ESSEX PHARMACEUTICALS INC. v. COMMISSIONER OF INTERNAL REVENUE

.. "'- ,. �~ REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION ESSEX PHARMACEUTICALS, INC., CTA CASE NO. 10742 Petitione0 -versus- Members: RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES, Jl. COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. SEP 19 21Jl4 X----------------------------------------------- - - ------------------------- -------~------ ------- RINGPIS-LIBAN, J. DECISION THE CASE Before the Court is a Petition for Review filed by petitioner Essex Pharmaceuticals Inc. praying that the Court render judgment: 1. Declaring petitioner entitled to a refund of value-added tax CVAT) erroneously paid on the importation of diabetes medicines in the amount ofP9,659,284.22; and 2. Ordering respondent to refund or issue a tax credit certificate to petitioner in the said amount of P9,659,284.22.1 THE PARTIES Petitioner Essex Pharmaceuticals, Inc. is a domestic corporation duly organized and existing under the laws of the Philippines, with principal office / ' 1 Statement of the Case, A mend ed Pre-Trial Order dated January 18, 2023, Docket, p. 309.

-.. Page 2 of16 DECISION �-- CTA CASE NO. 10742 the 26th Floor Philamlife Tower, 8767 Paseo de Roxas, Makati City.2 It is registered with the Bureau of Internal Revenue (BIR) under Taxpayer Identification Number (TIN) 005-376-872-00000.3 On the other hand, respondent is the duly appointed Commissioner of Internal Revenue with office address at c/o Rm. 703, 7th Floor, BIR National Office, Diliman, Quezon City.4 THE FACTS OF THE CASE On July 1, 2021, petltloner flied with respondent's Regular Large Taxpayers Audit Division I an Application for Tax Credits/Refunds (BIR Form No. 1914) and supporting documents for the amount ofP9,659,284.22, representing the alleged erroneously paid VAT on its importation ofVAT exempt medicines,5 for the period from January 23,2020 to July 9, 2020.6 Subsequently, on August 17, 2021 and November 15, 2021, petitioner flied its transmittal letter and supplemental letter, respectively.7 On December 13, 2021, petitioner received from respondent, through Assistant Commissioner Manuel V. Mapoy, the letter dated October 26, 2021, denying the claim for refund.8 Petitioner flied the present Petition for Review on February 2, 2022.9 The case was raffled to this Court's Third Division. Within the extended period,10 respondent flied his Answer on May 30, 2022. 11 On July 18, 2022, respondent transmitted the BIR Records for the present case, consisting of two (2) parts, with one hundred fifty-one (151) pages for Part I, and twenty-seven pages (27) for Part II, in one (1) folder.~:V/ { 2 Par. 1, Summary of Admitted Facts, Joint Stipulation if Fat"ts and Issues OSFI), Docket, p. 177; Exhibit "P-1", D ocket, pp. 359 to 371. 3 Exhibit "P-2", Docket, pp. 372 to 374. ~Par. 2, Summary o f Admitted Facts, JSFI, Docket, p. 177. sPar. 3, Summary o f Admitted Facts, JSFI, Docket, p. 177 . 6 Exhibit "P-9", D ocket, 79. 7 Exhibits "P-10" and "P-11", Docket, pp. 80 to 100. 8 Par. 4, Summary of Admitted Facts, JSFI, Docket, p. 177; Exhibits "P-1 2" and "R-2", BIR Records (Exhibit "R-3"), pp. 23 to 24. 9 Docket, pp. 6 to 17. 10 Motion for Extension if Time to File AnsJPer, Docket, pp. 11 7 to 11 9; Resolution dated May 11 , 2022, Docket, p. 123 . II Docket, pp. 124 to 131. l2 Compliam"l! dated July 15, 2022, Docket, p. 152 to 154.

