Conflict on the irrevocability rule

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Archie D. Guevarra

Taxwise Or Otherwise

One of the well-established doctrines in the legal practice is stare decisis — a Latin term for “to stand by things decided”. It is based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed from further argument. As aptly discussed by then Chief Justice Reynato Puno, there are two types of stare decisis: vertical and horizontal. The first pertains to the duty of lower courts to apply the decisions of the higher courts to cases involving the same facts, while the second requires that the high court must follow its own precedents. The application of stare decisis is a bar to any attempt to re-litigate the same issues, necessary for two simple reasons, i.e. economy and stability.

On March 7, 2018, the Supreme Court’s Third Division, through the ponencia of Justice Samuel Martires, settled a novel issue on the irrevocability of the option to refund by the taxpayer. The Court held that the irrevocability rule found under Section 76 of the Tax Code only applies to the carryover option and not to the refund option. Although the taxpayer initially elected the refund option in its annual income tax return (ITR), the subsequent carryover it made the following year effectively abandoned its refund claim from the government. The Court explained that the last sentence of Section 76 of the Tax Code unmistakably discloses that the irrevocable option refers only to the carryover option.

In a complete turnaround in a separate case on Aug. 1, 2018, the same division of the Supreme Court rendered a new ruling that appears to contradict its earlier pronouncement. Through the ponencia of incumbent Chief Justice Lucas Bersamin, the Court took the position that once elected, the option to refund is already irrevocable regardless of the subsequent carryover by the taxpayer. The Court held that the Court of Tax Appeals misappreciated the fact that the taxpayer already exercised the option to refund its unutilized creditable withholding tax for the year 2005 when it filed its annual ITR. It went on to explain that the requisites for entitlement to refund were sufficiently satisfied by the taxpayer, which are: (1) the refund must be filed within the two-year reglementary period; (2) the income is declared on the ITR; and (3) the fact of withholding is established by a copy of the withholding tax statement.

Given the conflicting decisions of the Supreme Court, how should we interpret the two decisions?

The application or interpretation placed by the Supreme Court upon a law is part of the law as of the date of its enactment since the Court’s application or interpretation merely establishes the contemporaneous legislative intent that the construed law purports to carry into effect. Following the 1987 Philippine Constitution, no doctrine or principle of law laid down by the Supreme Court in a decision rendered En Banc or in Division may be modified or reversed except by the Court sitting En Banc.

This is not the first instance where the Supreme Court had conflicting positions in its decisions. Based on the precedent decisions, the Supreme Court would tend to uphold the validity of a later ruling which contradicts an established doctrine laid out by its previous ruling on the matter. This is irrespective of whether the later decision was decided by the Court sitting En Banc or in Division.

In dealing with inconsistencies, there are two approaches applied by the Supreme Court — either to harmonize the varying positions or to abandon one of the rulings.

As the highest tribunal, never in its history has the Supreme Court declared any decision rendered by its divisions as invalid. Based on a survey of decided cases, the Supreme Court tends to harmonize decisions rendered by its divisions by reconciling conflicting points, treating the latest decision as a mere clarification and not an abandonment of earlier rulings.

In certain cases, however, the Supreme Court’s latest decision on the matter serves as an abandonment of its previous decisions. Nonetheless, the Supreme Court recognizes the prospective application of such decisions, hence, upholding the validity of its earlier ruling. It should not apply to parties who had relied on the old doctrine.

A good example of the second approach would be the Supreme Court decisions involving the reckoning of the two-year prescriptive period for input VAT refund. Following the Atlas doctrine promulgated on June 8, 2007, the two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales should be reckoned from the date of filing of the return and payment of the tax due. However, this was reversed by the Mirant doctrine on Sept. 12, 2008, where the Court held that the two-year period is reckoned from the close of the taxable quarter when the relevant sales were made. In resolving the two doctrines in the San Roque case, the Supreme Court En Banc held that the Atlas doctrine is only effective from its promulgation on June 8, 2007 until its abandonment on Sept. 12, 2008 by the Mirant doctrine.

Of the two approaches, which one did the Supreme Court take on the irrevocability rule?

It may be inferred that the March decision was abandoned and superseded by the August decision of Chief Justice Bersamin. However, it would be good if the Court En Banc would be able to clarify and settle this issue just like what it did in the San Roque case.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.


Archie D. Guevarra is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

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