basic deficiency value-added tax (VAT) in 2008.

In the Aug. 10, 2023 decision, the CTA’s special first division granted the petition filed by ED & F Man Philippines, Inc. for the refund.

The tax controversy stemmed from the deficiency VAT amounting to P439,422,114.17 in 2008 and its compromise penalty in the amount of P25,000 assessed by the BIR.

ED & F Man Philippines protested the assessment, and the firm went back and forth with the BIR until the sugar trader paid the compromise amount of P46,018,145.17, which represented the 25 percent of the basic deficiency VAT for 2008.

In its petition for review filed with the CTA, the sugar trading firm insisted that the compromise payment was illegally collected because the deficiency VAT assessment for 2008 is barred by the statute of limitations under Section 203 of the National Internal Revenue Code (NIRC) and the BIR's issuance of a termination letter in its favor demonstrated its full settlement of such VAT liability.

While the CTA did not agree on the argument regarding the termination letter, it said that the petition of the firm should be granted because "the BIR conducted an invalid examination on petitioner for 2008."

"It means that the audit and examination conducted by respondent's (BIR) agents covering 2008 have no prior legal permission from respondent or his duly authorized representatives. Thus, the resultant deficiency VAT assessment slapped by the BIR against petitioner for 2008 is a patent nullity," the CTA ruled.

The CTA also pointed out that the due date in the assessment notice for VAT was left blank. As a result, there was an absence of demand for payment of such tax against ED & F Man Philippines.

"The all too familiar complaint is that the government acts with dispatch when it comes to tax collection, but pays little, if any, attention to tax claims for refund or exemption. It is high time our tax collectors prove the cynics wrong," the decision stated.

The 22-page decision was written by Associate Justice Marian Ivy F. Reyes-Fajardo with the concurrence of Associate Justice Catherine T. Manahan.  Presiding Justice Roman G. del Rosario issued a concurring and dissenting opinion.