DECISION CTA CASE NO. 10742 The Pre-Trial conference was set and held on September 15,2022.13 Prior thereto, Petitioner's Pre-Trial Brief was flied on September 9, 2022,14 while respondent's Pre-Trial Briefwas submitted on September 12, 2022.15 On October 17, 2022, the parties submitted their Joint Stipulation of Facts and Issues,16 which was admitted and approved in the Resolution dated October 25, 2022,17 thereby deeming the termination of the pre-trial. The Pre-Trial Order dated November 8, 2022 was then issued. 18 On November 4, 2022, the parties flied a Joint Motion to Amend Joint Stipulation ofFads and Issues to correct the description of certain documents to be presented by petitioner.19 Consequently, the amended Pre-Trial Order dated January 18, 2023 was issued.20 Trial then ensued, with the parties presenting and offering their respective testimonial and documentary evidence. Petitioner presented Ms. Paula Mae A. Francisco, petitioner's Tax Officer;21 and the Court-commissioned Independent Certified Public Accountant (ICPA) 22, Ms. Maricelle L. Ricaforte,23 The ICPA submitted her Report on January 3, 2023.24 Petitioner submitted its Formal Offer of Evidence for Petitioner on March 7, 2023.25 Respondent filed his Comment (On Petitioner's Formal Offer of Evidence) on March 17,2023.26 In the Resolution dated IVIay 10,2023,27 the Court admitted all of petitioner's offered exhibits/ t:l Notice of Pre-trial Conference dated June 2, 2022, Docket, pp. 147 to 148; Minutes of the hearing held on, and Order dated, September 15, 2022, Docket, pp. 173 and 175 to 176, respectively. 14 Docket, pp. 157 to 164. 15 Docket, pp. 168 to 170. 16 Docket, pp. 177 to 180. 17 Docket, p. 206. IS Docket, pp. 212 to 217. 19 Docket, pp. 207 to 209. 2� Docket, pp. 309 to 314. 21 Exhibit "P-1 4", D ocket, pp. 21 to 39; Minutes of the hearing held on, and Order, dated February 14, 2023, D ocket, pp. 332 to 334. 22 Oath oJCommiJJion dated November 17, 2022, Docket, p. 225; i\ifinutes of the hearing held on, and Order dated, November 17, 2022, Docket, pp. 224, and 228 to 229, respectively. 23 Exhibit "P-15'', Docket, pp. 318 to 327; :Minutes of the hearing held on, and Order, dated February 14, 2023, Docket, pp. 332 to 334. 24 Docket, pp. 242 to 306. 25 Docket, pp. 345 to 358. 26 Docket, pp. 410 to 412. 27 Docket, pp. 415 to 416.

Page 4 of16 D E CISION CTA CASE NO. 10742 Respondent presented his lone witness, Revenue Officer Michael Vincent C. Arias. 28 On May 26, 2023, respondent flied his Formal Offer ofEvidene-e.29 On June 8, 2023, petitioner flied its Comment (to Respondent's Formal Offer of Evidem�e). 30 In the Resolution dated July 13, 2023,31 the Court admitted respondent's offered exhibits . Meanwhile, in the Resolution dated June 1, 2023,32 the present case was transferred to this Court's Second Division. Petitioner's Memorandum was posted on August 22, 2023.33 Respondent, however, failed to file his memorandum.34 The present case was submitted for decision on September 12, 2023.35 THE STIPULATED ISSUE The issue, as stipulated by the parties, for the Court's resolution is: ''Whether or not Petitioner is entitled to the refund of Php9,659,284.22 allegedly representing VAT erroneously paid for the period 23 January 2020 to 9 July 2020 on the importation of medicines intended for the treatment of persons with diabetes".36 THE ARGUMENTS OF THE PARTIES Petitioner's arguments: Petitioner argues that the importation of the medicines subject of the claim for refund is exempt from VAT; that the erroneously paid VAT subject of the claim for refund have not been claimed and utilized as input tax credits; and that petitioner is entitled to a refund of P9,659,284.22, representing VAT I V' 28 Exhibit "R-4", Docket, pp. 136 to 140; Ivlinutes of the hearing held on, and Order, dated May 11, 2023, Docket, pp. 41 7 to 418. 29 Docket, pp. 419 to 422. .10 Docket, pp. 425 to 427. .l l Docket, p. 433 . .1z Notice, Docket, p. 424. .13 Docket, pp. 434 to 457 . 3~ Records Verification dated September 4, 2023 issued by the Judicial Records Division of this Court, Docket, p. 462. .15 Docket, p. 463 . 36 Stipulated Issue, JSFI, Docket, p. 178.

Page 5 of16 DECISION CTA CASE NO. 10742 erroneously paid on the importation of medicines intended for the treatment of persons with diabetes. Respondent's counter-arguments: Respondent contends that the instant judicial claim should be denied for petitioner's failure to comply with the requirements under item (II)(9) of Revenue Memorandum Order (RMO) No. 36-2020; that taxes paid and collected by the BIR are presumed to have been made in accordance with laws, rules and regulations and the burden to prove otherwise is upon petitioner; and that claims for refund are strictly construed against the claimant. THE COURT'S RULING The Petition for Review has merit. Governing provisions for refund claims. Sections 204(C) and 229 of the National Internal Revenue Code (NIRC) of 1997 provide as follows, vi~: "SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes.- The Commissioner may- XXX XXX XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return flied showing an overpayment shall be considered as a written claim for credit or refund." (Emphaszs added) "SEC. 229. Recovery ofTax Erroneous!J or Illegai!J Collected- No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has beey

Page 6 of16 DECISION CTA CASE N O . 10742 duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphases added) The afore-quoted provisions are clear: within two (2) years from the date of payment of tax, the claimant must flrst flle an administrative claim with respondent before filing its judicial claim with the courts of law. Both claims must be filed within a two (2)-year reglementary period. Timeliness of the flling of the claim is mandatory and jurisdictional, and thus the Court cannot take cognizance of a judicial claim for refund flled either prematurely or out of time. It is worthy to stress that as for the judicial claim, tax law even explicitly provides that it be flied within two (2) years from payment of the tax "regardless of any supervening cause that may arise after payment."37 Moreover, the law allows the recovery of taxes erroneously or illegally collected. An "erroneous or illegal tax" is defrned as one levied without statutory authority, or upon property not subject to taxation, or by some offlcer having no authority to levy the tax, or one which is some other similar aspect is illegaP8 Thus, for the present claim for refund to prosper, petitioner must not only establish that it has timely flied its refund claim, it must likewise prove that the subject excise taxes paid are "erroneous or illegal". Petitioner timely filed its administrative and judicial claims. An examination of the case records shows that the following dates are signiflcant in determining the timeliness of the present refund claim, viz :39 Dates of payment Respective last day of Date of filing of Date of filing of of VAT the two (2)-year administrative judicial claim prescriptive period claims (/ 37 Commissioner of Internal Revenue vs. San Miguel C01poration, etseq., G .R. Nos. 180740 and 180910, November 11, 2019 . 38 Commissioner oJintemal Revenue vs. Pilipi11as Shell Petroleum CorporatioN, G .R. N o. 188497, April 25, 2012, citing the definition provided in BLACK'S LAW DICTIONARY, Fifth Edition, p. 486. 39 Exhibit "P-6", BIR Records (Exhibit "R-3"), pp. 93 to 11 5.

Page 7 of16 DE CISION CTA CASE NO . 10742 January 24, 202040 January 24, 2022 July 1, 2021 41 February 2, 202242 January 27, 2020 Tanuary 31, 2020 January 27, 2022 April 13, 2020 Januaty 31, 2022 April21, 2020 April 13, 2022 April21 , 2022 It is clear that petitioner's claim for refund flied on July 1, 2021, for its payments ofVAT on the subject importations made on January 24, 2020,January 27, 2020, January 27, 2020, April 13, 2020 and April 21, 2020, was timely filed within the two (2)-year prescriptive period. As for the judicial claim for refund, Supreme Court Administrative Circular No. 01-202243 states: "In view of the alarming number of Covid-19 infections, the effects of super typhoon Odette, and the request of the 25rhBoard of Governors of the Integrated Bar of the Philippines, the filing periods of any and all pleadings and other court submissions falling due in the month of J anuary 2022 in all courts are hereby EXTENDED until February 1, 2022." February 1, 2022 however, was declared a special non-working holiday per Proclamation No. 1236.44 Petitioner's judicial claim filed on the next work day, February 2, 2022, was timely made within the two (2)-year prescriptive period. The subject medicine importations ofpetitioner are not subject to VAT. Thus, petitioneris entitled to refund. The Court shall now determine whether the VAT payments arising from the subject importations of medicines are illegal or erroneous. Petitioner imported into the country the following medicines, and paid the 12% VAT due thereon starting on January 24, 2020, to wit:45 Description Category Generic N arne 1 VELMETIA Blood Glucose Lowering Drugs Metformin + 50/ SOOMG 4X7TAB (A10B) (Diabetes) Sitagliptin / 40 Covering three (3) importations. 41 Par. 3, Summary of Admitted Facts, JSFI, Docket, p. 177; Exh.ib.it "P-9", D ocket, 79. 42 Docket, pp. 6 to 17. 43 RE: EXTENSION OF THE DEADLINES FOR THE FILING OF ANY AND ALL PLEADINGS AND OTHER COURT SUBMISSIONS F..i\LLING DUE IN THE MONTH OF JANUARY 2022 IN ALL COURTS 44 DECLARING THE REGULAR HOLIDAYS AND SPE CIAL (\VORI<IN G/N ON-WORKIN G) DAYS FOR THE YEAR 2022. 4S Exhibit "P-6", BIR Records, pp. 93 to 11 6.

DECISION CTA CASE NO. 10742 2 VELMETIA Blood Glucose Lowering Drugs Metformin + 50/100MG 4X7TAB (A10B) (Diabetes) Sitagliptin Sitagliptin 3 XELEVIA SOMG Dipeptidyl Peptidase 4 (DPP-4) Sitagliptin 4X7TAB Inhibitors (A10BH) (Diabetes) 4 XELEVIA 100MG Dipeptidyl Peptidase 4 (DPP-4) 4X7TAB Inhibitors (A10BH) (Diabetes) Petitioner claims that the importation of the aforementioned medicines are exempt from VAT pursuant to Section 109(1)(AA)(i) of the Tax Code and RMC No. 62-2020.46 Section 109(1)(AA)(i) of the N IRC of 1997, as amended by Republic Act (RA) No. 10963,47 otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN), and was further amended by RA No. 11467,48 provides that the importation of prescription drugs and medicines for diabetes, among others, shall enjoy exemption from VAT, thus: "SEC. 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: XXX XXX XXX (AA) Sale of or importation of prescription drugs and medicines for: 1. Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and 11. Cancer, mental illness, tuberculosis, and kidney diseases beginningJanuary 1, 2021: Provided, That the DOH shall issue a list of approved drugs and medicines for this purpose within sixty (60) days from the effectivity of this Act: xxx xxx xxx. (Emphases and underscoring addedy ~6 Par. 11, Statement of Facts and Proceedings, Lliemorandtlm, p. 435. nAN ACT Ai\1ENDING SECTIONS 5, 6, 24, 25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99,100,101 , 106, 107,108, 109,110,112,114,116, 127,128, 129, 145,148,149,151 , 155,171 , 174,175, 177,1 78,1 79,180,181,182,183,186, 188, 189,190,191,192,193,194,195,196,197,232,236,237,249,254, 264,269, AND 288; CREATING NEW SECTIONS 51-A, 148-A, 150-A, 150-B, 237-A, 264-A, 264-B, AND 265-1\; AND REPEALIN G SE CTIONS 35, 62, AND 89; ALL UNDER REPUBLIC ACT N O. 8424, OTHER\VISE KN O\'{!N AS THE NATIONAL INTERN,-\L REVE NUE CODE OF 1997, AS Ai\ifENDED, AND FOR OTHER PURPOSES. ~8 AN ACT AMENDING SECTIONS 109, 141 , 142, 143, 144, 147, 152, 263, 263-A, 265, AND 288-A, AN D ADDING A NEW SECTION 290-1\ TO REPUBLIC ACT NO . 8424, AS Ai\1EN DED, OTHERWISE KNO\'{!N AS THE NATIONAL INTER!'JAL REVENUE CODE OF 1997, AND FOE OTHE R PURPOSES.

DECISION CTA CASE NO. 10742 Pursuant to the foregoing provision, Revenue Memorandum Circular (RMC) No. 62-202049 was promulgated on June 8, 2020, following the issuance by the DOH-FDA of the letter dated March 2, 2020, with an approved list of medicines for diabetes, high cholesterol and hypertension, that are qualified for VAT exemption beginningJanuary 27,2020. It is worth noting that while RMC No. 62-2020 indicates that the exemption shall only begin on January 27, 2020, RA No. 11467 explicitly provides for an effectivity date ofJanuary 1, 2020. The time-honored doctrine, in case of conflict, is that the law prevails over the administrative regulations implementing it. The authority to promulgate implementing rules proceeds from the law itself. To be valid, a rule or regulation must conform to and be consistent with the provisions of the enabling statute.5� Thus, if a discrepancy occurs between the basic law and an implementing 1ule or regulation, it is the former that prevails, because the law cannot be broadened by a mere administrative issuance - an administrative agency certainly cannot amend an act of Congress.51 Administrative issuances must not override, supplant, or modify the law, they must remain consistent with the law intended to carry out.52 Particularly, administrative issuances such as revenue memorandum circulars cannot amend nor modify the law. 53 In the recent case of Manila Peninsula Manila Hotel, Inc. vs. Commissioner of Internal Revenue,54 the Supreme Court cited the case of Philippine Bank of Communications v. Commissioner of Internal Revenue,55 wherein it upheld the nullification of RMC No. 7-85 because it was inconsistent with the provision of Section 230 of 1977 NIRC. In so doing, the Supreme Court said that the BIR did not simply interpret the law, instead, it legislated guidelines contrary to the statute passed by Congress. Thus, the Court then held as follows: "It bears repeating that Revenue [Memorandum Circulars] are considered administrative rulings (in the sense of more specifiy 49 SUBJECT: Publishing the full text of the letter from the Food and Drug Administration (FDA) of the Department of Health (DOH) containing the "List of Prescription Drugs and Medicines for Diabetes, High-Cholesterol and Hypertension Exempt from VAT beginning January 27, 2020" pursuant to Section 1 of Republic Act No. 11467. 50 Felix B. Perez and Amante G. Doria vs. Philippine Telegraph and Telephone Compa~ry and Jose Luis Santigao, G .R. No. 152048, April 7, 2009. 5t MCC Industrial Sales Corporation vs. Ssangyong Corporation, G.R. No. 170633, October 17, 2007. 52 In the matter ofdeclaratory relied 011 the validity ofRevenue Memorandum Cimt!ar No. 65-2020, Bureau ofintemal Revmue (BIR), as herein represented 0' its CommiSJioner Kin S. Jadnto-Henares and Revenue Distrid O.ffim� (RDO) Rit'Clrdo B. Espiritu vs. First E-Bank Tower Condominium Corp., G.R. No. 215801, January 15, 2020; and First E -Bank Tower Condominium Corp. vs Bureau ofInternal Revenue (BIR), as herein rept�esented fry its Commissioner Kim S. Jatinto-Henares, G .R. No. 218924, January 15,2020. 53 INC Bank N. V., engaged in banking operatio11s i11 the Philippi11es as IN C Bank N. V. Manila BrandJ vs. Commissioner of I11temal Revenue, G.R. No. 167679, April20, 2016. 54 G.R. No. 229338, April17, 2024. 55 G.R. No. 112024,January 28,1994.

', Page 10 of16 DECISION CTA CASE N O. 10742 and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, in stead of remaining consisten t and in h armony with , th e law they seek to apply and imp lem ent." (Emphaszs added) Also, in Saint Wealth Ltd. vs. Bureau ofInternal Revenue,56 the Supreme Court En Bane declared certain parts of RMC No. 102-2017 and RMC No. 78-2018 as invalid and unconstitutional for being issued without any statutory basis and for encroaching upon legislative power to enact laws. Following the above cited jurisprudence, We hold that the importation of prescription drugs and medicines for diabetes, high cholesterol and hypertension is exempt from VAT beginningJanuary 1, 2020. In her Report, the Court-commissioned ICPA, Ms . Maricelle Ricaforte, presented in detail the imported medicines for diabetes that are traceable to the DOH-FDA List57 ofVAT-exempt medicine as reported in petitioner's amended Quarterly VAT Returns for the 1~t and 2nd quarters of calendar year (CY) 2020, t hu s:58 GENERIC CATEGORY SUB-CATEGORY IN RECEIPT DATE AMOUNT OF VAT IN DOH DOH FDA LIST OF PERSSDT PAID DESCRIPTION NAME FDA LIST D RUGS P792,571.00 OF DRUGS 761,136.00 tST QUARTER OF CY 2020 459,921.00 VELMETIA Metformin + Drugs used in Blood G lucose Lowering January 24, 2020 50/ 500MG Sitagliptin Diabetes (A 10) Drugs, excluding I nsu lins J anuary 24, 2020 / . /' 4X7T AB PilL January 24, 2020 (A 1013) C. Combinations of oral blood glucose lowering drugs (A lORD) VELMET!J\ Metformin + D rugs used in Blood G lucose Lowering 50/ 500MG Sitaglipti n D iabe tes (A 10) Drugs, excl uding lnsulins 4X7TAB PI fL (A lOB) C:. Combinations o f oral blood glucose lowering drugs (!\ lORD) VELMETTA Mctformin + Drugs used in Blood G lucose Lowering 50/ 500MG Sitagliptin Diabetes (A 10) Drugs, excluding 1nsulin s 4X7TAB PHJ~ (A 1OH) C. Combinations of oral blood glucose lowering drugs (!\ lOBD) 56 G.R. Nos. 252965 and 254102, December 7, 2021. 57 Exhibit "P-21-2" pages 10 and 11 of 18, USB. 58 Table 12 and Annex 6, Exhibit "P-16", Docket, pp. 260 and 302, respectively.

'� DECISION CTA CASE N O . 10742 D ESCRIPTION GENERIC CATE GORY SUB-CATEGORY IN RECEIPT DATE AMOUNT OF VAT N AME IN DOH D OH FDA LIST OF PERSSDT PAID XELEVTJ\ FDA LIST 3,511,692.00 SOMG Sitagliptin D RUGS January 27, 2020 OF DRUGS Blood G lucose Lowering 727,083.00 4X7TAB PI-UJ Drugs, excluding lnsulins January 31, 2020 Drugs used in 1"6,252,403.00 VE J.Ml\" J"I i\ Metformin + Diabetes (A10) (A 10B) ~1 ,620,601.0059 50/ 1000MG Sitagliptin 1:. Dipeptidyl peptidase 4 4XTfAB PHL Drugs used in (DPJ>-4) inhibitors (A 1OBI[) 1,786,281.0060 Diabetes (i\ 10) 1"3,406,882.00 61 Blood Glucose l .owering 1"9,659,285.006?- Drugs, excluding Insu lins (t\ 1OR) C. Combinations of oral blood glucose lowering drugs (A 10BD) SUBTOTAL 2ND QUARTER O F CY 2020 XELEVlr\ Sitagliptin Drugs used in Rlood G lucose Lowering t\pril 13, 2020 SOMG Diabetes (r\ 10) Drugs, excluding lnsulins April 21, 2020 4X7TAI3 PIlL Drugs used in (A 105) Diabetes (i\ 10) XELI\V TJ\ Sitagliptin F. Dipcptic.l yl peptida se 4 100MG (DPP-4) inhibitors (A1OBI[) 4X7TAB PHL Blood Glucose Lowering SUBTOTAL Drugs, excluding Insulins GRAND TOTAL (J\ 1OB) F. Dipcptidyl peptidase 4 (DPP-4) inhibitors (AlOBI-[) Considering that petitioner's importation of "Velmetia" with generic name "Metformin + Sitagliptin" and "Xelevia" with generic name "Sitagliptin" fall under the category "Blood Glucose Lowering Drugs, excluding Insulins (AlOB)" in the FDA list of VAT-exempt medicines, attached to RMC No. 62- 2020, the payments by petitioner ofVAT on the subject importations on January 24, 2020,January 27, 2020,January 31,2020, April13, 2020 and April21, 2020, respectively, are therefore deemed illegal and erroneous. In its amended Quarterly VAT Returns (BIR Form No. 2550Q) for the 1sr and 2nd quarters of CY 2020, petitioner reported P35,568,482.45 total input tax from its importation of goods other than capital goods, as follows: Line P a rticulars 151 Q uarter znd Q uarter Total 21H Importation of Goods (2020) 63 ( 2 0 2 0 ) 64 Other than Capital Goods , 35,568,482.45 , 6,252,403.00 , 29,316,079.45 ~ 59 P1 ,620,600.00 only per ICPA Report (Table 12 and A nnex 6, Exhibit "P-16", Docket, pp. 260 and 302, respectively) contrary to the VAT amount of P1 ,620,601.00 p er SSDT (Exhibit " P -30-5", USB). 60 P1,786,281.22 per ICPA Report (Table 12 and Annex 6, Exhibi t "P-16", D o cket, pp. 260 and 302, respectively) contrary to the VAT amount ofr1,786,281.00 per SSDT (Exhibit "P-30-4", USB). 61 As adjusted. 62 As adjusted . 63 Exhibit "P-7-a", Docket, pp . 388 to 389. 6-1 Exhibit "P-8-a", Docket, pp. 392 to 393.

'� Page 12 o f16 DECISION CTA CASE N O . 10742 The difference of P25,909,198.23 between the P9,659,284.22 amount of claim and P35,568,482.45 input VAT on importation reported in petitioner's amended Quarterly VAT Returns for the 1~t and 2nd quarters of 2020, pertains to importation of medicines in the year 2019 which is outside of the period of the refund claim. Petitioner allegedly paid such VAT when it availed the Prior Disclosure Program of the Bureau of Customs (BOC) after recognizing that additional duties and VAT are due after petitioner underwent transfer pricing adjustments. 65 In order to prove that erroneous payment of VAT in the amount of P9,659,284.22 was made on its importation of VAT exempt diabetes medicines, petitioner offered its Summary Lists of Importations for the months of January 2020, February 2020 and April 2020;66 Taxable Imports per Summary List of Importations for th e 1sr and 2"d quarters of CY 2020;67 Comparison of Schedule of Importations for the month period January 1 to July 31, 2020 and Summary List ofimportations;68 Single Administrative Documents (SADs);69 Statement of Settlement of Duties and Taxes (SSDT s);70 and VAT Payment Certification issued by BOC Revenue Accounting Division.71 Upon verification of the aforementioned supporting documents, petitioner has evidently paid the VAT arising from the above importations of medicines, as follows: SAD SAD Customs SSDT SSDT Receipt SSDT Amount of Exhibit Date reference (Exhibit Date Receipt VAT 17 Jammy 2020 No. 20 January 2020 No. No.) 27 January 2020 No. p 3,511,692.00 " P-4" 20 Januaty 2020 C-6 791 " P -5" 24 January 2020 R-53573 792,5 71.00 "P-29" 20 J anuary 2020 C-23230 "P-30" 24 January 2020 R-39792 761,136.00 " P -29- 1" 29 January 2020 C-23447 " P -30- 1" 24 J anuaty 2020 R-39798 459,921.00 " P -29 -2" 17 March 2020 C-23303 " P -30 -2" 31 Januaty 2020 R-39802 727 ,083. 00 " P -29-3" 26 March 2020 C-35388 "P-30-3" 21 April 2020 R-52761 "P-29-4" C-3789 1 "P-30-4" R-215528 1,786,281.00 " P -29 -5" C-411 32 " P- 30- 5" 13 April 2020 R-203369 1,620,601.00 P9,659,285 .00 TOTAL Respondent argues however that it is possible that the claimed input taxes were carried over or utilized in the succeeding amended Quarterly VAT Return. 72 We note however that while the claimed input VAT amount of P9,659,284.22 was included in the reported input VAT on importation of goods r/ 65 Q&A No. 45, Judicial Affid avit of Ms. Paula Mae A. Francisco, Docket, p. 34; Refer also to Summary List of Importations for the month of April 2020, E xhibit "P-28-2", USB . 66 Exhibits "P-28", "P-28-1 " and "P-28-2", respectively, USB. 67 Annex 2-a, Exhibit "P-16" , D ocket, p. 272. 68 Annexes 3 and 3-a, Exhibit "P-16", D ocket, pp. 273 to 274. 69 E xhibit "P-4", D ocket, pp. 377 to 380; E xhibits "P-29" to "P-29-5", USB. 70 E xhibit "P-5", D ocket, p. 383; Exhibits "P-30" to "P-30-5", USB. 71 Exhibit "P-6" , D ocket, pp. 384 to 385. 72 Par. 10,Atwver, D ocket, p. 126.

Page 13 of16 DECISION CTA CASE NO. 10742 other than capital goods in petitioner's amended Quarterly VAT Returns for the 1st and 2"d quarters of CY 2020, the same remains unutilized since it was also deducted as ''VAT Refund/TCC claimed" in that same VAT Returns, as follows: 2020 Amount 1st Quarter P6,252,403.0073 2"d Quarter 3,406,882.0074 Total P9,659,285.00 Accordingly, the subject claim no longer forms part of the excess input VAT of P23,052,848.5275 as of the end of the 2nd quarter of CY 2020. Thus, the claimed input VAT was not carried over or utilized in the succeeding amended Quarterly VAT Return for the 3'"d quarter of CY 2020.76 The failure ofpetitioner to comply with RMO No. 36-2020 in its administrative claim is not fatal to its judicial claim for refund. Respondent asserts that the denial of petitioner's claim for refund was because of its failure to comply with the requirements under Item (II)(9) ofRMO No. 36-2020, particularly, the schedule of importations corresponding to the amount of input VAT claimed per monthly VAT declarations/ quarterly VAT returns conforms with the details prescribed in Annex A.2 thereof. RMO No. 36-2020 was promulgated only on October 15, 2020, or three and a half (3 Vz) months after petitioner had filed its administrative claim on July 1, 2020. Hence, the requirements set forth therein were still inexistent at the time petitioner flied its administrative claim for refund. Necessarily, petitioner cannot be expected to comply therewith. The principle of fairness and equity dictates that the non-retroactive mle under Section 246 of the NIRC of 1997 be applied in this case. Said Section provides: "SEC. 246. Non-Retroat"tiviry of Rulings. - Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:;/ 73 Line 23D , Exhibit "P-7-a", Docket, p. 389. 74 Line 23D, Exhibit "P-8-a", D ocket, p. 393. 75 Line 29, Exhibit "P-8-a", Docket, p. 393. 1c. Line 20A, Exhibit "P-24-13", USB.

', Page 14 o�16 DECISION CTA CASE NO. 10742 (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gather by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith." (Underscoring added) The non-retroactivity principle mentioned above, was upheld by the Supreme Court in Commissioner ofInternal Revenue vs. Court ofAppeals, Court ofTax Appeals, and Alhambra Industries, Inc.,77 thus: "However, well entrenched is the rule that rulings and circulars, rules and regulations promulgated by the CIR would have no retroactive application if to so apply them would be prejudicial to the taxpayers. XXX XXX XXX Without doubt, private respondent would be prejudiced by the retroactive application as it would be assessed of deficiency excise tax." In this case, the respondent's denial of petitioner's application for tax refund for failure to comply with RMO No. 36-2020 is clearly erroneous. None of the exceptions to the Non-retroactivity Rule exists. RMO No. 36-2020 should be applied prospectively in the interest of justice and equity. That no one shall unjustly enrich oneself at the expense of another is a long-standing principle prevailing in our legal system. This applies not only to individuals but to the State as well. In the field of taxation where the State exacts strict compliance upon its citizens, the State must likewise deal with taxpayers with fairness and honesty. The harsh power of taxation must be tempered with evenhandedness. Hence, under the principle of solutio indebiti, the Government has to restore to petitioner the sums representing erroneous payments of taxes.78 WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is GRANTED/ 77 G .R. N o. 11 7982, February 6, 1997. 78 Filim;est Det;e/opment Corporation vs. CommisJioner ofInternal Ret;enue, G.R. N o. 146941, August 9, 2007.

.. Page 16 of16 DECISION CTA CASE NO. 10742 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice

Page 15 of16 DECISION CTA CASE N O . 10742 Accordingly, respondent is ordered to refund or issue a tax credit certificate in favor of petitioner the amount of P9,659,284.22 representing VAT erroneously paid on January 24, 2020,January 27, 2020,January 31,2020, April 13, 2020 and April 21 , 2020, respectively, on the importation of medicines intended for the treatment of persons with diabetes. SO ORDERED. ~~ ~ _, '--- MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR: MARIA C0~Ass~ociate:J~:: ~~0"'S ATTESTATION I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~� ~ --J ' - - MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson