FIRST DIVISION

PHILIPPINE JOURNALISTS, INC., G.R. No. 162852

Petitioner,
Present:

Davide, Jr., C.J. (Chairman),
- versus - Quisumbing,
Ynares-Santiago,
Carpio, and
Azcuna, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
December 16, 2004
x ---------------------------------------------------------------------------------------- x

DECI SI ON


YNARES-SANTIAGO, J .:


This is a petition for review filed by Philippine Journalists, Incorporated
(PJI) assailing the Decision
[1]
of the Court of Appeals dated August 5,
2003,
[2]
which ordered petitioner to pay the assessed tax liability of
P111,291,214.46 and the Resolution
[3]
dated March 31, 2004 which denied the
Motion for Reconsideration.

The case arose from the Annual Income Tax Return filed by petitioner for
the calendar year ended December 31, 1994 which presented a net income of
P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for
the year, petitioner paid the amount of P10,247,384.00.

On August 10, 1995, Revenue District Office No. 33 of the Bureau of
Internal Revenue (BIR) issued Letter of Authority No. 87120
[4]
for Revenue
Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine
petitioners books of account and other accounting records for internal revenue
taxes for the period January 1, 1994 to December 31, 1994.

From the examination, the petitioner was told that there were deficiency
taxes, inclusive of surcharges, interest and compromise penalty in the following
amounts:

Value Added Tax P 229,527.90
Income Tax 125,002,892.95
Withholding Tax 2,748,012.35
_______________
Total P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime
Concepcion invited petitioner to send a representative to an informal conference on
September 15, 1997 for an opportunity to object and present documentary evidence
relative to the proposed assessment. On September 22, 1997, petitioners
Comptroller, Lorenza Tolentino, executed a Waiver of the Statute of Limitation
Under the National Internal Revenue Code (NIRC).
[5]
The document waive[d]
the running of the prescriptive period provided by Sections 223 and 224 and other
relevant provisions of the NIRC and consent[ed] to the assessment and collection
of taxes which may be found due after the examination at any time after the lapse
of the period of limitations fixed by said Sections 223 and 224 and other relevant
provisions of the NIRC, until the completion of the investigation.
[6]


On July 2, 1998, Revenue Officer De Vera submitted his audit report
recommending the issuance of an assessment and finding that petitioner had
deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the
Assessment Division of the BIR issued Pre-Assessment Notices which informed
petitioner of the results of the investigation. Thus, BIR Revenue Region No. 6,
Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-
000757-94
[7]
on December 9, 1998 stating the following deficiency taxes, inclusive
of interest and compromise penalty:

Income Tax P108,743,694.88
Value Added Tax 184,299.20
Expanded Withholding Tax 2,363,220.38
______________
Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy
Commissioner Romeo S. Panganiban to the petitioner to pay the assessment within
ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice
Before Seizure
[8]
was issued by the same deputy commissioner giving the
petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final
notice on November 24, 1999. By letters dated November 26, 1999, petitioner
asked to be clarified how the tax liability of P111,291,214.46 was reached and
requested an extension of thirty (30) days from receipt of the clarification within
which to reply.
[9]


The BIR received a follow-up letter from the petitioner asserting that its
(PJI) records do not show receipt of Tax Assessment/Demand No. 33-1-000757-
94.
[10]
Petitioner also contested that the assessment had no factual and legal
basis. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-
046
[11]
signed by Deputy Commissioner Romeo Panganiban for the BIR was
received by the petitioner.

Petitioner filed a Petition for Review
[12]
with the Court of Tax Appeals
(CTA) which was amended on May 12, 2000. Petitioner complains: (a) that no
assessment or demand was received from the BIR; (b) that the warrant of distraint
and/or levy was without factual and legal bases as its issuance was premature; (c)
that the assessment, having been made beyond the 3-year prescriptive period, is
null and void; (d) that the issuance of the warrant without being given the
opportunity to dispute the same violates its right to due process; and (e) that the
grave prejudice that will be sustained if the warrant is enforced is enough basis for
the issuance of the writ of preliminary injunction.

On May 14, 2002, the CTA rendered its decision,
[13]
to wit:

As to whether or not the assessment notices were received by the
petitioner, this Court rules in the affirmative.

To disprove petitioners allegation of non-receipt of the aforesaid
assessment notices, respondent presented a certification issued by the
Post Master of the Central Post Office, Manila to the effect that
Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila on
December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg.,
Railroad St., Manila was duly delivered to and received by a certain
Alfonso Sanchez, Jr. (Authorized Representative) on January 8,
1999. Respondent also showed proof that in claiming Registered Letter
No. 76134, Mr. Sanchez presented three identification cards, one of
which is his company ID with herein petitioner.



However, as to whether or not the Waiver of the Statute of
Limitations is valid and binding on the petitioner is another
question. Since the subject assessments were issued beyond the three-
year prescriptive period, it becomes imperative on our part to rule first
on the validity of the waiver allegedly executed on September 22, 1997,
for if this court finds the same to be ineffective, then the assessments
must necessarily fail.



After carefully examining the questioned Waiver of the Statute of
Limitations, this Court considers the same to be without any binding
effect on the petitioner for the following reasons:

The waiver is an unlimited waiver. It does not contain a definite
expiration date. Under RMO No. 20-90, the phrase indicating the expiry
date of the period agreed upon to assess/collect the tax after the regular
three-year period of prescription should be filled up



Secondly, the waiver failed to state the date of acceptance by the
Bureau which under the aforequoted RMO should likewise be
indicated



Finally, petitioner was not furnished a copy of the waiver. It is to
be noted that under RMO No. 20-90, the waiver must be executed in
three (3) copies, the second copy of which is for the taxpayer. It is
likewise required that the fact of receipt by the taxpayer of his/her file
copy be indicated in the original copy. Again, respondent failed to
comply.

It bears stressing that RMO No. 20-90 is directed to all concerned
internal revenue officers. The said RMO even provides that the
procedures found therein should be strictly followed, under pain of being
administratively dealt with should non-compliance result to prescription
of the right to assess/collect

Thus, finding the waiver executed by the petitioner on September
22, 1997 to be suffering from legal infirmities, rendering the same
invalid and ineffective, the Court finds Assessment/Demand No. 33-1-
000757-94 issued on December 5, 1998 to be time-
barred. Consequently, the Warrant of Distraint and/or Levy issued
pursuant thereto is considered null and void.

WHEREFORE, in view of all the foregoing, the instant Petition
for Review is hereby GRANTED. Accordingly, the deficiency income,
value-added and expanded withholding tax assessments issued by the
respondent against the petitioner on December 9, 1998, in the total
amount of P111,291,214.46 for the year 1994 are hereby
declared CANCELLED, WITHDRAWN and WITH NO FORCE
AND EFFECT. Likewise, Warrant of Distraint and/or Levy No. 33-06-
046 is hereby declared NULL and VOID.

SO ORDERED.
[14]



After the motion for reconsideration of the Commissioner of Internal
Revenue was denied by the CTA in a Resolution dated August 2, 2002, an appeal
was filed with the Court of Appeals on August 12, 2002.

In its decision dated August 5, 2003, the Court of Appeals disagreed with the
ruling of the CTA, to wit:

The petition for review filed on 26 April 2000 with CTA was neither
timely filed nor the proper remedy. Only decisions of the BIR, denying
the request for reconsideration or reinvestigation may be appealed to the
CTA. Mere assessment notices which have become final after the lapse
of the thirty (30)-day reglementary period are not appealable. Thus, the
CTA should not have entertained the petition at all.



[T]he CTA found the waiver executed by Phil. Journalists to be
invalid for the following reasons: (1) it does not indicate a definite
expiration date; (2) it does not state the date of acceptance by the BIR;
and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the
waiver. These grounds are merely formal in nature. The date of
acceptance by the BIR does not categorically appear in the document but
it states at the bottom page that the BIR accepted and agreed to:,
followed by the signature of the BIRs authorized
representative. Although the date of acceptance was not stated, the
document was dated 22 September 1997. This date could reasonably be
understood as the same date of acceptance by the BIR since a different
date was not otherwise indicated. As to the allegation that Phil.
Journalists was not furnished a copy of the waiver, this requirement
appears ridiculous. Phil. Journalists, through its comptroller, Lorenza
Tolentino, signed the waiver. Why would it need a copy of the
document it knowingly executed when the reason why copies are
furnished to a party is to notify it of the existence of a document, event
or proceeding?

As regards the need for a definite expiration date, this is the
biggest flaw of the decision. The period of prescription for the
assessment of taxes may be extended provided that the extension be
made in writing and that it be made prior to the expiration of the period
of prescription. These are the requirements for a valid extension of the
prescriptive period. To these requirements provided by law, the
memorandum order adds that the length of the extension be specified by
indicating its expiration date. This requirement could be reasonably
construed from the rule on extension of the prescriptive period. But this
requirement does not apply in the instant case because what we have
here is not an extension of the prescriptive period but a waiver
thereof. These are two (2) very different things. What Phil. Journalists
executed was a renunciation of its right to invoke the defense of
prescription. This is a valid waiver. When one waives the prescriptive
period, it is no longer necessary to indicate the length of the extension of
the prescriptive period since the person waiving may no longer use this
defense.

WHEREFORE, the 02 August 2002 resolution and 14 May 2002
decision of the CTA are hereby SET ASIDE. Respondent Phil.
Journalists is ordered [to] pay its assessed tax liability of
P111,291,214.46.

SO ORDERED.
[15]


Petitioners Motion for Reconsideration was denied in a Resolution dated
March 31, 2004. Hence, this appeal on the following assignment of errors:

I.
The Honorable Court of Appeals committed grave error in ruling that it
is outside the jurisdiction of the Court of Tax Appeals to entertain the
Petition for Review filed by the herein Petitioner at the CTA despite the
fact that such case inevitably rests upon the validity of the issuance by
the BIR of warrants of distraint and levy contrary to the provisions of
Section 7(1) of Republic Act No. 1125.

II.
The Honorable Court of Appeals gravely erred when it ruled that failure
to comply with the provisions of Revenue Memorandum Order (RMO)
No. 20-90 is merely a formal defect that does not invalidate the waiver
of the statute of limitations without stating the legal justification for such
conclusion. Such ruling totally disregarded the mandatory requirements
of Section 222(b) of the Tax Code and its implementing regulation,
RMO No. 20-90 which are substantive in nature. The RMO provides
that violation thereof subjects the erring officer to administrative
sanction. This directive shows that the RMO is not merely cover forms.

III.
The Honorable Court of Appeals gravely erred when it ruled that the
assessment notices became final and unappealable. The assessment
issued is void and legally non-existent because the BIR has no power to
issue an assessment beyond the three-year prescriptive period where
there is no valid and binding waiver of the statute of limitation.

IV.
The Honorable Court of Appeals gravely erred when it held that the
assessment in question has became final and executory due to the failure
of the Petitioner to protest the same. Respondent had no power to issue
an assessment beyond the three year period under the mandatory
provisions of Section 203 of the NIRC. Such assessment should be held
void and non-existent, otherwise, Section 203, an expression of a public
policy, would be rendered useless and nugatory. Besides, such right to
assess cannot be validly granted after three years since it would arise
from a violation of the mandatory provisions of Section 203 and would
go against the vested right of the Petitioner to claim prescription of
assessment.

V.
The Honorable Court of Appeals committed grave error when it HELD
valid a defective waiver by considering the latter a waiver of the right to
invoke the defense of prescription rather than an extension of the three
year period of prescription (to make an assessment) as provided under
Section 222 in relation to Section 203 of the Tax Code, an interpretation
that is contrary to law, existing jurisprudence and outside of the purpose
and intent for which they were enacted.
[16]


We find merit in the appeal.

The first assigned error relates to the jurisdiction of the CTA over the issues
in this case. The Court of Appeals ruled that only decisions of the BIR denying a
request for reconsideration or reinvestigation may be appealed to the CTA. Since
the petitioner did not file a request for reinvestigation or reconsideration within
thirty (30) days, the assessment notices became final and unappealable. The
petitioner now argue that the case was brought to the CTA because the warrant of
distraint or levy was illegally issued and that no assessment was issued because it
was based on an invalid waiver of the statutes of limitations.

We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act
Creating the Court of Tax Appeals, provides for the jurisdiction of that special
court:

SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein provided

(1) Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, orother
matters arising under the National Internal Revenue Code or other
laws or part of law administered by the Bureau of Internal Revenue;
(Emphasis supplied).

The appellate jurisdiction of the CTA is not limited to cases which involve
decisions of the Commissioner of Internal Revenue on matters relating to
assessments or refunds. The second part of the provision covers other cases that
arise out of the NIRC or related laws administered by the Bureau of Internal
Revenue. The wording of the provision is clear and simple. It gives the CTA the
jurisdiction to determine if the warrant of distraint and levy issued by the BIR is
valid and to rule if the Waiver of Statute of Limitations was validly effected.

This is not the first case where the CTA validly ruled on issues that did not
relate directly to a disputed assessment or a claim for refund. In Pantoja v.
David,
[17]
we upheld the jurisdiction of the CTA to act on a petition to invalidate
and annul the distraint orders of the Commissioner of Internal Revenue. Also,
in Commissioner of Internal Revenue v. Court of Appeals,
[18]
the decision of the
CTA declaring several waivers executed by the taxpayer as null and void, thus
invalidating the assessments issued by the BIR, was upheld by this Court.

The second and fifth assigned errors both focus on Revenue Memorandum
Circular No. 20-90 (RMO No. 20-90) on the requisites of a valid waiver of the
statute of limitations. The Court of Appeals held that the requirements and
procedures laid down in the RMO are only formal in nature and did not invalidate
the waiver that was signed even if the requirements were not strictly observed.

The NIRC, under Sections 203 and 222,
[19]
provides for a statute of
limitations on the assessment and collection of internal revenue taxes in order to
safeguard the interest of the taxpayer against unreasonable
investigation.
[20]
Unreasonable investigation contemplates cases where the period
for assessment extends indefinitely because this deprives the taxpayer of the
assurance that it will no longer be subjected to further investigation for taxes after
the expiration of a reasonable period of time. As was held in Republic of the Phils.
v. Ablaza:
[21]


The law prescribing a limitation of actions for the collection of the income
tax is beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of prescription
citizens would have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers, not to determine the
latters real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open
for inspection subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection to
the taxpayer within the contemplation of the Commission which recommend
the approval of the law. (Emphasis supplied)

RMO No. 20-90 implements these provisions of the NIRC relating to the
period of prescription for the assessment and collection of taxes. A cursory
reading of the Order supports petitioners argument that the RMO must be strictly
followed, thus:

In the execution of said waiver, the following procedures should be
followed:

1. The waiver must be in the form identified hereof. This form
may be reproduced by the Office concerned but there should be
no deviation from such form. The phrase but not after
__________ 19___ should be filled up

2.

Soon after the waiver is signed by the taxpayer, the
Commissioner of Internal Revenue or the revenue official
authorized by him, as hereinafter provided, shall sign the
waiver indicating that the Bureau has accepted and agreed to
the waiver. The date of such acceptance by the Bureau should be
indicated

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office



3. Commissioner For tax cases involving
more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax
cases still pending investigation and the period to
assess is about to prescribe regardless of amount.



5. The foregoing procedures shall be strictly
followed. Any revenue official found not to have
complied with this Order resulting in prescription of the
right to assess/collect shall be administratively dealt
with. (Emphasis supplied)
[22]


A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers right to security against prolonged and unscrupulous
investigations and must therefore be carefully and strictly construed.
[23]
The
waiver of the statute of limitations is not a waiver of the right to invoke the defense
of prescription as erroneously held by the Court of Appeals. It is an agreement
between the taxpayer and the BIR that the period to issue an assessment and collect
the taxes due is extended to a date certain. The waiver does not mean that the
taxpayer relinquishes the right to invoke prescription unequivocally particularly
where the language of the document is equivocal. For the purpose of safeguarding
taxpayers from any unreasonable examination, investigation or assessment, our tax
law provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to
afford such protection. As a corollary, the exceptions to the law on prescription
should perforce be strictly construed.
[24]
RMO No. 20-90 explains the rationale of
a waiver:

... The phrase but not after _________ 19___ should be filled up. This indicates
the expiry date of the period agreed upon to assess/collect the tax after the regular
three-year period of prescription. The period agreed upon shall constitute the
time within which to effect the assessment/collection of the tax in addition to
the ordinary prescriptive period. (Emphasis supplied)

As found by the CTA, the Waiver of Statute of Limitations, signed by
petitioners comptroller on September 22, 1997 is not valid and binding because it
does not conform with the provisions of RMO No. 20-90. It did not specify a
definite agreed date between the BIR and petitioner, within which the former may
assess and collect revenue taxes. Thus, petitioners waiver became unlimited in
time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed
only by a revenue district officer, not the Commissioner, as mandated by the NIRC
and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR,
but is a bilateral agreement between two parties to extend the period to a date
certain. The conformity of the BIR must be made by either the Commissioner or
the Revenue District Officer. This case involves taxes amounting to more than One
Million Pesos (P1,000,000.00) and executed almost seven months before the
expiration of the three-year prescription period. For this, RMO No. 20-90 requires
the Commissioner of Internal Revenue to sign for the BIR.

The case of Commissioner of Internal Revenue v. Court of Appeals,
[25]
dealt
with waivers that were not signed by the Commissioner but were argued to have
been given implied consent by the BIR. We invalidated the subject waivers and
ruled:

Petitioners submission is inaccurate



The Court of Appeals itself also passed upon the validity of the
waivers executed by Carnation, observing thus:

We cannot go along with the petitioners theory.
Section 319 of the Tax Code earlier quoted is clear and
explicit that the waiver of the five-year
[26]
prescriptive
period must be in writing and signed by both the BIR
Commissioner and the taxpayer.

Here, the three waivers signed by Carnation do not
bear the written consent of the BIR Commissioner as
required by law.

We agree with the CTA in holding these waivers
to be invalid and without any binding effect on petitioner
(Carnation) for the reason that there was no consent by the
respondent (Commissioner of Internal Revenue).



For sure, no such written agreement concerning the said
three waivers exists between the petitioner and private respondent
Carnation.



What is more, the waivers in question reveal that they are in no
wise unequivocal, and therefore necessitates for its binding effect the
concurrence of the Commissioner of Internal Revenue. On this basis
neither implied consent can be presumed nor can it be contended
that the waiver required under Sec. 319 of the Tax Code is one
which is unilateral nor can it be said that concurrence to such an
agreement is a mere formality because it is the very signatures of
both the Commissioner of Internal Revenue and the taxpayer which
give birth to such a valid agreement.
[27]
(Emphasis supplied)

The other defect noted in this case is the date of acceptance which makes it
difficult to fix with certainty if the waiver was actually agreed before the expiration
of the three-year prescriptive period. The Court of Appeals held that the date of
the execution of the waiver on September 22, 1997 could reasonably be understood
as the same date of acceptance by the BIR. Petitioner points out however that
Revenue District Officer Sarmiento could not have accepted the waiver yet
because she was not the Revenue District Officer of RDO No. 33 on such
date. Ms. Sarmientos transfer and assignment to RDO No. 33 was only signed by
the BIR Commissioner on January 16, 1998 as shown by the Revenue Travel
Assignment Order No. 14-98.
[28]
The Court of Tax Appeals noted in its decision
that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16,
1998 because Revenue Officials normally have to conduct first an inventory of
their pending papers and property responsibilities.
[29]


Finally, the records show that petitioner was not furnished a copy of the
waiver. Under RMO No. 20-90, the waiver must be executed in three copies with
the second copy for the taxpayer. The Court of Appeals did not think this was
important because the petitioner need not have a copy of the document it
knowingly executed. It stated that the reason copies are furnished is for a party to
be notified of the existence of a document, event or proceeding.

The flaw in the appellate courts reasoning stems from its assumption that
the waiver is a unilateral act of the taxpayer when it is in fact and in law an
agreement between the taxpayer and the BIR. When the petitioners comptroller
signed the waiver on September 22, 1997, it was not yet complete and final
because the BIR had not assented. There is compliance with the provision of RMO
No. 20-90 only after the taxpayer received a copy of the waiver accepted by the
BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only
to give notice of the existence of the document but of the acceptance by the BIR
and the perfection of the agreement.

The waiver document is incomplete and defective and thus the three-year
prescriptive period was not tolled or extended and continued to run until April 17,
1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued on
December 9, 1998 was invalid because it was issued beyond the three (3) year
period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046
which petitioner received on March 28, 2000 is also null and void for having been
issued pursuant to an invalid assessment.

WHEREFORE, premises considered, the instant petition for review
is GRANTED. The Decision of the Court of Appeals dated August 5, 2003 and its
Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The
Decision of the Court of Tax Appeals in CTA Case No. 6108 dated May 14, 2002,
declaring Warrant of Distraint and/or Levy No. 33-06-046 null and void,
is REINSTATED.

SO ORDERED.

SECOND DIVISION

BANK OF THE PHILIPPINE
ISLANDS,
P e t i t i o n e r,




- versus-




COMMISSIONER OF
INTERNAL REVENUE,
R e s p o n d e n t .

G.R. No. 139736

Present:

PUNO,
Chairman
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.


Promulgated:

October 17, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N


CHICO-NAZARIO, J .:



This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of
Civil Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP No.
51271, dated 11 August 1999,
[1]
which reversed and set aside the Decision of the
Court of Tax Appeals (CTA), dated 02 February 1999,
[2]
and which reinstated
Assessment No. FAS-5-85-89-002054 requiring petitioner Bank of the Philippine
Islands (BPI) to pay the amount of P28,020.00 as deficiency documentary stamp
tax (DST) for the taxable year 1985, inclusive of the compromise penalty.

There is hardly any controversy as to the factual antecedents of this Petition.

Petitioner BPI is a commercial banking corporation organized and existing
under the laws of the Philippines. On two separate occasions, particularly on 06
June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central
Bank of the Philippines (Central Bank), for the total sales amount of
US$1,000,000.00.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued
Assessment No. FAS-5-85-89-002054,
[3]
finding petitioner BPI liable for
deficiency DST on its afore-mentioned sales of foreign bills of exchange to the
Central Bank, computed as follows


1985 Deficiency Documentary Stamp Tax

Foreign Bills of Exchange..

P 18,480,000.00

Tax Due Thereon:

P18,480,000.00 x P0.30 (Sec. 182 NIRC).
P200.00



27,720.00

Add: Suggested compromise penalty.

300.00

TOTAL AMOUNT DUE AND COLLECTIBLE.

P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment
Notice,
[4]
on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated
16 November 1989, and filed with the BIR on 17 November 1989. The said
protest letter is reproduced in full below

November 16, 1989

The Commissioner of Internal Revenue
Quezon City

Attention of: Mr. Pedro C. Aguillon
Asst. Commissioner for Collection

Sir:

On behalf of our client, Bank of the Philippine Islands (BPI), we
have the honor to protest your assessment against it for deficiency
documentary stamp tax for the year 1985 in the amount of P28,020.00,
arising from its sale to the Central Bank of U.S. $500,000.00 on June 6,
1985 and another U.S. $500,000.00 on June 14, 1985.

1. Under established market practice, the documentary stamp tax on
telegraphic transfers or sales of foreign exchange is paid by the
buyer. Thus, when BPI sells to any party, the cost of documentary stamp
tax is added to the total price or charge to the buyer and the seller affixes
the corresponding documentary stamp on the document. Similarly, when
the Central Bank sells foreign exchange to BPI, it charges BPI for the cost
of the documentary stamp on the transaction.

2. In the two transactions subject of your assessment, no
documentary stamps were affixed because the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is
true that under P.D. 1994, a proviso was added to sec. 222 (now sec. 186)
of the Tax Code that whenever one party to a taxable document enjoys
exemption from the tax herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax, this proviso (and the
other amendments of P.D. 1994) took effect only on January 1, 1986,
according to sec. 49 of P.D. 1994. Hence, the liability for the documentary
stamp tax could not be shifted to the seller.

In view of the foregoing, we request that the assessment be revoked
and cancelled.

Very truly yours,

PADILLA LAW OFFICE
By:

(signed)
SABINO PADILLA, JR.
[5]




Petitioner BPI did not receive any immediate reply to its protest
letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or
Levy
[6]
against petitioner BPI for the assessed deficiency DST for taxable year
1985, in the amount of P27,720.00 (excluding the compromise penalty
of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.
[7]


Then again, petitioner BPI did not hear from the BIR until 11 September
1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR
Commissioner Liwayway Vinzons-Chato, denying its request for
reconsideration, and addressing the points raised by petitioner BPI in its protest
letter, dated 16 November 1989, thus

In reply, please be informed that after a thorough and careful study
of the facts of the case as well as the law and jurisprudence pertinent
thereto, this Office finds the above argument to be legally untenable. It is
admitted that while industry practice or market convention has the force of
law between the members of a particular industry, it is not binding with the
BIR since it is not a party thereto. The same should, therefore, not be
allowed to prejudice the Bureau of its lawful task of collecting revenues
necessary to defray the expenses of the government. (Art. 11 in relation to
Art. 1306 of the New Civil Code.)

Moreover, let it be stated that even before the amendment of Sec.
222 (now Sec. 173) of the Tax Code, as amended, the same was already
interpreted to hold that the other party who is not exempt from the payment
of documentary stamp tax liable from the tax. This interpretation was
further strengthened by the following BIR Rulings which in substance state:

1. BIR Unnumbered Ruling dated May 30, 1977

x x x Documentary stamp taxes are payable by either
person, signing, issuing, accepting, or transferring the instrument,
document or paper. It is now settled that where one party to the instrument
is exempt from said taxes, the other party who is not exempt should be
liable.

2. BIR Ruling No. 144-84 dated September 3, 1984

x x x Thus, where one party to the contract is exempt from
said tax, the other party, who is not exempt, shall be liable
therefore. Accordingly, since A.J.L. Construction Corporation, the other
party to the contract and the one assuming the payment of the expenses
incidental to the registration in the vendees name of the property sold, is
not exempt from said tax, then it is the one liable therefore, pursuant to Sec.
245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax
Code of 1977, as amended.

Premised on all the foregoing considerations, your request for
reconsideration is hereby DENIED.
[8]




Upon receipt of the above-cited letter from the BIR, petitioner BPI
proceeded to file a Petition for Review with the CTA on 10 October 1997;
[9]
to
which respondent BIR Commissioner, represented by the Office of the Solicitor
General, filed an Answer on 08 December 1997.
[10]


Petitioner BPI raised in its Petition for Review before the CTA, in addition
to the arguments presented in its protest letter, dated 16 November 1989, the
defense of prescription of the right of respondent BIR Commissioner to enforce
collection of the assessed amount. It alleged that respondent BIR Commissioner
only had three years to collect on Assessment No. FAS-5-85-89-002054, but she
waited for seven years and nine months to deny the protest. In her Answer and
subsequent Memorandum, respondent BIR Commissioner merely reiterated her
position, as stated in her letter to petitioner BPI, dated 13 August 1997, which
denied the latters protest; and remained silent as to the expiration of the
prescriptive period for collection of the assessed deficiency DST.

After due trial, the CTA rendered a Decision on 02 February 1999, in which
it identified two primary issues in the controversy between petitioner BPI and
respondent BIR Commissioner: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for
taxable year 1985 had prescribed; and (2) whether or not the sales of
US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the
Central Bank were subject to DST.

The CTA answered the first issue in the negative and held that the statute of
limitations for respondent BIR Commissioner to collect on the Assessment had not
yet prescribed. In resolving the issue of prescription, the CTA reasoned that

In the case of Commissioner of Internal Revenue vs. Wyeth
Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202
SCRA 125, the Supreme Court laid to rest the first issue. It categorically
ruled that a protest is to be treated as request for reinvestigation or
reconsideration and a mere request for reexamination or reinvestigation
tolls the prescriptive period of the Commissioner to collect on an
assessment. . .
. . .

In the case at bar, there being no dispute that petitioner filed its
protest on the subject assessment on November 17, 1989, there can be no
conclusion other than that said protest stopped the running of the
prescriptive period of the Commissioner to collect.

Section 320 (now 223) of the Tax Code, clearly states that a request
for reinvestigation which is granted by the Commissioner, shall suspend the
prescriptive period to collect. The underscored portion above does not
mean that the Commissioner will cancel the subject assessment but should
be construed as when the same was entertained by the Commissioner by not
issuing any warrant of distraint or levy on the properties of the taxpayer or
any action prejudicial to the latter unless and until the request for
reinvestigation is finally given due course. Taking into consideration this
provision of law and the aforementioned ruling of the Supreme Court
in Wyeth Suaco which specifically and categorically states that a protest
could be considered as a request for reinvestigation, We rule that
prescription has not set in against the government.
[11]


The CTA had likewise resolved the second issue in the negative. Referring
to its own decision in an earlier case, Consolidated Bank & Trust Co. v. The
Commissioner of Internal Revenue,
[12]
the CTA reached the conclusion that the
sales of foreign currency by petitioner BPI to the Central Bank in taxable year
1985 were not subject to DST

From the abovementioned decision of this Court, it can be gleaned
that the Central Bank, during the period June 11, 1984 to March 9, 1987
enjoyed tax exemption privilege, including the payment of documentary
stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of
the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of
the foreign currency, is exempt from paying the documentary stamp tax for
the period above-mentioned. This Court further expounded that said tax
exemption of the Central Bank was modified beginning January 1, 1986
when Presidential Decree (P.D.) 1994 took effect. Under this decree, the
liability for DST on sales of foreign currency to the Central Bank is shifted
to the seller.

Applying the above decision to the case at bar, petitioner cannot be
held liable for DST on its 1985 sales of foreign currencies to the Central
Bank, as the latter who is the purchaser of the subject currencies is the one
liable thereof. However, since the Central Bank is exempt from all taxes
during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive
Review Board dated March 3, 1985, neither the petitioner nor the Central
Bank is liable for the payment of the documentary stamp tax for the
formers 1985 sales of foreign currencies to the latter. This aforecited case
of Consolidated Bank vs. Commissioner of Internal Revenue was affirmed
by the Court of Appeals in its decision dated March 31, 1995, CA-GR Sp.
No. 35930. Said decision was in turn affirmed by the Supreme Court in its
resolution denying the petition filed by Consolidated Bank dated November
20, 1995 with the Supreme Court under Entry of Judgment dated March 1,
1996.
[13]




In sum, the CTA decided that the statute of limitations for respondent BIR
Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not yet
prescribed; nonetheless, it still ordered the cancellation of the said Assessment
because the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were tax-exempt.

Herein respondent BIR Commissioner appealed the Decision of the CTA to
the Court of Appeals. In its Decision dated 11 August 1999,
[14]
the Court of
Appeals sustained the finding of the CTA on the first issue, that the running of the
prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was
suspended when herein petitioner BPI filed a protest on 17 November 1989 and,
therefore, the prescriptive period for collection on the Assessment had not yet
lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on
the second issue and basically adopted the position of the respondent BIR
Commissioner that the sales of foreign currency by petitioner BPI to the Central
Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus,
ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required
petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year
1985, inclusive of the compromise penalty.

Comes now petitioner BPI before this Court in this Petition for Review
on Certiorari, seeking resolution of the same two legal issues raised and discussed
in the courts below, to reiterate: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for
taxable year 1985 had prescribed; and (2) whether or not the sales of
US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the
Central Bank were subject to DST.

I
The efforts of respondent Commissioner to collect on Assessment No.
FAS-5-85-89-002054 were already barred by prescription.



Anent the question of prescription, this Court disagrees in the Decisions of
the CTA and the Court of Appeals, and herein determines the statute of limitations
on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had
already prescribed.

The period for the BIR to assess and collect an internal revenue tax is
limited to three years by Section 203 of the Tax Code of 1977, as
amended,
[15]
which provides that

SEC. 203. Period of limitation upon assessment and collection.
Except as provided in the succeeding section, internal revenue taxes shall
be assessed within three years after the last day prescribed by law for the
filing of the return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period:
Provided, That in a case where a return is filed beyond the period
prescribed by law, the three-year period shall be counted from the day the
return was filed. For the purposes of this section, a return filed before the
last day prescribed by law for the filing thereof shall be considered as filed
on such last day.
[16]




The three-year period of limitations on the assessment and collection of
national internal revenue taxes set by Section 203 of the Tax Code of 1977, as
amended, can be affected, adjusted, or suspended, in accordance with the following
provisions of the same Code

SEC. 223. Exceptions as to period of limitation of assessment and
collection of taxes. (a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity,
fraud, or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of
in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in the preceding
section for the assessment of the tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such time the tax
may be assessed within the period agreed upon. The period so agreed upon
may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the
period of limitation above-prescribed may be collected by distraint or levy
or by a proceeding in court within three years following the assessment of
the tax.

(d) Any internal revenue tax which has been assessed within the
period agreed upon as provided in paragraph (b) hereinabove may be
collected by distraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the three-year period. The
period so agreed upon may be extended by subsequent written agreements
made before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding
section and paragraph (a) hereof shall be construed to authorize the
examination and investigation or inquiry into any tax returns filed in
accordance with the provisions of any tax amnesty law or decree.
[17]


SEC. 224. Suspension of running of statute. The running of the
statute of limitation provided in Section[s] 203 and 223 on the making of
assessment and the beginning of distraint or levy or a proceeding in court
for collection, in respect of any deficiency, shall be suspended for the
period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for
sixty days thereafter; when the taxpayer requests for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is
being assessed or collected: Provided, That, if the taxpayer informs the
Commissioner of any change in address, the running of the statute of
limitations will not be suspended; when the warrant of distraint and levy is
duly served upon the taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.
[18]




As enunciated in these statutory provisions, the BIR has three years, counted
from the date of actual filing of the return or from the last date prescribed by law
for the filing of such return, whichever comes later, to assess a national internal
revenue tax or to begin a court proceeding for the collection thereof without an
assessment. In case of a false or fraudulent return with intent to evade tax or the
failure to file any return at all, the prescriptive period for assessment of the tax due
shall be 10 years from discovery by the BIR of the falsity, fraud, or
omission. When the BIR validly issues an assessment, within either the three-year
or ten-year period, whichever is appropriate, then the BIR has another three
years
[19]
after the assessment within which to collect the national internal revenue
tax due thereon by distraint, levy, and/or court proceeding. The assessment of the
tax is deemed made and the three-year period for collection of the assessed tax
begins to run on the date the assessment notice had been released, mailed or sent
by the BIR to the taxpayer.
[20]


In the present Petition, there is no controversy on the timeliness of the
issuance of the Assessment, only on the prescription of the period to collect the
deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-
002054 and its corresponding Assessment Notice were both dated 10 October 1989
and were received by petitioner BPI on 20 October 1989, there was no showing as
to when the said Assessment and Assessment Notice were released, mailed or sent
by the BIR. Still, it can be granted that the latest date the BIR could have released,
mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the
same date they were received by the latter, on 20 October 1989. Counting the
three-year prescriptive period, for a total of 1,095 days,
[21]
from 20 October 1989,
then the BIR only had until 19 October 1992 within which to collect the assessed
deficiency DST.

The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-
002054 was its issuance and service of a Warrant of Distraint and/or Levy on
petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to
the expiration of the period for collection on 19 October 1992, the same was served
on petitioner BPI only on 23 October 1992.

Under Section 223(c) of the Tax Code of 1977, as amended, it is not
essential that the Warrant of Distraint and/or Levy be fully executed so that it can
suspend the running of the statute of limitations on the collection of the tax. It is
enough that the proceedings have validly began or commenced and that their
execution has not been suspended by reason of the voluntary desistance of the
respondent BIR Commissioner. Existing jurisprudence establishes that distraint
and levy proceedings are validly begun or commenced by the issuance of the
Warrant and service thereof on the taxpayer.
[22]
It is only logical to require that the
Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in
order to suspend the running of the prescriptive period for collection of an assessed
tax, because it may only be upon the service of the Warrant that the taxpayer is
informed of the denial by the BIR of any pending protest of the said taxpayer, and
the resolute intention of the BIR to collect the tax assessed.

If the service of the Warrant of Distraint and/or Levy on petitioner BPI on
23 October 1992 was already beyond the prescriptive period for collection of the
deficiency DST, which had expired on 19 October 1992, then what more the letter
of respondent BIR Commissioner, dated 13 August 1997 and received by the
counsel of the petitioner BPI only on 11 September 1997, denying the protest of
petitioner BPI and requesting payment of the deficiency DST? Even later and
more unequivocally barred by prescription on collection was the demand made by
respondent BIR Commissioner for payment of the deficiency DST in her Answer
to the Petition for Review of petitioner BPI before the CTA, filed on 08 December
1997.
[23]


II

There is no valid ground for the suspension of the running of the
prescriptive period for collection of the assessed DST under the Tax
Code of 1977, as amended.



In their Decisions, both the CTA and the Court of Appeals found that the
filing by petitioner BPI of a protest letter suspended the running of the prescriptive
period for collecting the assessed DST. This Court, however, takes the opposing
view, and, based on the succeeding discussion, concludes that there is no valid
ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.

A. The statute of limitations on assessment and collection of taxes is for the
protection of the taxpayer and, thus, shall be construed liberally in his favor.


Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will no
longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time.
[24]
As aptly explained in Republic of the Philippines v.
Ablaza
[25]


The law prescribing a limitation of actions for the collection of the
income tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the period
of prescription citizens would have a feeling of security against
unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latters real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding
citizens. Without such a legal defense taxpayers would furthermore be
under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection
to the taxpayer within the contemplation of the Commission which
recommend the approval of the law.

In order to provide even better protection to the taxpayer against
unreasonable investigation, the Tax Code of 1977, as amended, identifies
specifically in Sections 223 and 224
[26]
thereof the circumstances when the
prescriptive periods for assessing and collecting taxes could be suspended or
interrupted.

To give effect to the legislative intent, these provisions on the statute of
limitations on assessment and collection of taxes shall be construed and applied
liberally in favor of the taxpayer and strictly against the Government.

B. The statute of limitations on assessment and collection of national internal
revenue taxes may be waived, subject to certain conditions, under
paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended,
respectively. Petitioner BPI, however, did not execute any such waiver in
the case at bar.



According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,
as amended, the prescriptive periods for assessment and collection of national
internal revenue taxes, respectively, could be waived by agreement, to wit

SEC. 223. Exceptions as to period of limitation of assessment and
collection of taxes.
. . .

(b) If before the expiration of the time prescribed in the preceding
section for the assessment of the tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such time the tax
may be assessed within the period agreed upon. The period so agreed upon
may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.
. . .

(d) Any internal revenue tax which has been assessed within the
period agreed upon as provided in paragraph (b) hereinabove may be
collected by distraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the three-year period. The
period so agreed upon may be extended by subsequent written agreements
made before the expiration of the period previously agreed upon.
[27]



The agreements so described in the afore-quoted provisions are often
referred to as waivers of the statute of limitations. The waiver of the statute of
limitations, whether on assessment or collection, should not be construed as a
waiver of the right to invoke the defense of prescription but, rather, an agreement
between the taxpayer and the BIR to extend the period to a date certain, within
which the latter could still assess or collect taxes due. The waiver does not mean
that the taxpayer relinquishes the right to invoke prescription unequivocally.
[28]


A valid waiver of the statute of limitations under paragraphs (b) and (d) of
Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2)
agreed to by both the Commissioner and the taxpayer; (3) before the expiration of
the ordinary prescriptive periods for assessment and collection; and (4) for a
definite period beyond the ordinary prescriptive periods for assessment and
collection. The period agreed upon can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period
agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90
on 04 April 1990 to lay down an even more detailed procedure for the proper
execution of such a waiver. RMO No. 20-90 mandates that the procedure for
execution of the waiver shall be strictly followed, and any revenue official who
fails to comply therewith resulting in the prescription of the right to assess and
collect shall be administratively dealt with.

This Court had consistently ruled in a number of cases that a request for
reconsideration or reinvestigation by the taxpayer, without a valid waiver of the
prescriptive periods for the assessment and collection of tax, as required by the Tax
Code and implementing rules, will not suspend the running thereof.
[29]


In the Petition at bar, petitioner BPI executed no such waiver of the statute
of limitations on the collection of the deficiency DST per Assessment No. FAS-5-
85-89-002054. In fact, an internal memorandum of the Chief of the Legislative,
Ruling & Research Division of the BIR to her counterpart in the Collection
Enforcement Division, dated 15 October 1992, expressly noted that, The taxpayer
fails to execute a Waiver of the Statute of Limitations extending the period of
collection of the said tax up to December 31, 1993 pending reconsideration of its
protest. . .
[30]
Without a valid waiver, the statute of limitations on collection by
the BIR of the deficiency DST could not have been suspended under paragraph (d)
of Section 223 of the Tax Code of 1977, as amended.

C. The protest filed by petitioner BPI did not constitute a request for
reinvestigation, granted by the respondent BIR Commissioner, which could
have suspended the running of the statute of limitations on collection of the
assessed deficiency DST under Section 224 of the Tax Code of 1977, as
amended.


The Tax Code of 1977, as amended, also recognizes instances when the
running of the statute of limitations on the assessment and collection of national
internal revenue taxes could be suspended, even in the absence of a waiver, under
Section 224 thereof, which reads

SEC. 224. Suspension of running of statute. The running of the
statute of limitation provided in Section[s] 203 and 223 on the making of
assessment and the beginning of distraint or levy or a proceeding in court
for collection, in respect of any deficiency, shall be suspended for the
period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for
sixty days thereafter; when the taxpayer requests for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is
being assessed or collected: Provided, That, if the taxpayer informs the
Commissioner of any change in address, the running of the statute of
limitations will not be suspended; when the warrant of distraint and levy is
duly served upon the taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.
[31]




Of particular importance to the present case is one of the circumstances
enumerated in Section 224 of the Tax Code of 1977, as amended, wherein the
running of the statute of limitations on assessment and collection of taxes is
considered suspended when the taxpayer requests for a reinvestigation which is
granted by the Commissioner.

This Court gives credence to the argument of petitioner BPI that there is a
distinction between a request for reconsideration and a request for
reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November
1985 by the Secretary of Finance, upon the recommendation of the BIR
Commissioner, governs the procedure for protesting an assessment and
distinguishes between the two types of protest, as follows

PROTEST TO ASSESSMENT

SEC. 6. Protest. The taxpayer may protest administratively an
assessment by filing a written request for reconsideration or reinvestigation.
. .
. . .

For the purpose of the protest herein

(a) Request for reconsideration. refers to a plea for a re-evaluation
of an assessment on the basis of existing records without need of
additional evidence. It may involve both a question of fact or of law or
both.

(b) Request for reinvestigation. refers to a plea for re-evaluation of
an assessment on the basis of newly-discovered or additional evidence that
a taxpayer intends to present in the reinvestigation. It may also involve a
question of fact or law or both.



With the issuance of RR No. 12-85 on 27 November 1985 providing the
above-quoted distinctions between a request for reconsideration and a request for
reinvestigation, the two types of protest can no longer be used interchangeably and
their differences so lightly brushed aside. It bears to emphasize that under Section
224 of the Tax Code of 1977, as amended, the running of the prescriptive period
for collection of taxes can only be suspended by a request for reinvestigation, not
a request for reconsideration. Undoubtedly, a reinvestigation, which entails the
reception and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence already
at hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter can not.

The protest letter of petitioner BPI, dated 16 November 1989 and filed with
the BIR the next day, on 17 November 1989, did not specifically request for either
a reconsideration or reinvestigation. A close review of the contents thereof would
reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a
question of law, in particular, whether or not petitioner BPI was liable for DST on
its sales of foreign currency to the Central Bank in taxable year 1985. The same
protest letter did not raise any question of fact; neither did it offer to present any
new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the
BIR itself referred to the protest of petitioner BPI as a request for
reconsideration.
[32]
These considerations would lead this Court to deduce that the
protest letter of petitioner BPI was in the nature of a request for reconsideration,
rather than a request for reinvestigation and, consequently, Section 224 of the Tax
Code of 1977, as amended, on the suspension of the running of the statute of
limitations should not apply.

Even if, for the sake of argument, this Court glosses over the distinction
between a request for reconsideration and a request for reinvestigation, and
considers the protest of petitioner BPI as a request for reinvestigation, the filing
thereof could not have suspended at once the running of the statute of
limitations. Article 224 of the Tax Code of 1977, as amended, very plainly
requires that the request for reinvestigation had been granted by the BI R
Commissioner to suspend the running of the prescriptive periods for assessment
and collection.

That the BIR Commissioner must first grant the request for reinvestigation
as a requirement for suspension of the statute of limitations is even supported by
existing jurisprudence.

In the case of Republic of the Philippines v. Gancayco,
[33]
taxpayer
Gancayco requested for a thorough reinvestigation of the assessment against him
and placed at the disposal of the Collector of Internal Revenue all the evidences he
had for such purpose; yet, the Collector ignored the request, and the records and
documents were not at all examined. Considering the given facts, this Court
pronounced that

. . .The act of requesting a reinvestigation alone does not suspend
the period. The request should first be granted, in order to effect
suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs.
Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949,
within which to submit his evidence, which the latter did one day
before. There were no impediments on the part of the Collector to file the
collection case from April 1, 1949. . . .
[34]





In Republic of the Philippines v. Acebedo,
[35]
this Court similarly found that


. . . [T]he defendant, after receiving the assessment notice of
September 24, 1949, asked for a reinvestigation thereof on October 11,
1949 (Exh. A). There is no evidence that this request was considered or
acted upon. In fact, on October 23, 1950 the then Collector of Internal
Revenue issued a warrant of distraint and levy for the full amount of the
assessment (Exh. D), but there was no follow-up of this
warrant. Consequently, the request for reinvestigation did not suspend the
running of the period for filing an action for collection.




The burden of proof that the taxpayers request for reinvestigation had been
actually granted shall be on respondent BIR Commissioner. The grant may be
expressed in communications with the taxpayer or implied from the actions of the
respondent BIR Commissioner or his authorized BIR representatives in response to
the request for reinvestigation.

In Querol v. Collector of Internal Revenue,
[36]
the BIR, after receiving the
protest letters of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga,
to conduct the reinvestigation; as a result of which, the original assessment against
taxpayer Querol was revised by permitting him to deduct reasonable
depreciation. In another case,Republic of the Philippines v. Lopez,
[37]
taxpayer
Lopez filed a total of four petitions for reconsideration and reinvestigation. The
first petition was denied by the BIR. The second and third petitions were granted
by the BIR and after each reinvestigation, the assessed amount was reduced. The
fourth petition was again denied and, thereafter, the BIR filed a collection suit
against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of
Internal Revenue v. Sison,
[38]
contested the assessment against them and asked for a
reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of an
amended assessment. Lastly, in Republic of the Philippines v. Oquias,
[39]
the BIR
granted taxpayer Oquiass request for reinvestigation and duly notified him of the
date when such reinvestigation would be held; only, neither taxpayer Oquias nor
his counsel appeared on the given date.

In all these cases, the request for reinvestigation of the assessment filed by
the taxpayer was evidently granted and actual reinvestigation was conducted by the
BIR, which eventually resulted in the issuance of an amended assessment. On the
basis of these facts, this Court ruled in the same cases that the period between the
request for reinvestigation and the revised assessment should be subtracted from
the total prescriptive period for the assessment of the tax; and, once the assessment
had been reconsidered at the taxpayers instance, the period for collection should
begin to run from the date of the reconsidered or modified assessment.
[40]


The rulings of the foregoing cases do not apply to the present Petition
because: (1) the protest filed by petitioner BPI was a request for reconsideration,
not a reinvestigation, of the assessment against it; and (2) even granting that the
protest of petitioner BPI was a request for reinvestigation, there was no showing
that it was granted by respondent BIR Commissioner and that actual
reinvestigation had been conducted.

Going back to the administrative records of the present case, it would seem
that the BIR, after receiving a copy of the protest letter of petitioner BPI on 17
November 1989, did not attempt to communicate at all with the latter until 10
September 1992, less than a month before the prescriptive period for collection on
Assessment No. FAS-5-85-89-002054 was due to expire. There were internal
communications, mostly indorsements of the docket of the case from one BIR
division to another; but these hardly fall within the same sort of acts in the
previously discussed cases that satisfactorily demonstrated the grant of the
taxpayers request for reinvestigation. Petitioner BPI, in the meantime, was left in
the dark as to the status of its protest in the absence of any word from the
BIR. Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR
unwittingly admitted that it had not yet acted on the protest of the former

This refers to your protest against and/or request for reconsideration
of the assessment/s of this Office against you involving the amount
of P28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as
deficiency documentary stamp tax inclusive of compromise penalty for the
year 1985.

In this connection, it is requested that the enclosed waiver of the
statute of limitations extending the period of collection of the said tax/es to
December 31, 1993 be executed by you as a condition precedent of our
giving due course to your protest
[41]



When the BIR stated in its letter, dated 10 September 1992, that the waiver of the
statute of limitations on collection was a condition precedent to its giving due
course to the request for reconsideration of petitioner BPI, then it was understood
that the grant of such request for reconsideration was being held off until
compliance with the given condition. When petitioner BPI failed to comply with
the condition precedent, which was the execution of the waiver, the logical
inference would be that the request was not granted and was not given due course
at all.

III
The suspension of the statute of limitations on collection of the
assessed deficiency DST from petitioner BPI does not find support in
jurisprudence.



It is the position of respondent BIR Commissioner, affirmed by the CTA and
the Court of Appeals, that the three-year prescriptive period for collecting on
Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said
prescriptive period was suspended, invoking the case of Commissioner of Internal
Revenue v. Wyeth Suaco Laboratories, Inc.
[42]
It was in this case in which this
Court ruled that the prescriptive period provided by law to make a collection is
interrupted once a taxpayer requests for reinvestigation or reconsideration of the
assessment.

Petitioner BPI, on the other hand, is requesting this Court to revisit
the Wyeth Suaco case contending that it had unjustifiably expanded the grounds for
suspending the prescriptive period for collection of national internal revenue
taxes.

This Court finds that although there is no compelling reason to abandon its
decision in the Wyeth Suaco case, the said case cannot be applied to the particular
facts of the Petition at bar.

A. The only exception to the statute of limitations on collection of taxes, other
than those already provided in the Tax Code, was recognized in the Suyoc
case.


As had been previously discussed herein, the statute of limitations on
assessment and collection of national internal revenue taxes may be suspended if
the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d)
of Section 223 of the Tax Code of 1977, as amended; and in specific instances
enumerated in Section 224 of the same Code, which include a request for
reinvestigation granted by the BIR Commissioner. Outside of these statutory
provisions, however, this Court also recognized one other exception to the statute
of limitations on collection of taxes in the case of Collector of Internal Revenue v.
Suyoc Consolidated Mining Co.
[43]


In the said case, the Collector of Internal Revenue issued an assessment
against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for
deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at
least a year within which to pay the amount assessed, but at the same time,
reserving its right to question the correctness of the assessment before actual
payment. The Collector granted taxpayer Suyoc an extension of only three months
to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within
the extended period, the Collector sent it a demand letter, dated 28 November
1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a
reinvestigation and reconsideration of the assessment, but the Collector denied the
request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April
1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc
then appealed the denial to the Conference Staff. The Conference Staff heard the
appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in
the reduction of the assessment on 26 July 1955. It was the collection of the
reduced assessment that was questioned before this Court for being enforced
beyond the prescriptive period.
[44]


In resolving the issue on prescription, this Court ratiocinated thus

It is obvious from the foregoing that petitioner refrained from
collecting the tax by distraint or levy or by proceeding in court within the 5-
year period from the filing of the second amended final return due to the
several requests of respondent for extension to which petitioner yielded to
give it every opportunity to prove its claim regarding the correctness of the
assessment. Because of such requests, several reinvestigations were made
and a hearing was even held by the Conference Staff organized in the
collection office to consider claims of such nature which, as the record
shows, lasted for several months. After inducing petitioner to delay
collection as he in fact did, it is most unfair for respondent to now take
advantage of such desistance to elude his deficiency income tax liability to
the prejudice of the Government invoking the technical ground of
prescription.

While we may agree with the Court of Tax Appeals that a mere
request for reexamination or reinvestigation may not have the effect of
suspending the running of the period of limitation for in such case there is
need of a written agreement to extend the period between the Collector and
the taxpayer, there are cases however where a taxpayer may be prevented
from setting up the defense of prescription even if he has not previously
waived it in writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone collection
to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government. And when such
situation comes to pass there are authorities that hold, based on weighty
reasons, that such an attitude or behavior should not be countenanced if
only to protect the interest of the Government.
[45]




By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense
of prescription against the efforts of the Government to collect the tax assessed
against it. This Court adopted the following principle from American
jurisprudence: He who prevents a thing from being done may not avail himself of
the nonperformance which he has himself occasioned, for the law says to him in
effect this is your own act, and therefore you are not damnified.
[46]


In the Suyoc case, this Court expressly conceded that a mere request for
reconsideration or reinvestigation of an assessment may not suspend the running of
the statute of limitations. It affirmed the need for a waiver of the prescriptive
period in order to effect suspension thereof. However, even without such waiver,
the taxpayer may be estopped from raising the defense of prescription because by
his repeated requests or positive acts, he had induced Government authorities to
delay collection of the assessed tax.

Based on the foregoing, petitioner BPI contends that the declaration made in
the later case of Wyeth Suaco, that the statute of limitations on collection is
suspended once the taxpayer files a request for reconsideration or reinvestigation,
runs counter to the ruling made by this Court in the Suyoc case.

B. Although this Court is not compelled to abandon its decision in the Wyeth
Suaco case, it finds that Wyeth Suaco is not applicable to the Petition at bar
because of the distinct facts involved herein.



In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing
to remit withholding taxes on royalties and dividend declarations, as well as, for
deficiency sales tax. The BIR issued two assessments, dated 16 December 1974
and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December
1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the
BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the
assessments and requesting their cancellation or withdrawal on the ground that said
assessments lacked factual or legal basis. On 12 September 1975, the BIR
Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise
settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth
Suaco manifested its conformity to paying a compromise amount, but subject to
certain conditions; though, apparently, the said compromise amount was never
paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing
the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but
maintaining the assessment for deficiency sales tax. It was at this point when
taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from
enforcing the assessments by reason of prescription. Although the CTA decided in
favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was
brought before it on appeal. According to the decision of this Court

Settled is the rule that the prescriptive period provided by law to
make a collection by distraint or levy or by a proceeding in court is
interrupted once a taxpayer requests for reinvestigation or reconsideration
of the assessment. . .
. . .

Although the protest letters prepared by SGV & Co. in behalf of
private respondent did not categorically state or use the words
reinvestigation and reconsideration, the same are to be treated as letters
of reinvestigation and reconsideration

These letters of Wyeth Suaco interrupted the running of the five-year
prescriptive period to collect the deficiency taxes. The Bureau of I nternal
Revenue, after having reviewed the records of Wyeth Suaco, in
accordance with its request for reinvestigation, rendered a final
assessment It was only upon receipt by Wyeth Suaco of this final
assessment that the five-year prescriptive period started to run again.
[47]




The foremost criticism of petitioner BPI of the Wyeth Suaco decision is
directed at the statement made therein that, settled is the rule that the prescriptive
period provided by law to make a collection by distraint or levy or by a proceeding
in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment.
[48]
It would seem that both petitioner BPI and
respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the
statement to mean that the filing alone of the request for reconsideration or
reinvestigation can already interrupt or suspend the running of the prescriptive
period on collection. This Court therefore takes this opportunity to clarify and
qualify this statement made in the Wyeth Suaco case. While it is true that, by itself,
such statement would appear to be a generalization of the exceptions to the statute
of limitations on collection, it is best interpreted in consideration of the particular
facts of the Wyeth Suaco case and previous jurisprudence.

The Wyeth Suaco case cannot be in conflict with the Suyoc case because
there are substantial differences in the factual backgrounds of the two
cases. The Suyoc case refers to a situation where there were repeated requests or
positive acts performed by the taxpayer that convinced the BIR to delay collection
of the assessed tax. This Court pronounced therein that the repeated requests or
positive acts of the taxpayer prevented or estopped it from setting up the defense of
prescription against the Government when the latter attempted to collect the
assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for
reinvestigation, which was apparently granted by the BIR and, consequently, the
prescriptive period was indeed suspended as provided under Section 224 of the
Tax Code of 1977, as amended.
[49]


To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies
specific circumstances when the statute of limitations on assessment and collection
may be interrupted or suspended, among which is a request for reinvestigation that
is granted by the BIR Commissioner. The act of filing a request for reinvestigation
alone does not suspend the period; such request must be granted.
[50]
The grant
need not be express, but may be implied from the acts of the BIR Commissioner or
authorized BIR officials in response to the request for reinvestigation.
[51]


This Court found in the Wyeth Suaco case that the BIR actually conducted a
reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which
resulted in the reduction of the assessment originally issued against it. Taxpayer
Wyeth Suaco was also aware that its request for reinvestigation was granted, as
written by its Finance Manager in a letter dated 01 July 1975, addressed to the
Chief of the Tax Accounts Division, wherein he admitted that, [a]s we
understand, the matter is now undergoing review and consideration by your
Manufacturing Audit Division The statute of limitations on collection, then,
started to run only upon the issuance and release of the reduced assessment.

The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive
period for collection is interrupted or suspended when the taxpayer files a request
for reinvestigation, provided that, as clarified and qualified herein, such request is
granted by the BIR Commissioner.

Thus, this Court finds no compelling reason to abandon its decision in
the Wyeth Suaco case. It also now rules that the said case is not applicable to the
Petition at bar because of the distinct facts involved herein. As already heretofore
determined by this Court, the protest filed by petitioner BPI was a request for
reconsideration, which merely required a review of existing evidence and the legal
basis for the assessment. Respondent BIR Commissioner did not require, neither
did petitioner BPI offer, additional evidence on the matter. After petitioner BPI
filed its request for reconsideration, there was no other communication between it
and respondent BIR Commissioner or any of the authorized representatives of the
latter. There was no showing that petitioner BPI was informed or aware that its
request for reconsideration was granted or acted upon by the BIR.

IV
Conclusion

To summarize all the foregoing discussion, this Court lays down the
following rules on the exceptions to the statute of limitations on collection.

The statute of limitations on collection may only be interrupted or suspended
by a valid waiver executed in accordance with paragraph (d) of Section 223 of the
Tax Code of 1977, as amended, and the existence of the circumstances enumerated
in Section 224 of the same Code, which include a request for reinvestigation
granted by the BIR Commissioner.

Even when the request for reconsideration or reinvestigation is not
accompanied by a valid waiver or there is no request for reinvestigation that had
been granted by the BIR Commissioner, the taxpayer may still be held in estoppel
and be prevented from setting up the defense of prescription of the statute of
limitations on collection when, by his own repeated requests or positive acts, the
Government had been, for good reasons, persuaded to postpone collection to make
the taxpayer feel that the demand is not unreasonable or that no harassment or
injustice is meant by the Government, as laid down by this Court in
the Suyoc case.

Applying the given rules to the present Petition, this Court finds that
(a) The statute of limitations for collection of the deficiency DST in
Assessment No. FAS-5-85-89-002054, issued against petitioner BPI, had already
expired; and
(b) None of the conditions and requirements for exception from the statute
of limitations on collection exists herein: Petitioner BPI did not execute any
waiver of the prescriptive period on collection as mandated by paragraph (d) of
Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner
BPI was a request for reconsideration, not a request for reinvestigation that was
granted by respondent BIR Commissioner which could have suspended the
prescriptive period for collection under Section 224 of the Tax Code of 1977, as
amended; and, petitioner BPI, other than filing a request for reconsideration of
Assessment No. FAS-5-85-89-002054, did not make repeated requests or
performed positive acts that could have persuaded the respondent BIR
Commissioner to delay collection, and that would have prevented or estopped
petitioner BPI from setting up the defense of prescription against collection of the
tax assessed, as required in the Suyoc case.

This is a simple case wherein respondent BIR Commissioner and other BIR
officials failed to act promptly in resolving and denying the request for
reconsideration filed by petitioner BPI and in enforcing collection on the
assessment. They presented no reason or explanation as to why it took them
almost eight years to address the protest of petitioner BPI. The statute on
limitations imposed by the Tax Code precisely intends to protect the taxpayer from
such prolonged and unreasonable assessment and investigation by the BIR.

Considering that the right of the respondent BIR Commissioner to collect
from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054
had already prescribed, then, there is no more need for this Court to make a
determination on the validity and correctness of the said Assessment for the latter
would only be unenforceable.

WHEREFORE, based on the foregoing, the instant Petition is
GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 51271,
dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054
requiring petitioner BPI to pay the amount of P28,020.00 as deficiency
documentary stamp tax for the taxable year 1985, inclusive of the compromise
penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054
is hereby ordered CANCELED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20477 March 29, 1968
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
FELIX B. ACEBEDO, defendant-appellee.
Office of the Solicitor General for plaintiff-appellant.
Angel C. Facundo for defendant-appellee,.
MAKALINTAL, J .:
This is a suit for collection of deficiency income tax for the year 1948 in the amount of
P5,962.83. The corresponding notice of assessment was issued on September 24, 1949. The
complaint was filed on December 27, 1961. After the defendant filed his answer but before trial
started he moved to dismiss on the ground of prescription. The court received evidence on the
motion, and on September 1, 1962 issued an order finding the same meritorious and hence
dismissing the complaint. The case is before us on appeal by the plaintiff from the order of dismissal.
The statute of limitations which governs this case is Section 332, subsection (c), of the
National Internal Revenue Code, which reads:
SEC. 332. Exemptions as to period of limitation of assessment and collection of taxes.

x x x x x x x x x
x x x x x x x x x
(c) Where the assessment of any internal-revenue tax has been made with the period
of limitation above prescribed such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years after the assessment of the tax, or
(2) prior to the expiration of any period for collection agreed upon in writing by the Collector
of Internal Revenue and the taxpayer before the expiration of such five-year period. The
period so agreed upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
The present suit was not begun within five years after the assessment of the tax, which was in
1949. Was it, however, begun prior to the expiration of any period for collection agreed upon in
writing by the Commissioner of Internal Revenue and the defendant before the expiration of such
five-year period? The only evidence of such written agreement, in the form of a "waiver of the statute
of limitations" signed by the defendant, is Exhibit U (also Exh. 4), dated December 17, 1959. But this
waiver was ineffective because it was executed beyond the original five-year limitation.
The plaintiff contends that the period of prescription was suspended by the defendant's
various requests for reinvestigation or reconsideration of the tax assessment. The trial court rejected
this contention, saying that a mere request for reinvestigation or reconsideration of an assessment
does not have the effect of such suspension. The ruling is logical, otherwise there would be no point
to the legal requirement that the extension of the original period be agreed upon in writing.
To be sure, this legal provision, according to some, decisions of this Court, does not rule out a
situation where the taxpayer may be in estoppel to claim prescription. Thus we said in Commissioner
of Internal Revenue, vs. Consolidated Mining Co., L-11527, Nov. 25, 1958:
... There are cases however where a taxpayer may be prevented from setting up the
defense of prescription even if he has not previously waived it in writing as when by his
repeated requests or positive acts the Government has been, for good reasons, persuaded
to postpone collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government. (Emphasis supplied.)
Likewise, when a taxpayer asks for a reinvestigation of the tax assessment issued to him and
such reinvestigation is made, on the basis of which the Government makes another assessment, the
five-year period with which an action for collection may be commenced should be counted from this
last assessment. (Republic vs. Lopez, L-18007, March 30, 1963; Commissioner v. Sison, et al., L-
13739, April 30, 1963.)
In the case at bar, the defendant, after receiving the assessment notice of September 24,
1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that
this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of
Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment at (Exh.
D), but there was no follow up of this warrant. Consequently, the request for reinvestigation did not
suspend the running of the period for filing an action for collection.
The next communication of record is a letter signed for the defendant by one Troadio Concha
and dated October 6, 1951, again requesting a reinvestigation of his tax liability (Exh. B). Nothing
came of this request either. Then on February 9, 1954, the defendant's lawyers wrote the Collector
of Internal Revenue informing him that the books of their client were ready at their office for
examination (Exh. C). The reply was dated more than a year later, or on October 4, 1955, when the
Collector bestirred himself for the first time in connection with the reinvestigation sought, and
required that the defendants specify his objections to the assessment and execute "the enclosed
forms for waiver, of the statute of limitations." (Exh. E). The last part of the letter was a warning that
unless the waiver "was accomplished and submitted within 10 days the collection of the deficiency
taxes would be enforced by means of the remedies provided for by law."
It will be noted that up to October 4, 1955 the delay in collection could not be attributed to the
defendant at all. His requests in fact had been unheeded until then, and there was nothing to impede
enforcement of the tax liability by any of the means provided by law. By October 4, 1955, more than
five years had elapsed since assessment in question was made, and hence prescription had already
set in, making subsequent events in connection with the said assessment entirely immaterial. Even
the written waiver of the statute signed by the defendant on December 17, 1959 could no longer
revive the right of action, for under the law such waiver must be executed within the original five-year
period within which suit could be commenced.
The order appealed from is affirmed, without pronouncement as to costs.

SECOND DIVISION
[G.R. No. 130430. December 13, 1999]
REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the
Bureau of Internal Revenue (BIR), petitioner, vs. SALUD V.
HIZON, respondent.
D E C I S I O N
MENDOZA, J .:
This is a petition for review of the decision
[1]
of the Regional Trial Court, Branch
44, San Fernando, Pampanga, dismissing the suit filed by the Bureau of Internal
Revenue for collection of tax.
The facts are as follows:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency
income tax assessment of P1,113,359.68 covering the fiscal year 1981-
1982. Respondent not having contested the assessment, petitioner, on January 12,
1989, served warrants of distraint and levy to collect the tax deficiency. However, for
reasons not known, it did not proceed to dispose of the attached properties.
More than three years later, or on November 3, 1992, respondent wrote the BIR
requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter
dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with
the Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the tax
deficiency. The complaint was signed by Norberto Salud, Chief of the Legal
Division, BIR Region 4, and verified by Amancio Saga, the Bureaus Regional
Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint
was not filed upon authority of the BIR Commissioner as required by 221
[2]
of the
National Internal Revenue Code, and (2) that the action had already prescribed. Over
petitioners objection, the trial court, on August 28, 1997, granted the motion and
dismissed the complaint. Hence, this petition. Petitioner raises the following issues:
[3]

I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR
COLLECTION OF TAXES WAS WITHOUT THE APPROVAL OF THE
COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL
INTERNAL REVENUE CODE.
II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED
AGAINST RESPONDENT HAD ALREADY BEEN BARRED BY THE STATUTE
OF LIMITATIONS.
First. In sustaining respondents contention that petitioners complaint was filed
without the authority of the BIR Commissioner, the trial court stated:
[4]

There is no question that the National Internal Revenue Code explicitly provides that
in the matter of filing cases in Court, civil or criminal, for the collection of taxes, etc.,
the approval of the commissioner must first be secured. . . . [A]n action will not
prosper in the absence of the commissioners approval. Thus, in the instant case, the
absence of the approval of the commissioner in the institution of the action is fatal to
the cause of the plaintiff . . . .
The trial court arrived at this conclusion because the complaint filed by the BIR was
not signed by then Commissioner Liwayway Chato.
Sec. 221 of the NIRC provides:
Form and mode of proceeding in actions arising under this Code. Civil and
criminal actions and proceedings instituted in behalf of the Government under the
authority of this Code or other law enforced by the Bureau of Internal Revenue shall
be brought in the name of the Government of the Philippines and shall be conducted
by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the
Bureau of Internal Revenue deputized by the Secretary of Justice, but no civil and
criminal actions for the recovery of taxes or the enforcement of any fine, penalty or
forfeiture under this Code shall be begun without the approval of the Commissioner.
(Emphasis supplied)
To implement this provision Revenue Administrative Order No. 5-83 of the BIR
provides in pertinent portions:
The following civil and criminal cases are to be handled by Special Attorneys and
Special Counsels assigned in the Legal Branches of Revenue Regions:
. . . .
II. Civil Cases
1. Complaints for collection on cases falling within the jurisdiction of the Region . . .
.
In all the abovementioned cases, the Regional Director is authorized to sign all
pleadings filed in connection therewith which, otherwise, requires the signature of the
Commissioner.
. . . .
Revenue Administrative Order No. 10-95 specifically authorizes the Litigation
and Prosecution Section of the Legal Division of regional district offices to institute
the necessary civil and criminal actions for tax collection. As the complaint filed in
this case was signed by the BIRs Chief of Legal Division for Region 4 and verified
by the Regional Director, there was, therefore, compliance with the law.
However, the lower court refused to recognize RAO No. 10-95 and, by
implication, RAO No. 5-83. It held:
[M]emorand[a], circulars and orders emanating from bureaus and agencies whether in the purely
public or quasi-public corporations are mere guidelines for the internal functioning of the said
offices. They are not laws which courts can take judicial notice of. As such, they have no
binding effect upon the courts for such memorand[a] and circulars are not the official acts of the
legislative, executive and judicial departments of the Philippines . . . .
[5]

This is erroneous. The rule is that as long as administrative issuances relate solely
to carrying into effect the provisions of the law, they are valid and have the force of
law.
[6]
The governing statutory provision in this case is 4(d) of the NIRC which
provides:
Specific provisions to be contained in regulations. - The regulations of the Bureau of
Internal Revenue shall, among other things, contain provisions specifying,
prescribing, or defining:
. . . .
(d) The conditions to be observed by revenue officers, provincial fiscals and other
officials respecting the institution and conduct of legal actions and proceedings.
RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of
the present Code authorizes the BIR Commissioner to delegate the powers vested in
him under the pertinent provisions of the Code to any subordinate official with the
rank equivalent to a division chief or higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the
Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
(c) The power to compromise or abate under 204(A) and (B) of this Code, any tax
deficiency: Provided, however, that assessments issued by the Regional Offices
involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less,
and minor criminal violations as may be determined by rules and regulations to be
promulgated by the Secretary of Finance, upon the recommendation of the
Commissioner, discovered by regional and district officials, may be compromised by
a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal, Assessment and
Collection Divisions and the Revenue District Officer having jurisdiction over the
taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
None of the exceptions relates to the Commissioners power to approve the filing of
tax collection cases.
Second. With regard to the issue that the case filed by petitioner for the collection
of respondents tax deficiency is barred by prescription, 223(c) of the NIRC
provides:
Any internal revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a proceeding in court
within three years
[7]
following the assessment of the tax.
The running of the three-year prescriptive period is suspended
[8]

for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a reinvestigation which is granted
by the Commissioner; when the taxpayer cannot be located in the address given
by him in the return filed upon which the tax is being assessed or
collected; provided, that, if the taxpayer informs the Commissioner of any change
in address, the running of the statute of limitations will not be suspended; when
the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines.
Petitioner argues that, in accordance with this provision, respondents request for
reinvestigation of her tax deficiency assessment on November 3, 1992 effectively
suspended the running of the period of prescription such that the government could
still file a case for tax collection.
[9]

The contention has no merit. Sec. 229
[10]
of the Code mandates that a request for
reconsideration must be made within 30 days from the taxpayers receipt of the tax
deficiency assessment, otherwise the assessment becomes final, unappealable and,
therefore, demandable.
[11]
The notice of assessment for respondents tax deficiency
was issued by petitioner on July 18, 1986. On the other hand, respondent made her
request for reconsideration thereof only on November 3, 1992, without stating when
she received the notice of tax assessment. She explained that she was constrained to
ask for a reconsideration in order to avoid the harassment of BIR collectors.
[12]
In all
likelihood, she must have been referring to the distraint and levy of her properties by
petitioners agents which took place on January 12, 1989. Even assuming that she
first learned of the deficiency assessment on this date, her request for reconsideration
was nonetheless filed late since she made it more than 30 days thereafter. Hence, her
request for reconsideration did not suspend the running of the prescriptive period
provided under 223(c). Although the Commissioner acted on her request by
eventually denying it on August 11, 1994, this is of no moment and does not detract
from the fact that the assessment had long become demandable.
Nonetheless, it is contended that the running of the prescriptive period under
223(c) was suspended when the BIR timely served the warrants of distraint and levy
on respondent on January 12, 1989.
[13]
Petitioner cites for this purpose our ruling
in Advertising Associates Inc. v. Court of Appeals.
[14]
Because of the suspension, it is
argued that the BIR could still avail of the other remedy under 223(c) of filing a case
in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997.
Petitioners reliance on the Courts ruling in Advertising Associates Inc. v. Court
of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier
case of Palanca v. Commissioner of Internal Revenue,
[15]
is that the timely service of a
warrant of distraint or levy suspends the running of the period to collect the tax
deficiency in the sense that the disposition of the attached properties might well take
time to accomplish, extending even after the lapse of the statutory period for
collection. In those cases, the BIR did not file any collection case but merely relied
on the summary remedy of distraint and levy to collect the tax deficiency. The
importance of this fact was not lost on the Court. Thus, in Advertising Associates, it
was held:
[16]
It should be noted that the Commissioner did not institute any judicial
proceeding to collect the tax. He relied on the warrants of distraint and levy to
interrupt the running of the statute of limitations.
Moreover, if, as petitioner in effect says, the prescriptive period was suspended
twice, i.e., when the warrants of distraint and levy were served on respondent on
January 12, 1989 and then when respondent made her request for reinvestigation of
the tax deficiency assessment on November 3, 1992, the three-year prescriptive period
must have commenced running again sometime after the service of the warrants of
distraint and levy. Petitioner, however, does not state when or why this took place
and, indeed, there appears to be no reason for such. It is noteworthy that petitioner
raised this point before the lower court apparently as an alternative theory, which,
however, is untenable.
For the foregoing reasons, we hold that petitioners contention that the action in
this case had not prescribed when filed has no merit. Our holding, however, is
without prejudice to the disposition of the properties covered by the warrants of
distraint and levy which petitioner served on respondent, as such would be a mere
continuation of the summary remedy it had timely begun. Although considerable time
has passed since then, as held in Advertising Associates Inc. v. Court of
Appeals
[17]
and Palanca v. Commissioner of Internal Revenue,
[18]
the enforcement of
tax collection through summary proceedings may be carried out beyond the statutory
period considering that such remedy was seasonably availed of.
WHEREFORE, the petition is DENIED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.


FIRST DIVISION
[G.R. No. 136171. July 2, 2002]
REPUBLIC OF THE PHILIPPINES, petitioner, vs. KER AND COMPANY
LIMITED, respondent.
R E S O L U T I O N
AUSTRIA-MARTINEZ, J .:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
filed by petitioner Republic of the Philippines, represented by the Department of Public
Works and Highways, assailing the decision rendered by the Court of Appeals in CA
G.R. CV No. 54256 entitled, Republic of the Philippines v. Ker and Company Limited.
The decision in question affirmed the trial court in ordering petitioner to pay herein
respondent Ker Company Limited the sum of Six Thousand Pesos (P6,000.00) per
square meter as just compensation for the 1,186 square meter lot (Site I) which was
expropriated by the government.
The factual background:
Petitioner filed before the Regional Trial Court (RTC) of Davao City a petition for
expropriation of portions of two (2) parcels of land owned by respondent described as
follows:
Lot No. TCT No. Total Area Affected Area
Site I 2-D-1-A-2 T-212616 29.583 sq. m. 1,186 sq. m.
Site II 2-D-1-B-1 T-212617 2,902 sq. m. 1,035 sq. m.
Petitioner needed the parcels of land for the widening of the road component of J.P.
Laurel-Buhangin Interchange in Davao City. The provisional value of the properties
sought to be expropriated was fixed at the aggregate sum of Two Million Two Hundred
Twenty One Thousand Pesos (P2,221,000.00) or One Thousand Pesos (P1,000.00) per
square meter. Respondent claimed that the value of the properties subject for
expropriation is more than Four Thousand Pesos (P4,000.00) per square meter.
After study and investigation, the duly appointed commissioners, Ms. Lucia E.
Pelayo and Mr. Oliver Morales of Cuervo Appraisers, Inc. gave the following estimates
as just compensation for the areas affected:
Site I 1,186 sq. m. = P 8,788.70/square meter
Site II 1,035 sq. m. = P 5,423.48/square meter
While petitioner found the valuation of respondents property in Site II reasonable,
petitioner, in its comment on the Report of the Appraisers found the estimate for Site I
excessive, stating that:
1) the provincial Appraisal Committee in a joint Appraisal Report dated January 14,
1993 recommended the market value of Ker and Companys property at P1,000.00
per square meter;
2) the highest valuation of lots within the JP Laurel-Buhangin area adjudicated by the
RTC, Davao City in a decision rendered on December 23, 1993 is at P4,000.00 per
sq. meter; and,
3) the appraisers did not take into account that the areas in the proceedings are being
expropriated for use in a government project vested with public interest.
On September 27, 1996, the RTC rendered a decision the dispositive portion of
which reads as follows:
With the determination of just compensation, judgment is hereby rendered:
1. Declaring plaintiff to have a lawful right to acquire possession
of and title to:
a) 1,186 square meters only of defendant Kers parcel
of land covered by Certificate of Title T-212616
described as Site I;
b) 1,035 square meters only of defendant Kers parcel
of land covered by Certificate of Title T-212617
described as Site II;
2. Condemning portions of the above-described parcels of land
including improvements thereon, if there be any, free from all
liens and encumbrances;
3. Ordering plaintiff to pay:
a) Defendant Ker P6,000.00 per square meter for the
P1,186 in Site I;
b) Defendant Ker P5,423.48 per square meter for the
1,035 in Site II
as fair and just compensation.
[1]

Petitioner appealed to the Court of Appeals alleging that the value fixed by the trial
court as just compensation for Site I should be reduced. Petitioner alleged that when the
petition for expropriation was filed, the tax declaration of the property indicated its
assessed value at only Four Hundred Twenty-Five Pesos (P425.00) per square meter
while its market value was only Eight Hundred Forty Nine Pesos (P849.00) per square
meter. Petitioner cited the case of Civil Case No. 22-052-93 entitled Republic v.
Laong
[2]
where the RTC of Davao City (Branch 17) fixed the value of the lots within the
area of J.P. Laurel Buhangin at Four Thousand Pesos (P4,000.00) per square meter.
The appellate court affirmed the decision of the lower court in toto, ruling that just
compensation cannot be measured by the assessed value of the property as stated in
the tax declaration and schedule of market values approved by the Provincial Appraisal
Committee and that for the purpose of appraisal, the fair market value of the property is
taken into account and such value refers to the highest price in terms of money which a
property will bring if exposed for sale in the public market. The appellate court brushed
aside petitioners reliance on Republic v. Laong.
Petitioner in the present petition raises essentially the same issues which were
raised before the trial court and the appellate court. In addition however, petitioner avers
that since Site I is adjacent to Site II, there are no substantial distinctions to warrant
different valuations.
The appellate court did not err in not upholding petitioners claim that the valuation
for the lot in Site I is excessive and unreasonable since the tax declaration of the
property indicated its assessed value at only Four Hundred Twenty-Five Pesos
(P425.00) per square meter while its market value was only Eight Hundred Forty-Nine
Pesos (P849.00) per square meter based on the revised 1993 schedule of market
values. We have declared in Manotok v. National Housing Authority
[3]
, that the
statements made in tax documents by the assessor may serve as one of the factors to
be considered but they cannot exclude or prevail over a court determination after expert
commissioners have examined the property and all pertinent circumstances are taken
into account and after all the parties have had the opportunity to fully plead their cases
before a competent and unbiased tribunal.
That the tax declaration of the property in Site I indicated a much lower assessed or
market value therefore does not make commissioners valuation of just compensation
for the property excessive or unreasonable. The duly appointed commissioners of both
parties made a careful study of the properties subject of expropriation. They considered
factors such as the location, the most profitable likely use of the remaining area, size,
shape, accessibility as well as listings of other properties within the vicinity to arrive at a
reasonable estimate of just compensation for both lots due the respondent. Petitioner, in
fact, does not question the commissioners appraisal value as just compensation for the
area affected in Site II.
Petitioner maintains that the assessment of just compensation for the lot in Site I is
excessive since the highest valuation made for the properties within the vicinity of J.P.
Laurel-Buhangin Road was pegged at Four Thousand Pesos (P4,000.00) in a decision
rendered by Branch 17 of the Regional Trial Court of Davao in December 1993. This
contention is not plausible. In computing just compensation for expropriation
proceedings, it is the value of the land at the time of the taking or at the time of the filing
of the complaint not at the time of the rendition of judgment which should be taken into
consideration.
[4]
Section 4, Rule 67 of the 1997 Rules of Civil Procedure provides that
just compensation is to be determined as of the date of the taking or the filing of the
complaint whichever came first. On this matter, the appellate court is correct in
disregarding petitioners claim.
Nonetheless, we find merit in petitioners contention that there are no substantial
distinctions between the lot in Site I and the lot in Site II to warrant different valuations.
The lots subject of expropriation are adjacent to each other. The Appraisal Report
even indicated that the remaining area of the lot in Site II has the same problem as in
Site I with respect to access. The construction of the service road has created a
problem pertaining to ingress or egress to the remaining portions of both
Sites.
[5]
Considering that there is no evidence showing substantial distinctions between
the lots affected by Site I and Site II and no explanation was given by the
commissioners as to why Site I had been given a higher valuation than Site II, we find it
just and reasonable that the undisputed sum of Five Thousand Four Hundred Twenty-
Three Pesos and Forty-Eight Centavos (P5,423.48) per square meter as just
compensation for Site II should likewise apply to Site I.
Wherefore, the petition is partially GRANTED. The assailed decision of the
appellate court in C.A. G.R. CV No. 54256 is AFFIRMED with MODIFICATION only in
so far as the value for the lot in Site I is concerned. Petitioner Republic of the
Philippines is ordered to pay respondent Ker Company Limited Five Thousand Four
Hundred Twenty-Three Pesos and Forty-Eight Centavos (P5,423.48) per square meter
as just compensation for the 1,186 square meter lot expropriated in Site I.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Kapunan, and Ynares-Santiago, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-10123 and L-10355 April 26, 1957
GENARO URSAL, as City Assessor of Cebu, petitioner,
vs.
COURT OF TAX APPEALS and CONSUELO NOEL, respondents.
GENARO URSAL, as City Assessor of Cebu, petitioner,
vs.
COURT OF TAX APPEALS and JESUSA SAMSON, respondents.
City Fiscal of Cebu Jose L. Abad for petitioner.
Francisco M. Alonso for respondents.
BENGZON, J .:
In these two cases Genaro Ursal as City Assessor of Cebu challenges the correctness of the order
of the Court of Tax Appeals dismissing his appeals to that body from two rulings of the Cebu Board
of Assessment Appeals.
The record shows that said city assessors in the exercise of his powers assessed for taxation certain
real properties of Consuelo Noel and Jesusa Samson in the City of Cebu, and that upon protest of
the taxpayers, the Cebu Board of Assessment Appeals reduced the assessments. It also shows he
took the matter to the Court of Tax Appeals insisting on his valuation; but said Court refused to
entertain the appeal saying it was late, and, besides, the assessor had no personality to bri ng the
matter before it under section 11 of Republic Act No. 1125, which reads as follows:
SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector
of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the
Court of Tax Appeals within thirty days after the receipt of such decision or ruling.
We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The
rulings of the Board of Assessment Appeals did not "adversely affect" him. At most it was the City of
Cebu
1
that had been adversely affected in the sense that it could not thereafter collect higher realty
taxes from the abovementioned property owners. His opinion, it is true had been overruled; but the
overruling inflicted no material damage upon him or his office. And the Court of Tax Appeals was not
created to decide mere conflicts of opinion between administrative officers or agencies. Imagine an
income tax examiner resorting to the Court of Tax Appeals whenever the Collector of Internal
Revenue modifies, or lower his assessment on the return of a tax payer!
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide
any and all tax disputes. Defining such special court's jurisdiction, the Act necessarily limited its
authority to those matters enumerated therein. In line with this idea we recently approved said
court's order rejecting an appeal to it by Lopez & Sons from the decision of the Collector of Customs,
because in our opinion its jurisdiction extended only to a review of the decisions of
the Commissioner of Customs, as provided by the statute and not to decisions of theCollector of
Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
The appellant invites attention to the fact that the Court of Appeals is the successor of the former
Central Board of Tax Appeals created by Commonwealth Act No. 530 and of the Board of Tax
Appeals established by Executive Order No. 401-A, and that said Commonwealth Act No. 530
(section 2) explicitly authorized the city assessor to appeal to the Central Board of Tax Appeals.
Here is precisely another argument against his position: as Republic Act No. 1125 failed to reenact
such express permission, it is deemed with held.
Oversight could not have been the clause of such withholding, since there were proper grounds
therefor: (a) discipline and command responsibility in the executive branches; and (b) instead of
being another superior administrative agency as was the former Board of Tax Appeals
2
the Court of
Tax Appeals as created by Republic Act No. 1125 is a part of the judicial system presumably to act
only on protests of private persons adversely affected by the tax, custom, or assessment.
There is no merit to the contention that section 2 of Commonwealth Act No. 530 is still in force and
justifies Ursal's appeal. Apart from the reasons already advanced, Republic Act No. 1125 is a
complete law by itself and expressly enumerates the matters which the Court of Tax Appeals may
consider; such enumeration excludes all others by implication. Expressio unius est exclusio alterius.
parts of an original act which act omitted from the act as revised are to be considered as
annulled and repealed, provided it clearly appears to have been the intention of the
legislature to cover the whole subject by the revision. (82 C. J. S. p. 501.)
Inasmuch as we agree to the appellant's lack of personality before the Court of Tax Appeals, we find
it unnecessary to review the question whether or not his appeal had been perfected in due time.
Wherefore, the challenge order is hereby affirmed.
Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia
and Felix, JJ.,concur.


SECOND DIVISION

COMMISSIONER OF
INTERNAL REVENUE,
Petitioner,




-versus-



MANILA ELECTRIC
COMPANY,
Respondent.
G.R. No. 121666

Present:

QUISUMBING, J. Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.


Promulgated:


October 10, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO MORALES, J .:

Assailed via Petition for Review is the Court of Appeals Decision
[1]
of
August 23, 1995, affirming that of the Court of Tax Appeals dated January 6,
1995
[2]
which ordered petitioner, Commissioner of Internal Revenue, to refund or,
in the alternative, issue a tax credit certificate in favor of [respondent Manila
Electric Company] the sum of P107,649,729.00 representing overpaid income
taxes for the years 1987 and 1988.

Manila Electric Company (respondent), a grantee of a legislative franchise
under Act No. 484, as amended by Republic Act No. 4159 and Presidential Decree
No. 551,
[3]
had been paying a 2% franchise tax based on its gross receipts, in lieu of
all other taxes and assessments of whatever nature. Upon the effectivity of
Executive Order No. 72 onFebruary 10, 1987, however, respondent became subject
to the payment of regular corporate income tax.
[4]


For the last quarter ending December 31, 1987, respondent filed on April 15,
1988 its tentative income tax reflecting a refundable amount of P101,897,741, but
onlyP77,931,812 was applied as tax credit for the succeeding taxable year 1988.
[5]


Acting on a yearly routinary Letter of Authority No. 0018064 NA dated June
27, 1988 issued by petitioner, directing the investigation of tax liabilities of
respondent for taxable year 1987, an investigation was conducted by Revenue
Officer Frederick Capitan which showed that respondent was liable for 1.
deficiency income tax in the amount ofP2,340,902.52; and 2. deficiency franchise
tax in the amount of P2,838,335.84.
[6]


On April 17, 1989, respondent filed an amended final corporate Income Tax
Return ending December 31, 1988 reflecting a refundable amount
of P107,649,729.
[7]


Respondent thus filed on March 30, 1990 a letter-claim for refund or credit
in the amount of P107,649,729 representing overpaid income taxes for the years
1987 and 1988.
[8]


Petitioner not having acted on its request, respondent filed on April 6, 1990 a
judicial claim for refund or credit with the Court of Tax Appeals.
[9]


It is gathered that respondent paid the deficiency franchise tax in the amount
of P2,838,335.84. It protested the payment of the alleged deficiency income tax
and claimed as an alternative remedy the deduction thereof from its claim for
refund or credit.

After trial, the Court of Tax Appeals found for respondent by Decision
of January 6, 1995, the pertinent portions of which read:


Going now on the first issue, this Court was convinced that [respondent]
proved its entitlement for [sic] the refund.

As can be gleaned from the 1987 final income tax return (Exh. N),
[respondent] had an income tax liability of P142,088,822.00 which was set-off
against three quarter payments in the total sum of P243,986,563.00 (Exhs. A,
A-1, B, B-1, C, C-1). Thus, what remain[ed] was a refundable amount
of P101,897,741.00 which [respondent] opted to be applied as tax credit to
succeeding taxable year (i.e., 1988). However, in the year 1988[,] only the amount
of P77,931,812.00 was utilized as tax credit therefore leaving an unapplied
balance of P23,965,929.00 for 1987.

For the year 1988, an annual income tax payable of P62,498,902.00 was
due from [respondent]. This liability was settled by crediting the 1987 excess tax
payment in the amount of P77,931,812.00 plus payments of P53,333,376.00
(Exhs. 1 & J) and P14,917,514.00 (Exh. M) for the first and third quarters
of 1988. Thus, [respondent] in turn overpaid the income tax due
byP83,683,800.00.

It should be noted that [respondent] in the 1988 income tax return (Exh.
U) opted the preceding sums (P23,965,929.00 and P83,683,800.00) to be
carried-over as tax credit in 1989 and eventually the 1989 to 1990 (Exh.
U). However, upon examination of the records of the case, the business
operation in 1989 bears unfruitful result. On the other hand, the 1990 income tax
liability of P16,257,472.00 was paid by [respondent] (Exh. AA). Hence, the
sums sought to be refunded herein were not utilized in both
years.
[10]
(Underscoring supplied)


The tax court thus ordered petitioner to refund or, in the alternative, issue a
tax credit certificate in favor of [respondent] the sum of P107,649,729.00
representing overpaid income taxes for the years 1987 and 1988.
[11]


Petitioner thus elevated the case to the Court of Appeals on the sole issue of
WHETHER RESPONDENT HAS SUBSTANTIALLY PROVED
ENTITLEMENT TO ITS ALLEGED CLAIM FOR TAX REFUND/CREDIT
FOR THE YEARS 1987 TO 1988 IN THE AMOUNT OF P107,649,729.00. The
appellate court affirmed the tax courts decision.

Hence, the present petition faulting the appellate court to have:

I

. . . BASED ITS DECISION SOLELY ON MERALCOS CLAIM FOR TAX
REFUND AS DECLARED IN ITS QUARTERLY AND CORPORATE
ANNUAL INCOME TAX RETURNS FOR THE YEARS 1987 AND
1988 WITHOUT ANY FINDINGS OF FACT SUBSTANTIATING SUCH
CLAIM.

II

. . . RELIED MERELY ON MERALCOS CLAIM DESPITE FAILURE OF
MERALCO TO EXPLAIN AND JUSTIFY THE DISCREPANCY (a)
BETWEEN THE THREE QUARTERLY INCOME TAX RETURNS
DECLARING A TAXABLE INCOME OF ALREADY P697,104,466.00 FOR
THE PERIODS STARTING JANUARY 1, 1987 TO SEPTEMBER 30, 1987
AND THE ANNUAL INCOME TAX RETURN DECLARED AS OF
DECEMBER 31, 1989 WHICH INDICATED AN ANNUAL INCOME OF
ONLY P474,442,146.00 AND LATER AMENDED TO A MERE
P405,968,083.00, AND (b) BETWEEN THE THREE QUARTERLY INCOME
TAX RETURNS FOR THE PERIOD ENDING SEPTEMBER 30, 1988 AND
THE ANNUAL INCOME TAX RETURN AS OF DECEMBER 31, 1988.

III

. . . RELIED MERELY ON MERALCOS CLAIM NOTWITHSTANDING
CONSISTENT FAILURE OF MERALCO TO SUBMIT DOCUMENTARY
EVIDENCE TO SUBSTANTIATE THE CLAIM FOR TAX REFUND/CREDIT,
AS A RESULT OF WHICH THE INVESTIGATION BEING CONDUCTED BY
PETITIONER THRU ITS REVENUE OFFICER IS YET TO BE
TERMINATED, AND DESPITE PRELIMINARY FINDING OF DEFICIENCY
IN INTERNAL REVENUE TAX LIABILITIES AMOUNTING TO MILLIONS
OF PESOS DUE FROM MERALCO.
[12]
(Underscoring supplied)


Petitioner argues that the appellate court failed to consider respondents
failure to substantiate by positive evidence its entitlement to a tax refund or credit
in the amount ofP107,649,729, and merely relied on the tax courts decision.
[13]
He
asserts that a claim for tax refund is construed strictly against the claimant as it
partakes of the nature of exemption from taxes.
[14]


The petition fails.

Section 69
[15]
of the National Internal Revenue Code of 1986 provides:

Sec. 69. Final Adjustment Return. Every corporation liable to tax under
Section 24 shall file a final adjustment return covering the total taxable income
for the preceding calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to the total tax due
on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on its final adjustment
return may be credited against the estimated quarterly income tax liabilities for
the taxable quarters of the succeeding taxable year. (Emphasis supplied)


The pertinent provision of Revenue Memorandum Circular No. 7-85 on
processing of refund or tax credit of excess corporate income tax resulting from the
filing of the final adjustment return reads:

x x x x

Sec. 7. Filing of final or adjustment return and final payment of income
tax. A final or an adjustment return or B.I.R. Form No. 1702 covering the total
taxable income of the corporation for the preceding calendar or fiscal year shall
be filed on or before the 15
th
day of the fourth month following the close of the
calendar or fiscal year. The return shall include all the items of gross income and
deductions for the taxable year. The amount of income tax to be paid shall be
the balance of the total income tax shown on the final or adjustment return
after deducting therefrom the total quarterly income taxes paid during the
preceding first three quarters of the same calendar or fiscal year.

Any excess of the total quarterly payments over the actual income tax
computed and shown in the adjustment or final corporate income tax return
shall either (a) be refunded to the corporation, or (b) may be credited against
the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year. The corporation must signify in its annual corporate
adjustment return its intention whether to request for the refund of the overpaid
income tax or claim for automatic tax credit to be applied against its income tax
liabilities for the quarter of the succeeding taxable year by filling up the
appropriate box on the corporate tax return. (BIR Form No. 1702)

x x x x

In the above provision of the Regulations, the corporation may request for
the refund of the overpaid income tax or claim for automatic tax credit. To insure
prompt action on corporate annual income tax returns showing refundable
amounts arising from overpaid quarterly income taxes, this Office has
promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976,
containing the procedures in processing said returns. Under these
procedures, the returns are merely pre-audited which consist mainly
of checking mathematical accuracy of the figures in the return. After which,
the refund or tax credit is granted; and, this procedure was adopted to facilitate
immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in the
Court of Tax Appeals in order to preserve the right to claim refund or tax credit
within the two-year period. As already stated, actions hereon by the Bureau
are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue
excess income tax paid under the provisions of Section 86 of the Tax Code within
10 years from the date of payment considering that it is an obligation created by
law (Article 1144 of the Civil Code). (Emphasis and underscoring supplied)


Clearly, as Section 69 provides, if the sum of the quarterly tax payments
made during a taxable year is not equal to the total tax due on the entire taxable
income of that year as shown in its final adjustment return, the corporation has the
option to either: (a) pay the excess tax still due, or (b) be refunded the excess
amount paid. The returns submitted are merely pre-audited which consist mainly
of checking mathematical accuracy of the figures in the return. After such
checking, the purpose of which being to insure prompt action on corporate annual
income tax returns showing refundable amounts arising from overpaid quarterly
income taxes, the refund or tax credit is granted.

A corporate taxpayers option to avail of tax credit does not, however, mean
that it is ipso facto granted. For petitioner has still to investigate and ascertain the
veracity of the claim.
[16]


As Citibank, N.A. v. Court of Appeals
[17]
instructs:

A refund claimant is required to prove the inclusion of the income
payments which were the basis of the withholding taxes and the fact of
withholding. However, detailed proof of the truthfulness of each and every
item in the income tax return is not required. That function is lodged in the
commissioner of internal revenue by the NIRC which requires the
commissioner to assess internal revenue taxes within three years after the
last day prescribed by law for the filing of the return. In San Carlos Milling
Co., Inc. vs. Commissioner of Internal Revenue, the Court held that the internal
revenue branch of government must investigate and confirm the claims for tax
refund or credit before taxpayers may avail themselves of this option. The grant of
a refund is founded on the assumption that the tax return is valid; that is, the facts
stated therein are true and correct. In fact, even without petitioners tax claim, the
commissioner can proceed to examine the books, records of the petitioner-bank,
or any data which may be relevant or material in accordance with Section 16 of
the present NIRC. (Emphasis supplied)


Petitioner anchors his opposition to respondents claim for tax refund or
credit on the Report of Revenue Officer Capitan that, although the investigation
had not been terminated, there were preliminary findings of deficiency in internal
revenue tax liabilities amounting to millions due from [respondent].
[18]


As found by the tax court, however, the deficiency franchise tax was already
paid by respondent, whereas the deficiency income tax was protested by
respondent which wanted the same to be deducted from its present claim.
[19]
In
fact, it appears that the deficiency income tax had in the interim already been
settled. Thus, the appellate court observed:

Anent Private Respondents deficiency income tax, the same had already
been the subject of
Manila Electric Company versus Commission of Internal Revenue, CTA-
5005[,] which case was withdrawn by the Petitioner herself in the heels of a
Compromise Agreement between the parties therein which was the basis of
the Resolution of the Respondent Court dated May 17, 1994, quoted as follows:

Confirming the order in open court on May 12, 1994, Petitioners
Motion to Withdraw Petition for Review[,] filed on May 4, 1994, is GRANTED
considering that Petitioners application for compromise settlement of its tax
deficiency in the amount of P1,206,592.00[,] subject matter of the case, ha[d]
been approved and granted by Respondent Commissioner of Internal Revenue
(see pp. 35-36, 37 CTA Rec.)

Accordingly, let Petitioners Petition for Review be considered withdrawn
and this case deemed closed and terminated.
[20]
(Emphasis supplied;
underscoring in the original)
The issue of whether respondent adduced sufficient evidence to prove its
entitlement to a refund is a question of fact.
[21]
It bears noting that the tax court
and the appellate court found respondents claim for tax refund or credit
meritorious on the basis of the testimonial and documentary evidence adduced by
the parties. As the appellate court declared:

We have minutiousely [sic] examined and evaluated the testimonial and
documentary evidence marshalled by the Private Respondent,
through Renato Barieta, its accountant, and its documentary
evidence, Exhibits A to AA, as well as the Petitioners testimonial evidence
and lone documentary evidence, Exhibit 1. We find that the findings of
the Respondent Court and its conclusions evolved from said findings in accord
with the aforesaid evidence. x x x
[22]
(Underscoring in the original)


It bears noting too that petitioner did not dispute the validity and authenticity
of respondents quarterly income tax returns as well as the final adjustment returns
for the years 1987 and 1988 and proofs of payment of its tax liabilities.
[23]
Neither
did petitioner refute respondents assertion that petitioner failed to cross-examine
its (respondents) accountant Renato Barieta who testified on the returns, and to
object to its (respondents) offer of evidence which included its quarterly and final
adjustment returns and proofs of payment of its tax liabilities.

It is doctrinal that the factual findings of the Court of Tax Appeals, when
supported by substantial evidence, will not be disturbed on appeal, unless it is
shown that it committed gross error in the appreciation of facts.
[24]
Hence, as a
matter of practice and principle, this Court will not set aside the conclusion
reached by the said court, especially if affirmed by the Court of Appeals as in the
present case. For by the nature of its functions, the tax court dedicates itself to the
study and consideration of tax problems and necessarily develops expertise
thereon, unless there has been an abuse or improvident exercise of authority on its
part.
[25]
None such is appreciated by this Court, however.

WHEREFORE, the petition is DISMISSED. The Court of Appeals
Decision of August 23, 1995 is AFFIRMED.

SO ORDERED.

THIRD DIVISION


COMMISSIONER OF
INTERNAL REVENUE,
Petitioner,



-versus-



MANILA MINING
CORPORATION,
Respondent.
G.R. No. 153204

Present:

PANGANIBAN, Chairman,
SANDOVAL- GUTIERREZ,
CORONA,
CARPIO MORALES, and
GARCIA, JJ.


Promulgated:

August 31, 2005


x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


D E C I S I O N

CARPIO MORALES, J .:

Being assailed via petition for review on certiorari is the April 12, 2002
Decision
[1]
of the Court of Appeals reversing that of the Court of Tax Appeals
(CTA)
[2]
which granted the claim of respondent, Manila Mining Corporation, in
consolidated CTA Case Nos. 4968 and 4991, for refund or issuance of tax credit
certificates in the amounts ofP5,683,035.04 and P8,173,789.60 representing its
input value added tax (VAT) payments for taxable year 1991.

Respondent, a mining corporation duly organized and existing under
Philippines laws, is registered with the Bureau of Internal Revenue (BIR) as a
VAT-registered enterprise under VAT Registration Certificate No. 32-6-00632.
[3]


In 1991, respondents sales of gold to the Central Bank (now Bangko Sentral
ng Pilipinas) amounted to P200,832,364.70.
[4]
On April 22, 1991, July 23, 1991,
October 21, 1991 and January 20, 1992, it filed its VAT Returns for the 1
st
, 2
nd
,
3
rd
and 4
th
quarters of 1991, respectively, with the BIR through the VAT Unit at
Revenue District Office No. 47 in East Makati.
[5]


Respondent, relying on a letter dated October 10, 1988 from then BIR
Deputy Commissioner Victor Deoferio that:

xxx under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is
considered an export sale which under Section 100(a)(1) of the NIRC, as amended
by E.O. 273, is subject to zero-rated if such sale is made by a VAT-registered
person[,]
[6]
(Underscoring supplied)


filed on April 7, 1992 with the Commissioner of Internal Revenue (CIR), through
the BIR-VAT Division (BIR-VAT), an application for tax refund/credit of the
input VAT it paid from July 1- December 31, 1999 in the amount
of P8,173,789.60.

Petitioner subsequently filed on March 5, 1991 another application for tax
refund/credit of input VAT it paid the amount of P5,683,035.04 from January 1
June 30, 1991. As the CIR failed to act upon respondents application within sixty
(60) days from the dates of filing,
[7]
it filed on March 22, 1993 a Petition for
Review against the CIR before the CTA which docketed it as CTA Case No.
4968,
[8]
seeking the issuance of tax credit certificate or refund in the amount
of P5,683,035.04 covering its input VAT payments for the 1
st
and 2
nd
quarters of
1991. And it filed on May 24, 1993 another Petition for Review, docketed as CTA
Case No. 4991, seeking the issuance of tax credit certificates in the amount
of P8,173,789.60 covering its input VAT payments for the 3
rd
and 4
th
quarters of
1991.
[9]


To the petition in CTA Case No. 4968 the CIR filed its Answer
[10]
admitting
that respondent filed its VAT returns for the 1
st
and 2
nd
quarters of 1991 and an
application for credit/refund of input VAT payment. It, however, specifically
denied the veracity of the amounts stated in respondents VAT returns and
application for credit/refund as the same continued to be under investigation.

On May 26, 1993, respondent filed in CTA Case No. 4968 a Request for
Admissions
[11]
of, among other facts, the following:

x x x
5. That the original copies of the Official Receipts and Sales Invoices,
reflected in Annex C ([Schedule of VAT INPUT on Domestic Purchase of
Goods and Services for the quarter ending March 31, 1991] consisting of 24
pages) and Annex C-1 (Summary of Importation, 2 pages) were submitted to BIR-
VAT, as required, for domestic purchases of goods and services (1
st
semester,
1991) for a total net claimable of P5,268,401.90; while its VAT input tax paid for
importation was P679,853.00; (Emphasis and underscoring supplied)

x x x


By Reply
[12]
of August 11, 1993, the CIR specifically denied the veracity and
accuracy of the amounts indicated in respondents Request for
Admissions,
[13]
among other things.

The CIRs Reply, however, was not verified, prompting respondent to file on
August 30, 1993 a SUPPLEMENT (To Annotation of Admission) alleging that as
the reply was not under oath, an implied admission of [its requests] ar[ose] as a
consequence thereof.
[14]


On September 27, 1993, the CIR filed a Motion to Admit Reply, which
Reply was verified and attached to the motion, alleging that its Reply of August 11,
1993 was submitted within the period for submission thereof, but, however, was
incomplete [due to oversight] as to the signature of the administering officer in the
verification.
[15]


By Resolution
[16]
of February 28, 1994, the CTA, finding that the matters
subject of respondents Request for Admissions are relevant to the facts stated in
the petition for review and there being an implied admission by the CIR under
Section 2 of Rule 26 of the then Revised Rules of Court reading:

Section 2. Implied Admission. Each of the matters of which an
admission is requested shall be deemed admitted unless xxx the party to whom
the request is directed serves upon the party requesting the admission
a sworn statement either denying specifically the matters of which an admission is
requested xxx. (Emphasis and underscoring supplied),


granted respondents Request for Admissions and denied the CIRs Motion to
Admit Reply.

With respect to CTA Case No. 4991, respondent also filed a Request for
Admissions dated May 27, 1993 of the following facts:

x x x

2. Petitioners 3
rd
and 4
th
Quarters 1991 VAT Returns were submitted and
filed with the BIR-VAT Divisions on October 21, 1991 and January 20, 1991,
respectively and subsequently, on April 7, 1993 petitioner filed and submitted its
application for tax credit on VAT paid for the 2
nd
semester of 1990;

x x x

4. That attached to the transmittal letter [forwarded petitioners
application for tax refund credit] of March 31, 1992 (Annex B) are the
following documents:

a. Copies of invoices and other supporting documents;
b. VAT Registration Certificate;
c. VAT returns for the third and fourth quarters of 1990;
d. Beginning and ending inventories of raw materials, work-in
process, finished goods and materials and supplies;
e. Zero-rated sales to Central Bank of the Philippines;
f. Certification that the Company will not file any tax credit with
the Board of Investments and Bureau of Customs.

which completely documented the petitioners claim for refund as required.

5. That the original copies of the Official Receipts and Sales Invoices,
reflected in Annex C (consisting of 35 pages) and Annex C-1 (Summary of
Importation, 2 pages) were submitted to BIR-VAT, as required, to show domestic
purchases of goods and services (2
nd
semester, 1991) which established that the
total net claimable of P7,953,816.38; while its VAT input tax paid for
importation wasP563,503.00;

x x x
[17]



To the Request for Admission the CIR filed a Manifestation and Motion
alleging that as the issues had not yet been joined, respondents request is baseless
and premature
[18]
under Section 1, Rule 26 of the Revised Rules of Court.
[19]

In the meantime, the CIR filed on August 16, 1993 its Answer,
[20]
it averring
that sales of gold to the Central Bank may not be legally considered export sales for
purposes of Section 100(a) in relation to Section 100(a)(1)
[21]
of the Tax Code; and
that assuming that a refund is proper, respondent must demonstrate that it complied
with the provisions of Section 204(3) in relation to Section 230 of the Tax Code.
[22]


The CIR subsequently filed on March 25, 1992 its Reply to respondents
Request for Admission in CTA No. 4991, it admitting that respondent filed its VAT
returns and VAT applications for tax credit for the 3
rd
and 4
th
quarters of 1991,
but specifically denying the correctness and veracity of the amounts indicated in
the schedules and summary of importations, VAT services and goods, the total
input and output taxes, including the amount of refund claimed.
[23]

By Resolution
[24]
of February 22, 1994, the CTA, in CTA Case No. 4991,
admitted the matters covered by respondents Request for Admission except those
specifically denied by the CIR. In the same Resolution, the CTA consolidated Case
Nos. 4968 and 4991, they involving the same parties and substantially the same
factual and legal issues.

Joint hearings of CTA Case Nos. 4968 and 4991 were thus conducted.

Through its Chief Accountant Danilo Bautista, respondent claimed that in
1991, it sold a total of 20,288.676 ounces of gold to the Central Bank valued
at P200,832,364.70, as certified by the Director of the Mint and Refinery
Department of the Central Bank
[25]
and that in support of its application for refund
filed with the BIR, it submitted copies of all invoices and official receipts covering
its input VAT payments to the VAT Division of the BIR, the summary and
schedules of which were certified by its external auditor, the Joaquin Cunanan &
Co.
[26]


Senior Audit Manager of Joaquin Cunanan & Co., Irene Ballesteros, who
was also presented by respondent, declared that she conducted a special audit work
for respondent for the purpose of determining its actual input VAT payments for
the second semester of 1991 and examined every original suppliers invoice,
official receipts, and other documents supporting the payments;
[27]
and that there
were no discrepancies or errors between the summaries and schedules of suppliers
invoices prepared by respondent and the VAT invoices she examined.
[28]


Following the filing by respondent of its formal offer of evidence in both
cases,
[29]
the CTA, by Resolution
[30]
of July 18, 1995, admitted the same.

Upon the issue of whether respondents sales of gold to the BSP during the
four quarters of 1991 are subject to 10% VAT under Section 100 of the Tax Code
or should be considered zero-rated under paragraph a(2) of said Section 100, the
CTA held that said sales are not subject to 10% output VAT, citing Atlas
Consolidated Mining and Development Corporation v. Court of Appeals,
[31]
Manila
Mining Corporation v. Commissioner of Internal Revenue,
[32]
and Benguet
Corporation v. Commissioner of Internal Revenue.
[33]


Nonetheless, the CTA denied respondents claim for refund of input VAT for
failure to prove that it paid the amounts claimed as such for the year 1991, no sales
invoices, receipts or other documents as required under Section 2(c)(1) of Revenue
Regulations No. 3-88 having been presented.
[34]
The CTA explained that
a mere listing of VAT invoices and receipts, even if certified to have been
previously examined by an independent certified public accountant, would not
suffice to establish the truthfulness and accuracy of the contents of such invoices
and receipts unless offered and actually verified by it (CTA) in accordance with
CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which requires
that photocopies of invoices, receipts and other documents covering said accounts
of payments be pre-marked by the party concerned and submitted to the court.
[35]


Respondents motion for reconsideration
[36]
of the CTA decision having been
denied by Resolution
[37]
of February 11, 1999, respondent brought the case to the
Court of Appeals before which it contended that the CTA erred in denying the
refund for insufficiency of evidence, it arguing that in light of the admissions by the
CIR of the matters subject of it Requests for Admissions, it was relieved of the
burden of submitting the purchase invoices and/or receipts to support its claims.
[38]


By Decision
[39]
of April 12, 2002, the Court of Appeals reversed the decision
of the CTA and granted respondents claim for refund or issuance of tax credit
certificates in the amounts of P5,683,035.04 for CTA Case No.
4968 and P8,173,789.60 for CTA Case No. 4991.

In granting the refund, the appellate court held that there was no need for
respondent to present the photocopies of the purchase invoices or receipts
evidencing the VAT paid in view of Rule 26, Section 2 of the Revised Rules of
Court
[40]
and the Resolutions of the CTA holding that the matters requested in
respondents Request for Admissions in CTA No. 4968 were deemed admitted by
the CIR
[41]
in light of its failure to file a verified reply thereto.

The appellate court further held that the CIRs reliance on the best evidence
rule is misplaced since this rule does not apply to matters which have been
judicially admitted.
[42]


Hence, the present petition for review,
[43]
the CIR arguing that respondents
failure to submit documentary evidence to confirm the veracity of its claims is
fatal; and that the CTA, being a court of record, is not expected to go out of its
way and dig into the records of the BIR to supply the insufficient evidence
presented by a party, and in fact it may set a definite rule that only evidence
formally presented will be considered in deciding cases before it.
[44]


Respondent, in its Comment,
[45]
avers that it complied with the provisions of
Section 2(c)(1) of Revenue Regulation No. 3-88 when it submitted the original
receipts and invoices to the BIR, which fact of submission had been deemed
admitted by petitioner, as confirmed by the CTA in its Resolutions in both cases
granting respondents Requests for Admissions therein.

To respondents Comment the Office of the Solicitor General (OSG), on
behalf of petitioner, filed its Reply,
[46]
arguing that the documents required to be
submitted to theBIR under Revenue Regulation No. 3-88 should likewise be
presented to the CTA to prove entitlement to input tax credit.
[47]
In addition, it
argues that, contrary to respondents position, a certification by an independent
Certified Public Accountant (CPA) as provided under CTA Circulars 1-95 and 10-
97 does not relieve respondent of the onus of adducing in evidence the invoices,
receipts and other documents to show the input VAT paid on its purchase of goods
and services.
[48]


The pivotal issue then is whether respondent adduced sufficient evidence to
prove its claim for refund of its input VAT for taxable year 1991 in the amounts
ofP5,683,035.04 and P8,173,789.60.

The petition is impressed with merit.

In Commissioner of Internal Revenue v. Benguet Corporation,
[49]
this Court
had the occasion to note that as early as 1988, the BIR issued several VAT rulings
to the effect that sales of gold to the Central Bank by a VAT-registered person or
entity are considered export sales.
The transactions in question occurred during the period from 1988 and
1991. Under Sec. 99 of the National Internal Revenue Code (NIRC), as amended
by Executive Order (E.O.) No. 273 s. 1987, then in effect, any person who, in the
course of trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods is liable for
output VAT at rates of either 10% or 0% (zero rated) depending on the
classification of the transaction under Sec. 100 of the NIRC. xxx

x x x

In January of 1988, respondent applied for and was granted by the BIR
zero-rated status on its sale of gold to the Central Bank. On 28 August 1988,
Deputy Commissioner of Internal Revenue Eufracio D. Santos issued VAT
Ruling No. 3788-88, which declared that [t]he sale of gold to Central Bank is
considered as export sale subject to zero-rate pursuant to Section 100 of the Tax
Code, as amended by Executive Order No. 273. The BIR came out with at least
six (6) other issuances, reiterating the zero-rating of sale of gold to the Central
Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February 1990.

x x x
[50]
(Italics in the original; underscoring supplied)


As export sales, the sale of gold to the Central Bank is zero-rated, hence, no
tax is chargeable to it as purchaser. Zero rating is primarily intended to be enjoyed
by the seller respondent herein, which charges no output VAT but can claim a
refund of or a tax credit certificate for the input VAT previously charged to it by
suppliers.
[51]


For a judicial claim for refund to prosper, however, respondent must not only
prove that it is a VAT registered entity and that it filed its claims within the
prescriptive period. It must substantiate the input VAT paid by
purchase invoices or official receipts.
[52]

This respondent failed to do.

Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87
provides the requirements in claiming tax credits/refunds.

Sec.2. Section 16 of Revenue Regulations 5-87 is hereby amended to read
as follows:

Sec. 16. Refunds or tax credits of input tax. -

(a) Zero-rated sales of goods and services Only a VAT-registered
person may be granted a tax credit or refund of value-added taxes paid
corresponding to the zero-rated sales of goods and services, to the extent that
such taxes have not been applied against output taxes, upon showing of proof
of compliance with the conditions stated in Section 8 of these Regulations.

For export sales, the application should be filed with the Bureau of
Internal Revenue within two years from the date of exportation. For other
zero-rated sales, the application should be filed within two years after the
close of the quarter when the transaction took place.

xxx

(c) Claims for tax credits/refunds. - Application for Tax
Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed
with the Revenue District Office of the city or municipality where the
principal place of business of the applicant is located or directly with the
Commissioner, Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added
tax paid shall be submitted together with the application. The original copy of
the said invoice/receipt, however, shall be presented for cancellation prior to
the issuance of the Tax Credit Certificate or refund. xxx (Emphasis and
underscoring supplied)

Under Section 8 of RA 1125,
[53]
the CTA is described as a court of
record. As cases filed before it are litigated de novo, party litigants should prove
every minute aspect of their cases. No evidentiary value can be given the purchase
invoices or receipts submitted to the BIR as the rules on documentary evidence
require that these documents must be formally offered before the CTA.
[54]


This Court thus notes with approval the following findings of the CTA:

xxx [S]ale of gold to the Central Bank should not be subject to the 10% VAT-
output tax but this does not ipso facto mean that [the seller] is entitled to the
amount of refund sought as it is required by law to present evidence showing the
input taxes it paid during the year in question. What is being claimed in the instant
petition is the refund of the input taxes paid by the herein petitioner on its purchase
of goods and services. Hence, it is necessary for the Petitioner to show proof that
it had indeed paid the said input taxes during the year 1991. In the case at bar,
Petitioner failed to discharge this duty. It did not adduce in evidence the sales
invoice, receipts or other documents showing the input value added tax on the
purchase of goods and services.
[55]


xxx

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals)
provides categorically that the Court of Tax Appeals shall be a court of record
and as such it is required to conduct a formal trial (trial de novo) where the
parties must present their evidence accordingly if they desire the Court to take
such evidence into consideration.
[56]
(Emphasis and underscoring supplied)


A sales or commercial invoice is a written account of goods sold or
services rendered indicating the prices charged therefor or a list by whatever name
it is known which is used in the ordinary course of business evidencing sale and
transfer or agreement to sell or transfer goods and services.
[57]


A receipt on the other hand is a written acknowledgment of the fact of
payment in money or other settlement between seller and buyer of goods, debtor or
creditor, or person rendering services and client or customer.
[58]


These sales invoices or receipts issued by the supplier are necessary to
substantiate the actual amount or quantity of goods sold and their selling
price,
[59]
and taken collectively are the best means to prove the input VAT
payments.

Respondent contends, however, that the certification of the independent
CPA attesting to the correctness of the contents of the summary of suppliers
invoices or receipts which were examined, evaluated and audited by said CPA in
accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97
should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA
Circular No. 10-97, which either expressly or impliedly suggests that summaries
and schedules of input VAT payments, even if certified by an independent CPA,
suffice as evidence of input VAT payments.

Thus CTA Circular No. 1-95 provides:

1. The party who desires to introduce as evidence such voluminous documents
must present: (a) a Summary containing the total amount/s of the tax
account or tax paid for the period involved and a chronological or numerical
list of the numbers, dates and amounts covered by the invoices or receipts;
and (b) a Certification of an independent Certified Public Accountant
attesting to the correctness of the contents of the summary after making an
examination and evaluation of the voluminous receipts and invoices. Such
summary and certification must properly be identified by a competent
witness from the accounting firm.

2. The method of individual presentation of each and every receipt or invoice
or other documents for marking, identification and comparison with the
originals thereof need not be done before the Court or the Commissioner
anymore after the introduction of the summary and CPA certification. It is
enough that the receipts, invoices and other documents covering the said
accounts or payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party
whenever he/she desires to check and verify the correctness of the summary
and CPA certification. However, the originals of the said receipts, invoices
or documents should be ready for verification and comparison in case of
doubt on the authenticity of the particular documents presented is raised
during the hearing of the case.
[60]
(Underscoring supplied)
The circular, in the interest of speedy administration of justice, was
promulgated to avoid the time-consuming procedure of presenting, identifying and
marking of documents before the Court. It does not relieve respondent of its
imperative task of pre-marking photocopies of sales receipts and invoices
and submitting the same to the court after the independent CPA shall have
examined and compared them with the originals. Without presenting these pre-
marked documents as evidence from which the summary and schedules were
based, the court cannot verify the authenticity and veracity of the independent
auditors conclusions.
[61]


There is, moreover, a need to subject these invoices or receipts to
examination by the CTA in order to confirm whether they are VAT invoices.
Under Section 21 of Revenue Regulation No. 5-87,
[62]
all purchases covered by
invoices other than a VAT invoice shall not be entitled to a refund of input VAT.

The CTA disposition of the matter is thus in order.

Mere listing of VAT invoices and receipts, even if certified to have been
previously examined by an independent certified public accountant, would not
suffice to establish the truthfulness and accuracy of the contents thereof unless
offered and actually verified by this Court. CTA Circular No. 1-95, as amended
by CTA Circular No. 10-97, requires that the photocopies of invoices, receipts
and other documents covering said accounts or payments must be pre-marked by
the party and submitted to this Court.
[63]
(Underscoring supplied)


There being then no showing of abuse or improvident exercise of the CTAs
authority, this Court is not inclined to set aside the conclusions reached by it,
which, by the very nature of its functions, is dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the
subject.
[64]


While the CTA is not governed strictly by technical rules of evidence,
[65]
as
rules of procedure are not ends in themselves but are primarily intended as tools in
the administration of justice, the presentation of the purchase receipts and/or
invoices is not mere procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and verify the truth of
respondents claims.

The records further show that respondent miserably failed to substantiate its
claim for input VAT refund for the first semester of 1991. Except for the summary
and schedules of input VAT payments prepared by respondent itself, no other
evidence was adduced in support of its claim.

As for respondents claim for input VAT refund for the second semester of
1991, it employed the services of Joaquin Cunanan & Co. on account of which it
(Joaquin Cunanan & Co.) executed a certification that:

We have examined the information shown below concerning the input tax
payments made by the Makati Office of Manila Mining Corporation for the period
from July 1 to December 31, 1991. Our examination included inspection of the
pertinent suppliers invoices and official receipts and such other auditing
procedures as we considered necessary in the circumstances. xxx
[66]



As the certification merely stated that it used auditing procedures considered
necessary and not auditing procedures which are in accordance with generally
accepted auditing principles and standards, and that the examination was made on
input tax payments by the Manila Mining Corporation, without specifying that
the said input tax payments are attributable to the sales of gold to the Central Bank,
this Court cannot rely thereon and regard it as sufficient proof of respondents input
VAT payments for the second semester.

Finally, respecting respondents argument that it need not prove
the amount of input VAT it paid for the first semester of taxable year 1991 as the
same was proven by the implied admission of the CIR, which was confirmed by
the CTA when it admitted its Request for Admission,
[67]
the same does not lie.

Respondents Requests for Admission do not fall within Section 2 Rule 26 of
the Revised Rules of Court.
[68]
What respondent sought the CIR to admit are the
total amount of input VAT payments it paid for the first and second semesters of
taxable year 1991, which matters have already been previously alleged in
respondents petition and specifically denied by the CIR in its Answers dated May
10, 1993 and August 16, 1993 filed in CTA Case Nos. 4869 and 4991,
respectively.

As Concrete Aggregates Corporation v. Court of Appeals
[69]
holds,
admissions by an adverse party as a mode of discovery contemplates of
interrogatories that would clarify and tend to shed light on the truth or falsity of the
allegations in a pleading, and does not refer to a mere reiteration of what has
already been alleged in the pleadings; otherwise, it constitutes an utter redundancy
and will be a useless, pointless process which petitioner should not be subjected
to.
[70]


Petitioner controverted in its Answers the matters set forth in respondents
Petitions for Review before the CTA the requests for admission being mere
reproductions of the matters already stated in the petitions. Thus, petitioner should
not be required to make a second denial of those matters it already denied in its
Answers.
[71]


As observed by the CTA, petitioner did in fact file its reply to the Request for
Admissions in CTA Case No. 4869 and specifically denied the veracity and
accuracy of the figures indicated in respondents summary. The Motion to Admit
Reply was, however, denied by the CTA as the original Reply was not made under
oath.

That the Reply was not made under oath is merely a formal and not a
substantive defect and may be dispensed with.
[72]
Although not under oath,
petitioners reply to the request readily showed that its intent was to deny the
matters set forth in the Request for Admissions.

As for respondents Request for Admission in CTA Case No. 4991,
petitioner timely filed its reply and specifically denied the accuracy and veracity of
the contents of the schedules and summaries which listed the input VAT payments
allegedly paid by respondent for the second semester of 1991.

For failure of respondent then not only to strictly comply with the rules of
procedure but also to establish the factual basis of its claim for refund, this Court
has to deny its claim. A claim for refund is in the nature of a claim for exemption
and should be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority.
[73]

WHEREFORE, the petition is hereby GRANTED. The assailed Decision
of the Court of Appeals dated April 12, 2002 is hereby REVERSED and SET
ASIDE. The Court of Tax Appeals Decision dated November 24, 1998 is
hereby REINSTATED.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 163445 December 18, 2007
ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC BAY MOTORS
CORPORATION, petitioners,
vs.
HON. GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of
Internal Revenue (BIR), THE REGIONAL DIRECTOR, BIR, Region III, THE REVENUE DISTRICT
OFFICER, BIR, Special Economic Zone, and OFFICE OF THE SOLICITOR
GENERAL, respondents.
D E C I S I O N
PUNO, C.J .:
At bar is a petition for review on certiorari seeking the reversal of the decision
1
of the Court of
Appeals (CA) in CA-G.R. SP No. 79329 declaring the Regional Trial Court (RTC) of Olongapo City,
Branch 74, without jurisdiction over Civil Case No. 275-0-2003.
The facts are undisputed.
Congress enacted Republic Act (R.A.) No. 7227 creating the Subic Special Economic Zone (SSEZ)
and extending a number of economic or tax incentives therein. Section 12 of the law provides:
(a) Within the framework and subject to the mandate and limitations of the Constitution and
the pertinent provisions of the Local Government Code, the [SSEZ] shall be developed into a
self-sustaining, industrial, commercial, financial and investment center to generate
employment opportunities in and around the zone and to attract and promote productive
foreign investments;
(b) The [SSEZ] shall be operated and managed as a separate customs territory ensuring free
flow or movement of goods and capital within, into and exported out of the [SSEZ], as well as
provide incentives such as tax and duty-free importations of raw materials, capital and
equipment. However, exportation or removal of goods from the territory of the [SSEZ]
to the other parts of the Philippine territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines;
(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within the [SSEZ]. In lieu of paying taxes, three
percent (3%) of the gross income earned by all businesses and enterprise within the [SSEZ]
shall be remitted to the National Government, one percent (1%) each to the local
government units affected by the declaration of the zone in proportion to their population
area, and other factors. In addition, there is hereby established a development fund of one
percent (1%) of the gross income earned by all business and enterprise within the [SSEZ] to
be utilized for the development of municipalities outside the City of Olongapo and the
Municipality of Subic, and other municipalities contiguous to the base areas.
In case of conflict between national and local laws with respect to tax exemption privileges in
the [SSEZ], the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold,
securities and future shall be allowed and maintained in the [SSEZ]; (emphasis supplied)
On January 24, 1995, then Secretary of Finance Roberto F. De Ocampo, through the
recommendation of then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, issued
Revenue Regulations [Rev. Reg.] No. 1-95,
2
providing the "Rules and Regulations to Implement the
Tax Incentives Provisions Under Paragraphs (b) and (c) of Section 12, [R.A.] No. 7227, [o]therwise
known as the Bases Conversion and Development Act of 1992." Subsequently, Rev. Reg. No. 12-
97
3
was issued providing for the "Regulations Implementing Sections 12(c) and 15 of [R.A.] No. 7227
and Sections 24(b) and (c) of [R.A.] No. 7916 Allocating Two Percent (2%) of the Gross Income
Earned by All Businesses and Enterprises Within the Subic, Clark, John Hay, Poro Point Special
Economic Zones and other Special Economic Zones under PEZA." On September 27, 1999, Rev.
Reg. No. 16-99
4
was issued "Amending [RR] No. 1-95, as amended, and other related Rules and
Regulations to Implement the Provisions of paragraphs (b) and (c) of Section 12 of [R.A.] No. 7227,
otherwise known as the Bases Conversion and Development Act of 1992 Relative to the Tax
Incentives Granted to Enterprises Registered in the Subic Special Economic and Freeport Zone."
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued Revenue Memorandum Circular (RMC)
No. 31-2003 setting the "Uniform Guidelines on the Taxation of Imported Motor Vehicles through the
Subic Free Port Zone and Other Freeport Zones that are Sold at Public Auction." The assailed
portions of the RMC read:
II. Tax treatments on the transactions involved in the importation of motor vehicles through the
SSEFZ and other legislated Freeport zones and subsequent sale thereof through public auction.
Pursuant to existing revenue issuances, the following are the uniform tax treatments that are to be
adopted on the different transactions involved in the importation of motor vehicles through the
SSEFZ and other legislated Freeport zones that are subsequently sold through public auction:
A. Importation of motor vehicles into the freeport zones
1. Motor vehicles that are imported into the Freeport zones for exclusive use within the zones
are, as a general rule, exempt from customs duties, taxes and other charges, provided that
the importer-consignee is a registered enterprise within such freeport zone. However, should
these motor vehicles be brought out into the customs territory without returning to the
freeport zones, the customs duties, taxes and other charges shall be paid to the BOC before
release thereof from its custody.
x x x
3. For imported motor vehicles that are imported by persons that are not duly registered
enterprises of the freeport zones, or that the same are intended for public auction within the
freeport zones, the importer-consignee/auctioneer shall pay the value-added tax (VAT) and
excise tax to the BOC before the registration thereof under its name with the LTO and/or the
conduct of the public auction.
x x x
B. Subsequent sale/public auction of the motor vehicles
1. Scenario One The public auction is conducted by the consignee of the imported motor
vehicles within the freeport zone
x x x
1.2. In case the consignee-auctioneer is a registered enterprise and/or locator not
entitled to the preferential tax treatment or if the same is entitled from such incentive
but its total income from the customs territory exceeds 30% of its entire income
derived from the customs territory and the freeport zone, the income derived from the
public auction shall be subjected to the regular internal revenue taxes imposed by
the Tax Code.
x x x
1.4. In the event that the winning bidder shall bring the motor vehicles into the
customs territory, the winning bidder shall be deemed the importer thereof and shall
be liable to pay the VAT and excise tax, if applicable, based on the winning bid price.
However, in cases where the consignee-auctioneer has already paid the VAT and
excise tax on the motor vehicles before the registration thereof with LTO and the
conduct of public auction, the additional VAT and excise tax shall be paid by winning
bidder resulting from the difference between the winning bid price and the value used
by the consignee-auctioneer in payment of such taxes. For excise tax purposes, in
case the winning bid price is lower than the total costs to import,
reconditioning/rehabilitation of the motor vehicles, and other administrative and
selling expenses, the basis for the computation of the excise tax shall be the total
costs plus ten percent (10%) thereof. The additional VAT and excise taxes shall be
paid to the BIR before the auctioned motor vehicles are registered with the LTO.
1.5 In case the services of a professional auctioneer is employed for the public
auction, the final withholding tax of 25%, in case he/she is a non-resident citizen or
alien, or the expanded withholding tax of 20%, in case he/she is a resident citizen or
alien, shall be withheld by the consignee-auctioneer from the amount of
consideration to be paid to the professional auctioneer and shall be remitted
accordingly to the BIR.
This was later amended by RMC No. 32-2003,
5
to wit:
II. The imported motor vehicles after its release from Customs custody are sold through
public auction/negotiated sale by the consignee within or outside of the Freeport Zone:
A. The gross income earned by the consignee-seller from the public
auction/negotiated sale of the imported vehicles shall be subject to the preferential
tax rate of five percent (5%) in lieu of the internal revenue taxes imposed by the
National Internal Revenue Code of 1997, provided that the following conditions are
present:
1.That the consignee-seller is a duly registered enterprise entitled to such
preferential tax rate as well as a registered taxpayer with the Bureau of
Internal Revenue (BIR).
2.That the total income generated by the consignee-seller from sources
within the customs territory does not exceed thirty percent (30%) of the total
income derived from all sources.
B. In case the consignee-seller is a registered enterprise and/or locator not entitled to
the preferential tax treatment or if the same is entitled from such incentive but its total
income from the customs territory exceeds thirty percent (30%) of its entire income
derived from the customs territory and the freeport zone, the sales or income derived
from the public auction/negotiated sale shall be subjected to the regular internal
revenue taxes imposed by the Tax Code. The consignee-seller shall also observe
the compliance requirements prescribed by the Tax Code. When public auction or
negotiated sale is conducted within or outside of the freeport zone, the following tax
treatment shall be observed:
1. Value Added Tax (VAT)/ Percentage Tax (PT) VAT or PT shall be
imposed on every public auction or negotiated sale.
2. Excise Tax The imposition of excise tax on public auction or negotiated
sale shall be held in abeyance pending verification that the importers selling
price used as a basis by the Bureau of Customs in computing the excise tax
is correctly determined.
Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors Corporation are
corporations organized under Philippine laws with principal place of business within the SSEZ. They
are engaged in the importation of mainly secondhand or used motor vehicles and heavy
transportation or construction equipment which they sell to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo City, praying for the nullification of RMC
No. 31-2003 for being unconstitutional and an ultra vires act. The complaint was docketed as Civil
Case No. 275-0-2003 and raffled to Branch 74. Subsequently, petitioners filed their "First Amended
Complaint to Declare Void, Ultra Vires, and Unconstitutional [RMC] No. 31-2003 dated June 3, 2003
and [RMC] No. 32-2003 dated June 5, 2003, with Application for a Writ of Temporary Restraining
Order and Preliminary Injunction"
6
to enjoin respondents from implementing the questioned RMCs
while the case is pending. Particularly, they question paragraphs II(A)(1) and (3), II(B)(1.2), (1.4) and
(1.5) of RMC No. 31-2003 and paragraphs II(A)(2) and (B) of RMC No. 32-2003. Before a
responsive pleading was filed, petitioners filed their Second Amended Complaint
7
to include Rev.
Reg. Nos. 1-95, 12-97 and 16-99 dated January 24, 1995, August 7, 1997 and September 27, 1999,
respectively, which allegedly contain some identical provisions as the questioned RMCs, but without
changing the cause of action in their First Amended Complaint.
The Office of the Solicitor General (OSG) submitted its "Comment (In Opposition to the Application
for Issuance of a Writ of Preliminary Injunction)."
8
Respondents CIR, Regional Director and Revenue
District Officer submitted their joint "Opposition (To The Prayer for Preliminary Injunction and/or
Temporary Restraining Order by Petitioners)."
9

Then Secretary of Finance Jose Isidro N. Camacho filed a Motion to Dismiss the case against him,
alleging that he is not a party to the suit and petitioners have no cause of action against
him.
10
Respondents CIR, BIR Regional Director and BIR Revenue District Officer also filed their joint
Motion to Dismiss on the grounds that "[t]he trial court has no jurisdiction over the subject matter of
the complaint" and "[a] condition precedent, that is, exhaustion of administrative remedies, has not
been complied with."
11
Petitioners filed their "Motion to Expunge from the Records the
Respondents[] Motion to Dismiss"
12
for allegedly failing to comply with Section 4, Rule 15 of the
Rules of Court. To this, the respondents filed their Opposition.
13

Meantime, BIR Revenue District Officer Rey Asterio L. Tambis sent a 10-Day Preliminary Notice
14
to
the president of petitioner AIAI for unpaid VAT on auction sales conducted on June 6-8, 2003, as per
RMC No. 32-2003.
On August 1, 2003, the trial court issued its order
15
granting the application for a writ of preliminary
injunction. The dispositive portion of the order states:
WHEREFORE, premises considered, petitioners application for the issuance of a writ of
preliminary injunction is hereby GRANTED. Let the writ issue upon the filing and approval by
the court of an injunction bond in the amount of Php 1 Million.
SO ORDERED.
16

Consequently, respondents CIR, the BIR Regional Director of Region III, the BIR Revenue District
Officer of the SSEZ, and the OSG filed with the CA a petition for certiorari under Rule 65 of the
Rules of Court with prayer for the issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction to enjoin the trial court from exercising jurisdiction over the case.
17

Meantime, BIR Regional Director Danilo A. Duncano sent a Preliminary Assessment Notice
18
to the
President of AIAI, informing him of the VAT due from the company for the auction sales conducted
on June 6-8, 2003 as per RMC No. 32-2003, plus surcharge, interest and compromise penalty.
Thereafter, a Formal Letter of Demand
19
was sent to the President of petitioner AIAI by the Officer-in-
Charge of the BIR Office of the Regional Director.
On March 31, 2004, the CA issued its assailed decision, the dispositive portion of which states:
WHEREFORE, the petition is GRANTED. Public respondent Regional Trial Court, Branch
74, of Olongapo City is hereby declared bereft of jurisdiction to take cognizance of Civil Case
No. 275-0-2003. Accordingly, said Civil Case No. 275-0-2003 is hereby DISMISSED and the
assailed Order dated August 1, 2003,ANNULLED and SET ASIDE.
SO ORDERED.
20

Hence, this Petition for Review on Certiorari
21
with an application for a temporary restraining order
and a writ of preliminary injunction to enjoin respondents "from pursuing sending letters of
assessments to petitioners." Petitioners raise the following issues:
[a] [W]hether a petition for certiorari under Rule 65 of the New Rules is proper where the
issue raised therein has not yet been resolved at the first instance by the Court where the
original action was filed, and, necessarily, without first filing a motion for reconsideration;
[b] [W]hich Court- the regular courts of justice established under Batas Pambansa Blg. 129
or the Court of Tax Appeals is the proper court of jurisdiction to hear a case to declare
Revenue Memorandum Circulars unconstitutional and against an existing law where the
challenge does not involve the rate and figures of the imposed taxes;
[c] [D]ependent on an affirmative resolution of the second issue in favor of the regular courts
of justice, whether the writ of preliminary injunction granted by the Court at Olongapo City
was properly and legally issued.
22

Petitioners contend that there were fatal procedural defects in respondents petition for certiorari with
the CA. They point out that the CA resolved the issue of jurisdiction without waiting for the lower
court to first rule on the issue. Also, respondents did not file a motion for reconsideration of the trial
courts order granting the writ of preliminary injunction before filing the petition with the CA.
The arguments are unmeritorious.
Jurisdiction is defined as the power and authority of a court to hear, try and decide a case.
23
The
issue is so basic that it may be raised at any stage of the proceedings, even on appeal.
24
In fact,
courts may take cognizance of the issue even if not raised by the parties themselves.
25
There is thus
no reason to preclude the CA from ruling on this issue even if allegedly, the same has not yet been
resolved by the trial court.
As to respondents failure to file a motion for reconsideration, we agree with the ruling of the CA,
which states:
It is now settled that the filing of a motion for reconsideration is not always sine qua non
before availing of the remedy of certiorari.
26
Hence, the general rule of requiring a motion for
reconsideration finds no application in a case where what is precisely being assailed is lack
of jurisdiction of the respondent court.
27
And considering also the urgent necessity for
resolving the issues raised herein, where further delay could prejudice the interests of the
government,
28
the haste with which the Solicitor General raised these issues before this
Court becomes understandable.
29

Now, to the main issue: does the trial court have jurisdiction over the subject matter of this case?
Petitioners contend that jurisdiction over the case at bar properly pertains to the regular courts as
this is "an action to declare as unconstitutional, void and against the provisions of [R.A. No.] 7227"
the RMCs issued by the CIR. They explain that they "do not challenge the rate, structure or figures
of the imposed taxes, rather they challenge the authority of the respondent Commissioner to impose
and collect the said taxes." They claim that the challenge on the authority of the CIR to issue the
RMCs does not fall within the jurisdiction of the Court of Tax Appeals (CTA).
Petitioners arguments do not sway.
R.A. No. 1125, as amended, states:
Sec. 7. Jurisdiction.The Court of Tax Appeals shall exercise exclusive appellate jurisdiction
to review by appeal, as herein provided
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws or part of law administered by the Bureau of Internal Revenue; x x x
(emphases supplied)
We have held that RMCs are considered administrative rulings which are issued from time to time by
the CIR.
30

Rodriguez v. Blaquera
31
is in point. This case involves Commonwealth Act No. 466, as amended by
R.A. No. 84, which imposed upon firearm holders the duty to pay an initial license fee of P15 and an
annual fee of P10 for each firearm, with the exception that in case of "bona fide and active members
of duly organized gun clubs and accredited by the Provost Marshal General," the annual fee is
reduced to P5 for each firearm. Pursuant to this, the CIR issued General Circular No. V-148 which
stated that "bona fide and active members of duly organized gun clubs and accredited by the
Provost Marshal General shall pay an initial fee of fifteen pesos and an annual fee of five pesos
for each firearm held on license except caliber .22 revolver or rifle." The General Circular further
provided that "[m]ere membership in the gun club does not, as a matter of right, entitle the member
to the reduced rates prescribed by law. The licensee must be accredited by the Chief of
Constabulary [and] the firearm covered by the license of the member must be of the target model
in order that he may be entitled to the reduced rates." Rodriguez, as manager of the Philippine Rifle
and Pistol Association, Inc., a duly accredited gun club, in behalf of the members who have paid
under protest the regular annual fee of P10, filed an action in the Court of First Instance (now RTC)
of Manila for the nullification of the circular and the refund of P5. On the issue of jurisdiction, plaintiff
similarly contended that the action was not an appeal from a ruling of the CIR but merely an attempt
to nullify General Circular No. V-148, hence, not within the jurisdiction of the CTA. The Court, in
finding this argument unmeritorious, explained:
We find no merit in this pretense. General Circular No. V-148 directs the officers charged
with the collection of taxes and license fees to adhere strictly to the interpretation given by
the defendant to the statutory provision above mentioned, as set forth in the circular. The
same incorporates, therefore, a decision of the Collector of Internal Revenue (now
Commissioner of Internal Revenue) on the manner of enforcement of said statute, the
administration of which is entrusted by law to the Bureau of Internal Revenue. As such, it
comes within the purview of [R.A.] No. 1125, section 7 of which provides that the [CTA] "shall
exercise exclusive appellate jurisdiction to review by appeal * * * decisions of the Collector of
Internal Revenue in * * * matters arising under the National Internal Revenue Code or other
law or part of law administered by the Bureau of Internal Revenue." Besides, it is plain from
plaintiffs original complaint that one of its main purposes was to secure an order for the
refund of the sums collected in excess of the amount he claims to be due by way of annual
fee from the gun club members, regardless of the class of firearms they have. Although the
prayer for reimbursement has been eliminated from his amended complaint, it is only too
obvious that the nullification of General Circular No. V-148 is merely a step preparatory to a
claim for refund.
Similarly, in CIR v. Leal,
32
pursuant to Section 116 of Presidential Decree No. 1158 (The National
Internal Revenue Code, as amended) which states that "[d]ealers in securities shall pay a tax
equivalent to six (6%) per centum of their gross income. Lending investors shall pay a tax equivalent
to five (5%) per cent, of their gross income," the CIR issued Revenue Memorandum Order (RMO)
No. 15-91 imposing 5% lending investors tax on pawnshops based on their gross income and
requiring all investigating units of the BIR to investigate and assess the lending investors tax due
from them. The issuance of RMO No. 15-91 was an offshoot of the CIRs finding that the pawnshop
business is akin to that of "lending investors" as defined in Section 157(u) of the Tax Code.
Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to documentary stamp tax.
Respondent therein, Josefina Leal, owner and operator of Josefinas Pawnshop, asked for a
reconsideration of both RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner
CIR. Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal, seeking to prohibit
petitioner CIR from implementing the revenue orders. The CIR, through the OSG, filed a motion to
dismiss on the ground of lack of jurisdiction. The RTC denied the motion. Petitioner filed a petition
for certiorari and prohibition with the CA which dismissed the petition "for lack of basis." In reversing
the CA, dissolving the Writ of Preliminary Injunction issued by the trial court and ordering the
dismissal of the case before the trial court, the Supreme Court held that "[t]he questioned RMO No.
15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the
Tax Code on the taxability of pawnshops." They were issued pursuant to the CIRs power under
Section 245
33
of the Tax Code "to make rulings or opinions in connection with the implementation of
the provisions of internal revenue laws, including ruling on the classification of articles of sales and
similar purposes." The Court held that under R.A. No. 1125 (An Act Creating the Court of Tax
Appeals), as amended, such rulings of the CIR are appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are actually
rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the
SSEZ to implement Section 12 of R.A. No. 7227 which provides that "exportation or removal of
goods from the territory of the [SSEZ] to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines." They were issued pursuant to the power of the CIR under Section 4 of the National
Internal Revenue Code,
34
viz:
Section 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.--
The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals. (emphases supplied)
Petitioners point out that the CA based its decision on Section 7 of R.A. No. 1125 that the CTA "shall
exercise exclusive appellate jurisdiction to review by appeal" decisions of the CIR. They argue that
in the instant case, there is no decision of the respondent CIR on any disputed assessment to speak
of as what is being questioned is purely the authority of the CIR to impose and collect value-added
and excise taxes.
Petitioners failure to ask the CIR for a reconsideration of the assailed revenue regulations and
RMCs is another reason why the instant case should be dismissed. It is settled that the premature
invocation of the court's intervention is fatal to one's cause of action. If a remedy within the
administrative machinery can still be resorted to by giving the administrative officer every opportunity
to decide on a matter that comes within his jurisdiction, then such remedy must first be exhausted
before the courts power of judicial review can be sought.
35
The party with an administrative remedy
must not only initiate the prescribed administrative procedure to obtain relief but also pursue it to its
appropriate conclusion before seeking judicial intervention in order to give the administrative agency
an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to
the court.
36

Petitioners insistence for this Court to rule on the merits of the case would only prove futile. Having
declared the court a quo without jurisdiction over the subject matter of the instant case, any further
disquisition would be obiter dictum.
IN VIEW WHEREOF, the petition is DENIED.
SO ORDERED.

FIRST DIVISION
[G.R. No. 155541. January 27, 2004]
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
YNARES-SANTIAGO, J .:
This petition for review on certiorari assails the decision of the Court of
Appeals in CA-G.R. CV No. 09107, dated September 30, 2002,
[1]
which
reversed the November 19, 1995 Order of Regional Trial Court of Manila,
Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled Testate Estate of
Juliana Diez Vda. De Gabriel. The petition was filed by the Estate of the Late
Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly
appointed and qualified Administrator.
As correctly summarized by the Court of Appeals, the relevant facts are as
follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business
affairs were managed by the Philippine Trust Company (Philtrust). The
decedent died on April 3, 1979. Two days after her death, Philtrust, through
its Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for
1978. The return did not indicate that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as
Special Administrator with the Regional Trial Court of Manila, Branch XXXVIII,
docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the
heirs as Special Administrator. Philtrusts motion for reconsideration was
denied by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez
of his appointment, and appointed Antonio Lantin to take over as Special
Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also relieved
of his appointment, and Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an
administrative investigation on the decedents tax liability and found a
deficiency income tax for the year 1977 in the amount of P318,233.93. Thus,
on November 18, 1982, the BIR sent by registered mail a demand letter and
Assessment Notice No. NARD-78-82-00501 addressed to the decedent c/o
Philippine Trust Company, Sta. Cruz, Manila which was the address stated in
her 1978 Income Tax Return. No response was made by Philtrust. The BIR
was not informed that the decedent had actually passed away.
In an Order dated September 5, 1983, the court a quo appointed Antonio
Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of
the decedent.
On June 18, 1984, respondent Commissioner of Internal Revenue issued
warrants of distraint and levy to enforce collection of the decedents deficiency
income tax liability, which were served upon her heir, Francisco Gabriel. On
November 22, 1984, respondent filed a Motion for Allowance of Claim and for
an Order of Payment of Taxes with the court a quo. On January 7, 1985, Mr.
Ambrosio filed a letter of protest with the Litigation Division of the BIR, which
was not acted upon because the assessment notice had allegedly become
final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr.
Ambrosio, filed a formal opposition to the BIRs Motion for Allowance of Claim
based on the ground that there was no proper service of the assessment and
that the filing of the aforesaid claim had already prescribed. The BIR filed its
Reply, contending that service to Philippine Trust Company was sufficient
service, and that the filing of the claim against the Estate on November 22,
1984 was within the five-year prescriptive period for assessment and
collection of taxes under Section 318 of the 1977 National Internal Revenue
Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying
respondents claim against the Estate,
[2]
after finding that there was no notice
of its tax assessment on the proper party.
[3]

On July 2, 1986, respondent filed an appeal with the Court of Appeals,
docketed as CA-G.R. CV No. 09107,
[4]
assailing the Order of the probate court
dated November 19, 1985. It was claimed that Philtrust, in filing the
decedents 1978 income tax return on April 5, 1979, two days after the
taxpayers death, had constituted itself as the administrator of the estate of
the deceased at least insofar as said return is concerned.
[5]
Citing Basilan
Estate Inc. v. Commissioner of Internal Revenue,
[6]
respondent argued that the
legal requirement of notice with respect to tax assessments
[7]
requires merely
that the Commissioner of Internal Revenue release, mail and send the notice
of the assessment to the taxpayer at the address stated in the return filed,
but not that the taxpayer actually receive said assessment within the five-year
prescriptive period.
[8]
Claiming that Philtrust had been remiss in not notifying
respondent of the decedents death, respondent therefore argued that the
deficiency tax assessment had already become final, executory and
incontestable, and that petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor
of the respondent. Although acknowledging that the bond of agency between
Philtrust and the decedent was severed upon the latters death, it was ruled
that the administrator of the Estate had failed in its legal duty to inform
respondent of the decedents death, pursuant to Section 104 of the National
Internal Revenue Code of 1977. Consequently, the BIRs service to Philtrust
of the demand letter and Notice of Assessment was binding upon the Estate,
and, upon the lapse of the statutory thirty-day period to question this claim,
the assessment became final, executory and incontestable. The dispositive
portion of said decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED
AND SET ASI DE. Another one is entered ordering the Administrator of the Estate to
pay the Commissioner of Internal Revenue the following:
a. The amount of P318,223.93, representing the deficiency income tax liability for
the year 1978, plus 20% interest per annum from November 2, 1982 up to November
2, 1985 and in addition thereto 10% surcharge on the basic tax of P169,155.34
pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and 1705;
and
b. The costs of the suit.
SO ORDERED.
[9]

Hence, the instant petition, raising the following issues:
1. Whether or not the Court of Appeals erred in holding that the service of
deficiency tax assessment against Juliana Diez Vda. de Gabriel through
the Philippine Trust Company was a valid service in order to bind the
Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency
tax assessment and final demand was already final, executory and
incontestable.
Petitioner Estate denies that Philtrust had any legal personality to
represent the decedent after her death. As such, petitioner argues that there
was no proper notice of the assessment which, therefore, never became final,
executory and incontestable.
[10]
Petitioner further contends that respondents
failure to file its claim against the Estate within the proper period prescribed by
the Rules of Court is a fatal error, which forever bars its claim against the
Estate.
[11]

Respondent, on the other hand, claims that because Philtrust filed the
decedents income tax return subsequent to her death, Philtrust was the de
facto administrator of her Estate.
[12]
Consequently, when the Assessment Notice
and demand letter dated November 18, 1982 were sent to Philtrust, there was
proper service on the Estate.
[13]
Respondent further asserts that Philtrust had
the legal obligation to inform petitioner of the decedents death, which
requirement is found in Section 104 of the NIRC of 1977.
[14]
Since Philtrust did
not, respondent contends that petitioner Estate should not be allowed to profit
from this omission.
[15]
Respondent further argues that Philtrusts failure to
protest the aforementioned assessment within the 30-day period provided in
Section 319-A of the NIRC of 1977 meant that the assessment had already
become final, executory and incontestable.
[16]

The resolution of this case hinges on the legal relationship between
Philtrust and the decedent, and, by extension, between Philtrust and petitioner
Estate. Subsumed under this primary issue is the sub-issue of whether or not
service on Philtrust of the demand letter and Assessment Notice No. NARD-
78-82-00501 was valid service on petitioner, and the issue of whether
Philtrusts inaction thereon could bind petitioner. If both sub-issues are
answered in the affirmative, respondents contention as to the finality of
Assessment Notice No. NARD-78-82-00501 must be answered in the
affirmative. This is because Section 319-A of the NIRC of 1977 provides a
clear 30-day period within which to protest an assessment. Failure to file such
a protest within said period means that the assessment ipso jure becomes
final and unappealable, as a consequence of which legal proceedings may
then be initiated for collection thereof.
We find in favor of the petitioner.
The first point to be considered is that the relationship between the
decedent and Philtrust was one of agency, which is a personal relationship
between agent and principal. Under Article 1919 (3) of the Civil Code, death
of the agent or principal automatically terminates the agency. In this instance,
the death of the decedent on April 3, 1979 automatically severed the legal
relationship between her and Philtrust, and such could not be revived by the
mere fact that Philtrust continued to act as her agent when, on April 5, 1979, it
filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was
automatically severed at the moment of the Taxpayers death, none of
Philtrusts acts or omissions could bind the estate of the Taxpayer. Service on
Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501
was improperly done.
It must be noted that Philtrust was never appointed as the administrator of
the Estate of the decedent, and, indeed, that the court a quo twice rejected
Philtrusts motion to be thus appointed. As of November 18, 1982, the date of
the demand letter and Assessment Notice, the legal relationship between the
decedent and Philtrust had already been non-existent for three years.
Respondent claims that Section 104 of the National Internal Revenue
Code of 1977 imposed the legal obligation on Philtrust to inform respondent of
the decedents death. The said Section reads:
SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or
where, though exempt from tax, the gross value of the estate exceeds three thousand
pesos, the executor, administrator, or any of the legal heirs, as the case may be, within
two months after the decedents death, or within a like period after qualifying as such
executor or administrator, shall give written notice thereof to the Commissioner of
Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National Internal
Revenue Code of 1977, or the chapter on Estate Tax, and pertains to all
cases of transfers subject to tax or where the gross value of the estate
exceeds three thousand pesos. It has absolutely no applicability to a case for
deficiency income tax, such as the case at bar. It further lacks applicability
since Philtrust was never the executor, administrator of the decedents estate,
and, as such, never had the legal obligation, based on the above provision, to
inform respondent of her death.
Although the administrator of the estate may have been remiss in his legal
obligation to inform respondent of the decedents death, the consequences
thereof, as provided in Section 119 of the National Internal Revenue Code of
1977, merely refer to the imposition of certain penal sanctions on the
administrator. These do not include the indefinite tolling of the prescriptive
period for making deficiency tax assessments, or the waiver of the notice
requirement for such assessments.
Thus, as of November 18, 1982, the date of the demand letter and
Assessment Notice No. NARD-78-82-00501, there was absolutely no legal
obligation on the part of Philtrust to either (1) respond to the demand letter
and assessment notice, (2) inform respondent of the decedents death, or (3)
inform petitioner that it had received said demand letter and assessment
notice. This lack of legal obligation was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed decision on grounds of equity.
[17]

Since there was never any valid notice of this assessment, it could not
have become final, executory and incontestable, and, for failure to make the
assessment within the five-year period provided in Section 318 of the National
Internal Revenue Code of 1977, respondents claim against the petitioner
Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. Except as provided
in the succeeding section, internal revenue taxes shall be assessed within five years
after the return was filed, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period. For the
purpose of this section, a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this
Code.
Respondent argues that an assessment is deemed made for the purpose
of giving effect to such assessment when the notice is released, mailed or
sent to the taxpayer to effectuate the assessment, and there is no legal
requirement that the taxpayer actually receive said notice within the five-year
period.
[18]
It must be noted, however, that the foregoing rule requires that the
notice be sent to the taxpayer, and not merely to a disinterested
party. Although there is no specific requirement that the taxpayer should
receive the notice within the said period, due process requires at the very
least that such notice actually be received. In Commissioner of Internal
Revenue v. Pascor Realty and Development Corporation,
[19]
we had occasion
to say:
An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and
interests begin to accrue against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on and received by the
taxpayer.
In Republic v. De le Rama,
[20]
we clarified that, when an estate is under
administration, notice must be sent to the administrator of the estate, since it
is the said administrator, as representative of the estate, who has the legal
obligation to pay and discharge all debts of the estate and to perform all
orders of the court. In that case, legal notice of the assessment was sent to
two heirs, neither one of whom had any authority to represent the estate. We
said:
The notice was not sent to the taxpayer for the purpose of giving effect to the
assessment, and said notice could not produce any effect. In the case of Bautista and
Corrales Tan v. Collector of Internal Revenue this Court had occasion to state that
the assessment is deemed made when the notice to this effect is released, mailed or
sent to the taxpayer for the purpose of giving effect to said assessment. It appearing
that the person liable for the payment of the tax did not receive the assessment, the
assessment could not become final and executory. (Citations omitted, emphasis
supplied.)
In this case, the assessment was served not even on an heir of the Estate,
but on a completely disinterested third party. This improper service was
clearly not binding on the petitioner.
By arguing that (1) the demand letter and assessment notice were served
on Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand
letter and assessment notice, (3) Philtrust was remiss in its obligation to
inform respondent of the decedents death, and (4) the assessment notice is
therefore binding on the Estate, respondent is arguing in circles. The most
crucial point to be remembered is that Philtrust had absolutely no legal
relationship to the deceased, or to her Estate. There was therefore no
assessment served on the Estate as to the alleged underpayment of
tax. Absent this assessment, no proceedings could be initiated in court for the
collection of said tax,
[21]
and respondents claim for collection, filed with the
probate court only on November 22, 1984, was barred for having been made
beyond the five-year prescriptive period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 09107, dated September 30, 2002, is
REVERSED and SET ASIDE. The Order of the Regional Trial Court of
Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19,
1985, which denied the claim of the Bureau of Internal Revenue against the
Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the
decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.


THIRD DIVISION


ATLAS CONSOLIDATED
MINING AND
DEVELOPMENT
CORPORATION,
Petitioner,




- versus-




COMMISSIONER OF
INTERNAL REVENUE,
Respondent.

G.R. Nos. 141104 & 148763

Present:

YNARES-SANTIAGO, J.
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.




Promulgated:

June 8, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N


CHICO-NAZARIO, J.:


Before this Court are the consolidated cases involving the unsuccessful
claims of herein petitioner Atlas Consolidated Mining and Development
Corporation (petitioner corporation) for the refund/credit of the input Value Added
Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the
taxable quarters of the years 1990 and 1992, the denial of which by the Court of
Tax Appeals (CTA), was affirmed by the Court of Appeals.

Petitioner corporation is engaged in the business of mining, production, and
sale of various mineral products, such as gold, pyrite, and copper concentrates. It
is a VAT-registered taxpayer. It was initially issued VAT Registration No. 32-A-
6-002224, dated 1 January 1988, but it had to register anew with the appropriate
revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it
moved its principal place of business, and it was re-issued VAT Registration No.
32-0-004622, dated 15 August 1990.
[1]


G.R. No. 141104

Petitioner corporation filed with the BIR its VAT Return for the first quarter
of 1992.
[2]
It alleged that it likewise filed with the BIR the corresponding
application for the refund/credit of its input VAT on its purchases of capital goods
and on its zero-rated sales in the amount of P26,030,460.00.
[3]
When its
application for refund/credit remained unresolved by the BIR, petitioner
corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed
as CTA Case No. 5102. Asserting that it was a zero-rated VAT person, it prayed
that the CTA order herein respondent Commissioner of Internal Revenue
(respondent Commissioner) to refund/credit petitioner corporation with the amount
of P26,030,460.00, representing the input VAT it had paid for the first quarter of
1992. The respondent Commissioner opposed and sought the dismissal of the
petition for review of petitioner corporation for failure to state a cause of
action. After due trial, the CTA promulgated its Decision
[4]
on 24 November
1997 with the following disposition

WHEREFORE, in view of the foregoing, the instant claim for refund is
hereby DENIED on the ground of prescription, insufficiency of evidence and
failure to comply with Section 230 of the Tax Code, as amended. Accordingly,
the petition at bar is hereby DISMISSED for lack of merit.


The CTA denied the motion for reconsideration of petitioner corporation in a
Resolution
[5]
dated 15 April 1998.

When the case was elevated to the Court of Appeals as CA-G.R. SP No.
47607, the appellate court, in its Decision,
[6]
dated 6 July 1999, dismissed the
appeal of petitioner corporation, finding no reversible error in the CTA Decision,
dated 24 November 1997. The subsequent motion for reconsideration of petitioner
corporation was also denied by the Court of Appeals in its Resolution,
[7]
dated 14
December 1999.

Thus, petitioner corporation comes before this Court, via a Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, assigning the
following errors committed by the Court of Appeals

I

THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT
OF REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE
SALES OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM
MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER
FAILED TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO
SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A
FATAL DEFECT.

III

THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL
CLAIM WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE
JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE
FILING OF THE VAT RETURN.

IV

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW
THE RE-OPENING OF THE CASE FOR PETITIONER TO PRESENT
ADDITIONAL EVIDENCE.
[8]



G.R. No. 148763

G.R. No. 148763 involves almost the same set of facts as in G.R. No.
141104 presented above, except that it relates to the claims of petitioner
corporation for refund/credit of input VAT on its purchases of capital goods and on
its zero-rated sales made in the last three taxable quarters of 1990.

Petitioner corporation filed with the BIR its VAT Returns for the second,
third, and fourth quarters of 1990, on 20 July 1990, 18 October 1990, and 20
January 1991, respectively. It submitted separate applications to the BIR for the
refund/credit of the input VAT paid on its purchases of capital goods and on its
zero-rated sales, the details of which are presented as follows

Date of Application Period Covered Amount Applied For

21 August 1990

2
nd
Quarter, 1990

P 54,014,722.04
21 November 1990 3
rd
Quarter, 1990 75,304,774.77
19 February 1991 4
th
Quarter, 1990 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner
corporation filed with the CTA the following petitions for review

Date Filed Period Covered CTA Case No.

20 July 1992

2
nd
Quarter, 1990

4831
9 October 1992 3
rd
Quarter, 1990 4859
14 January 1993 4
th
Quarter, 1990 4944


which were eventually consolidated. The respondent Commissioner contested the
foregoing Petitions and prayed for the dismissal thereof. The CTA ruled in favor
of respondent Commissioner and in its Decision,
[9]
dated 30 October 1997,
dismissed the Petitions mainly on the ground that the prescriptive periods for filing
the same had expired. In a Resolution,
[10]
dated 15 January 1998, the CTA denied
the motion for reconsideration of petitioner corporation since the latter presented
no new matter not already discussed in the courts prior Decision. In the same
Resolution, the CTA also denied the alternative prayer of petitioner corporation for
a new trial since it did not fall under any of the grounds cited under Section 1, Rule
37 of the Revised Rules of Court, and it was not supported by affidavits of merits
required by Section 2 of the same Rule.

Petitioner corporation appealed its case to the Court of Appeals, where it was
docketed as CA-G.R. SP No. 46718. On 15 September 2000, the Court of Appeals
rendered its Decision,
[11]
finding that although petitioner corporation timely filed
its Petitions for Review with the CTA, it still failed to substantiate its claims for
the refund/credit of its input VAT for the last three quarters of 1990. In its
Resolution,
[12]
dated 27 June 2001, the appellate court denied the motion for
reconsideration of petitioner corporation, finding no cogent reason to reverse its
previous Decision.

Aggrieved, petitioner corporation filed with this Court another Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, docketed as
G.R. No. 148763, raising the following issues

A.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING
THAT PETITIONERS CLAIM IS BARRED UNDER REVENUE
REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic]
THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR
FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE INSTANT
CLAIM.

B.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT
THERE IS NO BASIS TO GRANT PETITIONERS MOTION FOR NEW
TRIAL.


There being similarity of parties, subject matter, and issues, G.R. Nos.
141104 and 148763 were consolidated pursuant to a Resolution, dated 4 September
2006, issued by this Court. The ruling of this Court in these cases hinges on how it
will resolve the following key issues: (1) prescription of the claims of petitioner
corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for
the VAT zero-rating of its sales, the burden of proving that the buyer companies
were not just BOI-registered but also exporting 70% of their total annual
production; (3) sufficiency of evidence presented by petitioner corporation to
establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground
for granting the motion of petitioner corporation for re-opening of its cases or
holding of new trial before the CTA so it could be given the opportunity to present
the required evidence.

Prescription

The prescriptive period for filing an application for tax refund/credit of input
VAT on zero-rated sales made in 1990 and 1992 was governed by Section 106(b)
and (c) of the Tax Code of 1977, as amended, which provided that

SEC. 106. Refunds or tax credits of input tax. x x x.

(b) Zero-rated or effectively zero-rated sales. Any person, except those
covered by paragraph (a) above, whose sales are zero-rated may, within two years
after the close of the quarter when such sales were made, apply for the issuance of
a tax credit certificate or refund of the input taxes attributable to such sales to the
extent that such input tax has not been applied against output tax.

x x x x

(e) Period within which refund of input taxes may be made by the
Commissioner. The Commissioner shall refund input taxes within 60 days from
the date the application for refund was filed with him or his duly authorized
representative. No refund of input taxes shall be allowed unless the VAT-
registered person files an application for refund within the period prescribed in
paragraphs (a), (b) and (c) as the case may be.


By a plain reading of the foregoing provision, the two-year prescriptive period for
filing the application for refund/credit of input VAT on zero-rated sales shall be
determined from the close of the quarter when such sales were made.

Petitioner contends, however, that the said two-year prescriptive period
should be counted, not from the close of the quarter when the zero-rated sales were
made, but from the date of filing of the quarterly VAT return and payment of the
tax due 20 days thereafter, in accordance with Section 110(b) of the Tax Code of
1977, as amended, quoted as follows

SEC. 110. Return and payment of value-added tax. x x x.

(b) Time for filing of return and payment of tax. The return shall be filed
and the tax paid within 20 days following the end of each quarter specifically
prescribed for a VAT-registered person under regulations to be promulgated by
the Secretary of Finance: Provided, however, That any person whose registration
is cancelled in accordance with paragraph (e) of Section 107 shall file a return
within 20 days from the cancellation of such registration.


It is already well-settled that the two-year prescriptive period for instituting a
suit or proceeding for recovery of corporate income tax erroneously or illegally
paid under Section 230
[13]
of the Tax Code of 1977, as amended, was to be counted
from the filing of the final adjustment return. This Court already set out in ACCRA
Investments Corporation v. Court of Appeals,
[14]
the rationale for such a rule, thus


Clearly, there is the need to file a return first before a claim for refund can
prosper inasmuch as the respondent Commissioner by his own rules and
regulations mandates that the corporate taxpayer opting to ask for a refund must
show in its final adjustment return the income it received from all sources and the
amount of withholding taxes remitted by its withholding agents to the Bureau of
Internal Revenue. The petitioner corporation filed its final adjustment return for
its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in
the case of Commissioner of Internal Revenue v. Asia Australia Express,
Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within
which to claim a refund commences to run, at the earliest, on the date of the filing
of the adjusted final tax return. Hence, the petitioner corporation had until April
15, 1984 within which to file its claim for refund.

Considering that ACCRAIN filed its claim for refund as early as
December 29, 1983 with the respondent Commissioner who failed to take any
action thereon and considering further that the non-resolution of its claim for
refund with the said Commissioner prompted ACCRAIN to reiterate its claim
before the Court of Tax Appeals through a petition for review on April 13, 1984,
the respondent appellate court manifestly committed a reversible error in
affirming the holding of the tax court that ACCRAIN's claim for refund was
barred by prescription.

It bears emphasis at this point that the rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for refund
from the time it filed its final adjustment return is the fact that it was only then
that ACCRAIN could ascertain whether it made profits or incurred losses in its
business operations. The "date of payment", therefore, in ACCRAIN's case was
when its tax liability, if any, fell due upon its filing of its final adjustment return
on April 15, 1982.


In another case, Commissioner of Internal Revenue v. TMX Sales,
Inc.,
[15]
this Court further expounded on the same matter

A re-examination of the aforesaid minute resolution of the Court in
the Pacific Procon case is warranted under the circumstances to lay down a
categorical pronouncement on the question as to when the two-year prescriptive
period in cases of quarterly corporate income tax commences to run. A full-blown
decision in this regard is rendered more imperative in the light of the reversal by
the Court of Tax Appeals in the instant case of its previous ruling in
the Pacific Procon case.

Section 292 (now Section 230) of the National Internal Revenue Code
should be interpreted in relation to the other provisions of the Tax Code in
order to give effect the legislative intent and to avoid an application of the law
which may lead to inconvenience and absurdity. In the case of People vs.
Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a
sensible construction, such as will give effect to the legislative intention and so as
to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN
AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET
ABSURDUM. Where there is ambiguity, such interpretation as will avoid
inconvenience and absurdity is to be adopted. Furthermore, courts must give
effect to the general legislative intent that can be discovered from or is unraveled
by the four corners of the statute, and in order to discover said intent, the whole
statute, and not only a particular provision thereof, should be considered. (Manila
Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every
section, provision or clause of the statute must be expounded by reference to each
other in order to arrive at the effect contemplated by the legislature. The intention
of the legislator must be ascertained from the whole text of the law and every part
of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931
[1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping
Corporation vs. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not
only Section 292 (now Section 230) of the National Internal Revenue Code but
also the other provisions of the Tax Code, particularly Sections 84, 85 (now both
incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now
Section 232) on keeping of books of accounts. All these provisions of the Tax
Code should be harmonized with each other.

x x x x

Therefore, the filing of a quarterly income tax returns required in Section
85 (now Section 68) and implemented per BIR Form 1702-Q and payment of
quarterly income tax should only be considered mere installments of the annual
tax due. These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at a net
taxable income, should be treated as advances or portions of the annual income
tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced
by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year prescriptive
period provided in Section 292 (now Section 230) of the Tax Code should be
computed from the time of filing the Adjustment Return or Annual Income Tax
Return and final payment of income tax.

In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA
1007 [1961]), this Court held that when a tax is paid in installments, the
prescriptive period of two years provided in Section 306 (Section 292) of the
National Internal Revenue Code should be counted from the date of the final
payment. This ruling is reiterated in Commissioner of Internal Revenue vs.
Carlos Palanca(18 SCRA 496 [1966]), wherein this Court stated that where the
tax account was paid on installment, the computation of the two-year prescriptive
period under Section 306 (Section 292) of the Tax Code, should be from the date
of the last installment.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14,
1984. Since the two-year prescriptive period should be counted from the filing of
the Adjustment Return on April 15,1982, TMX Sales, Inc. is not yet barred by
prescription.


The very same reasons set forth in the afore-cited cases concerning the two-year
prescriptive period for claims for refund of illegally or erroneously collected
income tax may also apply to the Petitions at bar involving the same prescriptive
period for claims for refund/credit of input VAT on zero-rated sales.

It is true that unlike corporate income tax, which is reported and paid on
installment every quarter, but is eventually subjected to a final adjustment at the
end of the taxable year, VAT is computed and paid on a purely quarterly basis
without need for a final adjustment at the end of the taxable year. However, it is
also equally true that until and unless the VAT-registered taxpayer prepares and
submits to the BIR its quarterly VAT return, there is no way of knowing with
certainty just how much input VAT
[16]
the taxpayer may apply against its output
VAT;
[17]
how much output VAT it is due to pay for the quarter or how much
excess input VAT it may carry-over to the following quarter; or how much of its
input VAT it may claim as refund/credit. It should be recalled that not only may a
VAT-registered taxpayer directly apply against his output VAT due the input VAT
it had paid on its importation or local purchases of goods and services during the
quarter; the taxpayer is also given the option to either (1) carry over any excess
input VAT to the succeeding quarters for application against its future output VAT
liabilities, or (2) file an application for refund or issuance of a tax credit certificate
covering the amount of such input VAT.
[18]
Hence, even in the absence of a final
adjustment return, the determination of any output VAT payable necessarily
requires that the VAT-registered taxpayer make adjustments in its VAT return
every quarter, taking into consideration the input VAT which are creditable for the
present quarter or had been carried over from the previous quarters.

Moreover, when claiming refund/credit, the VAT-registered taxpayer must
be able to establish that it does have refundable or creditable input VAT, and the
same has not been applied against its output VAT liabilities information which
are supposed to be reflected in the taxpayers VAT returns. Thus, an application
for refund/credit must be accompanied by copies of the taxpayers VAT return/s
for the taxable quarter/s concerned.

Lastly, although the taxpayers refundable or creditable input VAT may not
be considered as illegally or erroneously collected, its refund/credit is a privilege
extended to qualified and registered taxpayers by the very VAT system adopted by
the Legislature. Such input VAT, the same as any illegally or erroneously
collected national internal revenue tax, consists of monetary amounts which are
currently in the hands of the government but must rightfully be returned to the
taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously
collected national internal revenue tax, or input VAT, the taxpayer must be given
equal opportunity for filing and pursuing its claim.

For the foregoing reasons, it is more practical and reasonable to count the
two-year prescriptive period for filing a claim for refund/credit of input VAT on
zero-rated sales from the date of filing of the return and payment of the tax due
which, according to the law then existing, should be made within 20 days from the
end of each quarter. Having established thus, the relevant dates in the instant cases
are summarized and reproduced below




Period Covered
Date of Filing
(Return w/ BIR)
Date of Filing
(Application w/ BIR)
Date of Filing
(Case w/ CTA)

2
nd
Quarter, 1990

20 July 1990

21 August 1990

20 July 1992
3
rd
Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
4
th
Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
1
st
Quarter, 1992 20 April 1992 -- 20 April 1994

The above table readily shows that the administrative and judicial claims of
petitioner corporation for refund of its input VAT on its zero-rated sales for the last
three quarters of 1990 were all filed within the prescriptive period.

However, the same cannot be said for the claim of petitioner corporation for
refund of its input VAT on its zero-rated sales for the first quarter of 1992. Even
though it may seem that petitioner corporation filed in time its judicial claim with
the CTA, there is no showing that it had previously filed an administrative claim
with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly
provided that no refund of input VAT shall be allowed unless the VAT-registered
taxpayer filed an application for refund with respondent Commissioner within the
two-year prescriptive period. The application of petitioner corporation for
refund/credit of its input VAT for the first quarter of 1992 was not only unsigned
by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance
and Treasury, but it was not dated, stamped, and initialed by the BIR official who
purportedly received the same. The CTA, in its Decision,
[19]
dated 24 November
1997, in CTA Case No. 5102, made the following observations

This Court, likewise, rejects any probative value of the Application
for Tax Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit B]
formally offered in evidence by the petitioner on account of the fact that it
does not bear the BIR stamp showing the date when such application was
filed together with the signature or initial of the receiving officer of
respondents Bureau. Worse still, it does not show the date of application
and the signature of a certain Ma. Paz R. Semilla indicated in the form who
appears to be petitioners authorized filer.

A review of the records reveal that the original of
the aforecited application was lost during the time petitioner transferred its
office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made to
prove that petitioner exerted efforts to recover the original copy, but to no
avail. Despite this, however, We observe that petitioner completely failed
to establish the missing dates and signatures abovementioned. On this
score, said application has no probative value in demonstrating the fact of
its filing within two years after the [filing of the VAT return for the quarter]
when petitioners sales of goods were made as prescribed under Section
106(b) of the Tax Code. We believe thus that petitioner failed to file an
application for refund in due form and within the legal period set by law at
the administrative level. Hence, the case at bar has failed to satisfy the
requirement on the prior filing of an application for refund with the
respondent before the commencement of a judicial claim for refund, as
prescribed under Section 230 of the Tax Code. This fact constitutes
another one of the many reasons for not granting petitioners judicial
claim.

As pointed out by the CTA, in serious doubt is not only the fact of whether
petitioner corporation timely filed its administrative claim for refund of its input
VAT for the first quarter of 1992, but also whether petitioner corporation actually
filed such administrative claim in the first place. For failing to prove that it had
earlier filed with the BIR an application for refund/credit of its input VAT for the
first quarter of 1992, within the period prescribed by law, then the case instituted
by petitioner corporation with the CTA for the refund/credit of the very same tax
cannot prosper.

Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT
was imposed on the gross selling price or gross value in money of goods sold,
bartered or exchanged. Yet, the same provision subjected the following sales made
by VAT-registered persons to 0% VAT

(1) Export sales; and

(2) Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively
subjects such sales to zero-rate.

Export Sales means the sale and shipment or exportation of goods from
the Philippines to a foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the transfer of ownership
of the goods so exported, or foreign currency denominated sales. Foreign
currency denominated sales, means sales to nonresidents of goods assembled or
manufactured in the Philippines, for delivery to residents in the Philippines and
paid for in convertible foreign currency remitted through the banking system in
the Philippines.


These are termed zero-rated sales. A zero-rated sale is still considered a taxable
transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a
VAT-registered taxpayer of goods and/or services taxed at 0% shall not result in
any output VAT, while the input VAT on its purchases of goods or services related
to such zero-rated sale shall be available as tax credit or refund.
[20]


Petitioner corporation questions the validity of Revenue Regulations No. 2-
88 averring that the said regulations imposed additional requirements, not found in
the law itself, for the zero-rating of its sales to Philippine Smelting and Refining
Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS), both of which
are registered not only with the BOI, but also with the then Export Processing Zone
Authority (EPZA).
[21]


The contentious provisions of Revenue Regulations No. 2-88 read

SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered
exporters. Sales of raw materials to export-oriented BOI-registered enterprises
whose export sales, under rules and regulations of the Board of Investments,
exceed seventy percent (70%) of total annual production, shall be subject to zero-
rate under the following conditions:

(1) The seller shall file an application with the BIR,
ATTN.: Division, applying for zero-rating for each and every
separate buyer, in accordance with Section 8(d) of Revenue
Regulations No. 5-87. The application should be accompanied
with a favorable recommendation from the Board of Investments.

(2) The raw materials sold are to be used exclusively by
the buyer in the manufacture, processing or repacking of his own
registered export product;

(3) The words Zero-Rated Sales shall be prominently
indicated in the sales invoice. The exporter (buyer) can no longer
claim from the Bureau of Internal Revenue or any other
government office tax credits on their zero-rated purchases;

(b) Sales of raw materials to foreign buyer. Sales of raw materials to a
nonresident foreign buyer for delivery to a resident local export-oriented BOI-
registered enterprise to be used in manufacturing, processing or repacking of the
said buyers goods and paid for in foreign currency, inwardly remitted in
accordance with Central Bank rules and regulations shall be subject to zero-rate.


It is the position of the respondent Commissioner, affirmed by the CTA and the
Court of Appeals, that Section 2 of Revenue Regulations No. 2-88 should be
applied in the cases at bar; and to be entitled to the zero-rating of its sales to
PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller, must
be able to prove not only that PASAR and PHILPHOS are BOI-registered
corporations, but also that more than 70% of the total annual production of these
corporations are actually exported. Revenue Regulations No. 2-88 merely echoed
the requirement imposed by the BOI on export-oriented corporations registered
with it.

While this Court is not prepared to strike down the validity of Revenue
Regulations No. 2-88, it finds that its application must be limited and placed in the
proper context. Note that Section 2 of Revenue Regulations No. 2-88 referred only
to the zero-rated sales of raw materials to export-oriented BOI-registered
enterprises whose export sales, under BOI rules and regulations, should exceed
seventy percent (70%) of their total annual production.

Section 2 of Revenue Regulations No. 2-88, should not have been applied to
the zero-rating of the sales made by petitioner corporation to PASAR and
PHILPHOS. At the onset, it must be emphasized that PASAR and PHILPHOS, in
addition to being registered with the BOI, were also registered with the EPZA and
located within an export-processing zone. Petitioner corporation does not claim
that its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales
were made to export-oriented BOI-registered corporations, but rather, on the basis
that the sales were made to EPZA-registered enterprises operating within export
processing zones. Although sales to export-oriented BOI-registered enterprises and
sales to EPZA-registered enterprises located within export processing zones were
both deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as
amended, shall be subject to 0% VAT distinction must be made between these two
types of sales because each may have different substantiation requirements.

The Tax Code of 1977, as amended, gave a limited definition of export
sales, to wit: The sale and shipment or exportation of goods from
the Philippines to a foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the transfer of ownership of
the goods so exported, or foreign currency denominated sales. Executive Order
No. 226, otherwise known as the Omnibus Investments Code of 1987 - which, in
the years concerned (i.e., 1990 and 1992), governed enterprises registered with
both the BOI and EPZA, provided a more comprehensive definition of export
sales, as quoted below:

ART. 23. Export sales shall mean the Philippine port F.O.B. value,
determined from invoices, bills of lading, inward letters of credit, landing
certificates, and other commercial documents, of export products exported
directly by a registered export producer or the net selling price of export product
sold by a registered export producer or to an export trader that subsequently
exports the same: Provided, That sales of export products to another producer or
to an export trader shall only be deemed export sales when actually exported by
the latter, as evidenced by landing certificates of similar commercial documents:
Provided, further, That without actual exportation the following shall be
considered constructively exported for purposes of this provision: (1) sales to
bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to
export processing zones; (3) sales to registered export traders operating bonded
trading warehouses supplying raw materials used in the manufacture of export
products under guidelines to be set by the Board in consultation with the Bureau
of Internal Revenue and the Bureau of Customs; (4) sales to foreign military
bases, diplomatic missions and other agencies and/or instrumentalities granted tax
immunities, of locally manufactured, assembled or repacked products whether
paid for in foreign currency or not: Provided, further, That export sales of
registered export trader may include commission income; and Provided, finally,
That exportation of goods on consignment shall not be deemed export sales until
the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and
personal use to Filipinos abroad and other non-residents of the Philippines as well
as returning Overseas Filipinos under the Internal Export Program of the
government and paid for in convertible foreign currency inwardly remitted
through the Philippine banking systems shall also be considered export sales.
(Underscoring ours.)


The afore-cited provision of the Omnibus Investments Code of 1987
recognizes as export sales the sales of export products to another producer or to an
export trader, provided that the export products are actually exported. For
purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual
production.

Without actual exportation, Article 23 of the Omnibus Investments Code of
1987 also considers constructive exportation as export sales. Among other types of
constructive exportation specifically identified by the said provision are sales to
export processing zones. Sales to export processing zones are subjected to special
tax treatment. Article 77 of the same Code establishes the tax treatment of goods or
merchandise brought into the export processing zones. Of particular relevance
herein is paragraph 2, which provides that Merchandise purchased by a registered
zone enterprise from the customs territory and subsequently brought into the zone,
shall be considered as export sales and the exporter thereof shall be entitled to the
benefits allowed by law for such transaction.

Such tax treatment of goods brought into the export processing zones are
only consistent with the Destination Principle and Cross Border Doctrine to which
the Philippine VAT system adheres. According to the Destination
Principle,
[22]
goods and services are taxed only in the country where these are
consumed. In connection with the said principle, the Cross Border
Doctrine
[23]
mandates that no VAT shall be imposed to form part of the cost of the
goods destined for consumption outside the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT.
[24]
Export processing
zones
[25]
are to be managed as a separate customs territory from the rest of
the Philippines and, thus, for tax purposes, are effectively considered as foreign
territory. For this reason, sales by persons from the Philippine customs territory to
those inside the export processing zones are already taxed as exports.

Plainly, sales to enterprises operating within the export processing zones are
export sales, which, under the Tax Code of 1977, as amended, were subject to 0%
VAT. It is on this ground that petitioner corporation is claiming refund/credit of
the input VAT on its zero-rated sales to PASAR and PHILPHOS.

The distinction made by this Court in the preceding paragraphs between the
zero-rated sales to export-oriented BOI-registered enterprises and zero-rated sales
to EPZA-registered enterprises operating within export processing zones is actually
supported by subsequent development in tax laws and regulations. In Revenue
Regulations No. 7-95, the Consolidated VAT Regulations, as amended,
[26]
the BIR
defined with more precision what are zero-rated export sales

(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so
exported paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations of
the Bangko Sentral ngPilipinas (BSP);

(2) The sale of raw materials or packaging materials to a non-resident
buyer for delivery to a resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the said
buyers goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);

(3) The sale of raw materials or packaging materials to an export-oriented
enterprise whose export sales exceed seventy percent (70%) of total annual
production;

Any enterprise whose export sales exceed 70% of the total annual
production of the preceding taxable year shall be considered an export-oriented
enterprise upon accreditation as such under the provisions of the Export
Development Act (R.A. 7844) and its implementing rules and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Articles 23 and 77 of Executive
Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and
other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992.


The Tax Code of 1997, as amended,
[27]
later adopted the foregoing definition of
export sales, which are subject to 0% VAT.

This Court then reiterates its conclusion that Section 2 of Revenue
Regulations No. 2-88, which applied to zero-rated export sales to export-oriented
BOI-registered enterprises, should not be applied to the applications for
refund/credit of input VAT filed by petitioner corporation since it based its
applications on the zero-rating of export sales to enterprises registered with the
EPZA and located within export processing zones.

Sufficiency of evidence

There can be no dispute that the taxpayer-claimant has the burden of proving
the legal and factual bases of its claim for tax credit or refund, but once it has
submitted all the required documents, it is the function of the BIR to assess these
documents with purposeful dispatch.
[28]
It therefore falls upon herein petitioner
corporation to first establish that its sales qualify for VAT zero-rating under the
existing laws (legal basis), and then to present sufficient evidence that said sales
were actually made and resulted in refundable or creditable input VAT in the
amount being claimed (factual basis).

It would initially appear that the applications for refund/credit filed by
petitioner corporation cover only input VAT on its purportedly zero-rated sales to
PASAR and PHILPHOS; however, a more thorough perusal of its applications,
VAT returns, pleadings, and other records of these cases would reveal that it is also
claiming refund/credit of its input VAT on purchases of capital goods and sales of
gold to the Central Bank of the Philippines (CBP).

This Court finds that the claims for refund/credit of input VAT of petitioner
corporation have sufficient legal bases.

As has been extensively discussed herein, Section 106(b)(2), in relation to
Section 100(a)(2) of the Tax Code of 1977, as amended, allowed the refund/credit
of input VAT on export sales to enterprises operating within export processing
zones and registered with the EPZA, since such export sales were deemed to be
effectively zero-rated sales.
[29]
The fact that PASAR and PHILPHOS, to whom
petitioner corporation sold its products, were operating inside an export processing
zone and duly registered with EPZA, was never raised as an issue
herein. Moreover, the same fact was already judicially recognized in the case Atlas
Consolidated Mining & Development Corporation v. Commissioner of Internal
Revenue.
[30]
Section 106(c) of the same Code likewise permitted a VAT-registered
taxpayer to apply for refund/credit of the input VAT paid on capital goods
imported or locally purchased to the extent that such input VAT has not been
applied against its output VAT. Meanwhile, the effective zero-rating of sales of
gold to the CBP from 1989 to 1991
[31]
was already affirmed by this Court
in Commissioner of Internal Revenue v. Benguet Corporation,
[32]
wherein it ruled
that

At the time when the subject transactions were consummated, the
prevailing BIR regulations relied upon by respondent ordained that gold
sales to the Central Bank were zero-rated. The BIR interpreted Sec. 100
of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be considered export
and therefore shall be subject to the export and premium duties. In
coming out with this interpretation, the BIR also considered Sec. 169 of
Central Bank Circular No. 960 which states that all sales of gold to the
Central Bank are considered constructive exports. x x x.


This Court now comes to the question of whether petitioner corporation has
sufficiently established the factual bases for its applications for refund/credit of
input VAT. It is in this regard that petitioner corporation has failed, both in the
administrative and judicial level.

Applications for refund/credit of input VAT with the BIR must comply with
the appropriate revenue regulations. As this Court has already ruled, Revenue
Regulations No. 2-88 is not relevant to the applications for refund/credit of input
VAT filed by petitioner corporation; nonetheless, the said applications must have
been in accordance with Revenue Regulations No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which provided as follows

SECTION 16. Refunds or tax credits of input tax.

x x x x

(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of
Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the Revenue
District Office of the city or municipality where the principal place of business of
the applicant is located or directly with the Commissioner, Attention: VAT
Division.

A photocopy of the purchase invoice or receipt evidencing the value added
tax paid shall be submitted together with the application. The original copy of the
said invoice/receipt, however, shall be presented for cancellation prior to the
issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:

x x x x

3. Effectively zero-rated sale of goods and services.

i) photo copy of approved application for zero-rate if filing
for the first time.

ii) sales invoice or receipt showing name of the person or
entity to whom the sale of goods or services were delivered, date of
delivery, amount of consideration, and description of goods or services
delivered.

iii) evidence of actual receipt of goods or services.

4. Purchase of capital goods.

i) original copy of invoice or receipt showing the date of
purchase, purchase price, amount of value-added tax paid and description
of the capital equipment locally purchased.

ii) with respect to capital equipment imported, the photo copy
of import entry document for internal revenue tax purposes and the
confirmation receipt issued by the Bureau of Customs for the payment of
the value-added tax.

5. In applicable cases,

where the applicants zero-rated transactions are regulated by certain
government agencies, a statement therefrom showing the amount and
description of sale of goods and services, name of persons or entities
(except in case of exports) to whom the goods or services were sold, and
date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted
shall be limited to the amount of the value-added tax (VAT) paid directly
and entirely attributable to the zero-rated transaction during the period
covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and
exempt sales of goods and services, and the VAT paid (inputs) on
purchases of goods and services cannot be directly attributed to any of the
aforementioned transactions, the following formula shall be used to
determine the creditable or refundable input tax for zero-rated sale:


Amount of Zero-rated Sale
Total Sales

X

Total Amount of Input Taxes

= Amount Creditable/Refundable


In case the application for refund/credit of input VAT was denied or
remained unacted upon by the BIR, and before the lapse of the two-year
prescriptive period, the taxpayer-applicant may already file a Petition for Review
before the CTA. If the taxpayers claim is supported by voluminous documents,
such as receipts, invoices, vouchers or long accounts, their presentation before the
CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full
below

In the interest of speedy administration of justice, the Court hereby
promulgates the following rules governing the presentation of voluminous
documents and/or long accounts, such as receipts, invoices and vouchers, as
evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules
of Court and the doctrine enunciated in Compania Maritima vs. Allied Free
Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents
must, after motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the
numbers, dates and amounts covered by the invoices or receipts and the
amount/s of tax paid; and (b) a Certification of an independent Certified
Public Accountant attesting to the correctness of the contents of the summary
after making an examination, evaluation and audit of the voluminous receipts
and invoices. The name of the accountant or partner of the firm in charge
must be stated in the motion so that he/she can be commissioned by the Court
to conduct the audit and, thereafter, testify in Court relative to such summary
and certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or
account for marking, identification and comparison with the originals thereof
need not be done before the Court or Clerk of Court anymore after the
introduction of the summary and CPA certification. It is enough that the
receipts, invoices, vouchers or other documents covering the said accounts or
payments to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the
adverse party who desires to check and verify the correctness of the summary
and CPA certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in case
doubt on the authenticity thereof is raised during the hearing or resolution of
the formal offer of evidence.


Since CTA Cases No. 4831, 4859, 4944,
[33]
and 5102,
[34]
were still pending before
the CTA when the said Circular was issued, then petitioner corporation must have
complied therewith during the course of the trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,
[35]
this
Court denied the claim of therein respondent, Manila Mining Corporation, for
refund of the input VAT on its supposed zero-rated sales of gold to the CBP
because it was unable to substantiate its claim. In the same case, this Court
emphasized the importance of complying with the substantiation requirements for
claiming refund/credit of input VAT on zero-rated sales, to wit

For a judicial claim for refund to prosper, however, respondent
must not only prove that it is a VAT registered entity and that it filed its
claims within the prescriptive period. It must substantiate the input VAT
paid by purchase invoices or official receipts.

This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations
No. 5-87 provides the requirements in claiming tax credits/refunds.

x x x x

Under Section 8 of RA1125, the CTA is described as a court of
record. As cases filed before it are litigated de novo, party litigants
should prove every minute aspect of their cases. No evidentiary value
can be given the purchase invoices or receipts submitted to the BIR as
the rules on documentary evidence require that these documents must be
formally offered before the CTA.

This Court thus notes with approval the following findings of the
CTA:

x x x [S]ale of gold to the Central Bank should not
be subject to the 10% VAT-output tax but this does
not ipso fact mean that [the seller] is entitled to the amount
of refund soughtas it is required by law to present evidence
showing the input taxes it paid during the year in
question. What is being claimed in the instant petition is
the refund of the input taxes paid by the herein petitioner
on its purchase of goods and services. Hence, it is
necessary for the Petitioner to show proof that it had
indeed paid the input taxes during the year 1991. In the
case at bar, Petitioner failed to discharge this duty. It did
not adduce in evidence the sales invoice, receipts or other
documents showing the input value added tax on the
purchase of goods and services.

x x x

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax
Appeals) provides categorically that the Court of Tax Appeals shall be
a court of record and as such it is required to conduct a formal trial
(trial de novo) where the parties must present their evidence
accordingly if they desire the Court to take such evidence into
consideration. (Emphasis and italics supplied)

A sales or commercial invoice is a written account of goods
sold or services rendered indicating the prices charged therefor or a list
by whatever name it is known which is used in the ordinary course of
business evidencing sale and transfer or agreement to sell or transfer
goods and services.

A receipt on the other hand is a written acknowledgment of the
fact of payment in money or other settlement between seller and buyer of
goods, debtor or creditor, or person rendering services and client or
customer.

These sales invoices or receipts issued by the supplier are
necessary to substantiate the actual amount or quantity of goods sold and
their selling price, and taken collectively are the best means to prove the
input VAT payments.
[36]


Although the foregoing decision focused only on the proof required for the
applicant for refund/credit to establish the input VAT payments it had made on
its purchasesfrom suppliers, Revenue Regulations No. 3-88 also required it to
present evidence proving actual zero-rated VAT sales to qualified buyers, such
as (1) photocopy of the approved application for zero-rate if filing for the first
time; (2) sales invoice or receipt showing the name of the person or entity to
whom the goods or services were delivered, date of delivery, amount of
consideration, and description of goods or services delivered; and (3) the evidence
of actual receipt of goods or services.

Also worth noting in the same decision is the weight given by this Court to
the certification by the independent certified public accountant (CPA), thus

Respondent contends, however, that the certification of the independent
CPA attesting to the correctness of the contents of the summary of suppliers
invoices or receipts which were examined, evaluated and audited by said CPA in
accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97
should substantiate its claims.

There is nothing, however, in CTA Circular No. 1-95, as amended by
CTA Circular No. 10-97, which either expressly or impliedly suggests that
summaries and schedules of input VAT payments, even if certified by an
independent CPA, suffice as evidence of input VAT payments.

x x x x

The circular, in the interest of speedy administration of justice, was
promulgated to avoid the time-consuming procedure of presenting, identifying
and marking of documents before the Court. It does not relieve respondent of its
imperative task of pre-marking photocopies of sales receipts and invoices
and submitting the same to the court after the independent CPA shall have
examined and compared them with the originals. Without presenting these pre-
marked documents as evidence from which the summary and schedules were
based, the court cannot verify the authenticity and veracity of the independent
auditors conclusions.

There is, moreover, a need to subject these invoices or receipts to
examination by the CTA in order to confirm whether they are VAT
invoices. Under Section 21 of Revenue Regulation, No. 5-87, all purchases
covered by invoices other than a VAT invoice shall not be entitled to a refund of
input VAT.

x x x x

While the CTA is not governed strictly by technical rules of evidence, as
rules of procedure are not ends in themselves but are primarily intended as tools
in the administration of justice, the presentation of the purchase receipts and/or
invoices is not mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify
the truth of the respondents claims.

The records further show that respondent miserably failed to substantiate
its claims for input VAT refund for the first semester of 1991. Except for the
summary and schedules of input VAT payments prepared by respondent itself, no
other evidence was adduced in support of its claim.

As for respondents claim for input VAT refund for the second semester of
1991, it employed the services of Joaquin Cunanan & Co. on account of which it
(Joaquin Cunanan & Co.) executed a certification that:

We have examined the information shown below concerning the
input tax payments made by the Makati Office of Manila Mining
Corporation for the period from July 1 to December 31, 1991. Our
examination included inspection of the pertinent suppliers
invoices and official receipts and such other auditing procedures as
we considered necessary in the circumstances. x x x

As the certification merely stated that it used auditing procedures considered
necessary and not auditing procedures which are in accordance with generally
accepted auditing principles and standards, and that the examination was made on
input tax payments by the Manila Mining Corporation, without specifying that
the said input tax payments are attributable to the sales of gold to the Central
Bank, this Court cannot rely thereon and regard it as sufficient proof of the
respondents input VAT payments for the second semester.
[37]



As for the Petition in G.R. No. 141104, involving the input VAT of
petitioner corporation on its zero-rated sales in the first quarter of 1992, this Court
already found that the petitioner corporation failed to comply with Section 106(b)
of the Tax Code of 1977, as amended, imposing the two-year prescriptive period
for the filing of the application for refund/credit thereof. This bars the grant of the
application for refund/credit, whether administratively or judicially, by express
mandate of Section 106(e) of the same Code.

Granting arguendo that the application of petitioner corporation for the
refund/credit of the input VAT on its zero-rated sales in the first quarter of 1992
was actually and timely filed, petitioner corporation still failed to present together
with its application the required supporting documents, whether before the BIR or
the CTA. As the Court of Appeals ruled

In actions involving claims for refund of taxes assessed and collected, the
burden of proof rests on the taxpayer. As clearly discussed in the CTAs decision,
petitioner failed to substantiate its claim for tax refunds. Thus:

We note, however, that in the cases at bar, petitioner has
relied totally on Revenue Regulations No. 2-88 in determining
compliance with the documentary requirements for a successful
refund or issuance of tax credit. Unmentioned is the applicable
and specific amendment later introduced by Revenue Regulations
No. 3-88 dated April 7, 1988 (issued barely after two months from
the promulgation of Revenue Regulations No. 2-88 on February
15, 1988), which amended Section 16 of Revenue Regulations No.
5-87 on refunds or tax credits of input tax. x x x.

x x x x

A thorough examination of the evidence submitted by the
petitioner before this court reveals outright the failure to satisfy
documentary requirements laid down under the above-cited
regulations. Specifically, petitioner was not able to present the
following documents, to wit:

a) sales invoices or receipts;

b) purchase invoices or receipts;

c) evidence of actual receipt of goods;

d) BOI statement showing the amount and description
of sale of goods, etc.

e) original or attested copies of invoice or receipt on
capital equipment locally purchased; and

f) photocopy of import entry document and
confirmation receipt on imported capital equipment.

There is the need to examine the sales invoices or
receipts in order to ascertain the actual amount or quantity of
goods sold and their selling price. Without them, this Court cannot
verify the correctness of petitioners claim inasmuch as the
regulations require that the input taxes being sought for refund
should be limited to the portion that is directly and entirely
attributable to the particular zero-rated transaction. In this
instance, the best evidence of such transaction are the said sales
invoices or receipts.

Also, even if sales invoices are produced, there is the
further need to submit evidence that such goods were actually
received by the buyer, in this case, by CBP, Philp[h]os and
PASAR.

x x x x

Lastly, this Court cannot determine whether there were
actual local and imported purchase of capital goods as well as
domestic purchase of non-capital goods without the required
purchase invoice or receipt, as the case may be, and confirmation
receipts.

There is, thus, the imperative need to submit before this
Court the original or attested photocopies of petitioners invoices
or receipts, confirmation receipts and import entry documents in
order that a full ascertainment of the claimed amount may be
achieved.

Petitioner should have taken the foresight to introduce in
evidence all of the missing documents abovementioned. Cases
filed before this Court are litigated de novo. This means that party
litigants should endeavor to prove at the first instance every minute
aspect of their cases strictly in accordance with the Rules of Court,
most especially on documentary evidence. (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in
derogation of the sovereign authority, and should be construed
in strictissimi juris against the person or entity claiming the exemption. The
taxpayer who claims for exemption must justify his claim by the clearest grant of
organic or statute law and should not be permitted to stand on vague implications
(Asiatic Petroleum Co. v.Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp.
v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA
968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA
617; Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA
122).

There is no cogent reason to fault the CTAs conclusion that
the SGVs certificate is self-destructive, as it finds comfort in the
very SGVs stand, as follows:

It is our understanding that the above procedure are
sufficient for the purpose of the Company. We make no
presentation regarding the sufficiency of these procedures for such
purpose. We did not compare the total of the input tax claimed
each quarter against the pertinent VAT returns and books of
accounts. The above procedures do not constitute an audit made in
accordance with generally accepted auditing
standards. Accordingly, we do not express an opinion on the
companys claim for input VAT refund or credit. Had we
performed additional procedures, or had we made an audit in
accordance with generally accepted auditing standards, other
matters might have come to our attention that we would have
accordingly reported on.

The SGVs disclaimer of opinion carries much weight as it is
petitioners independent auditor. Indeed, SGV expressed that it did not compare
the total of the input tax claimed each quarter against the VAT returns and books
of accounts.
[38]



Moving on to the Petition in G.R. No. 148763, concerning the input VAT of
petitioner corporation on its zero-rated sales in the second, third, and fourth
quarters of 1990, the appellate court likewise found that petitioner corporation
failed to sufficiently establish its claims. Already disregarding the declarations
made by the Court of Appeals on its erroneous application of Revenue Regulations
No. 2-88, quoted hereunder is the rest of the findings of the appellate court after
evaluating the evidence submitted in accordance with the requirements under
Revenue Regulations No. 3-88

The Secretary of Finance validly adopted Revenue Regulations [No.]
x x x 3-98 pursuant to Sec. 245 of the National Internal Revenue Code, which
recognized his power to promulgate all needful rules and regulations for the
effective enforcement of the provisions of this Code. Thus, it is incumbent upon
a taxpayer intending to file a claim for refund of input VATs or the issuance of a
tax credit certificate with the BIR x x x to prove sales to such buyers as required
by Revenue Regulations No. 3-98. Logically, the same evidence should be
presented in support of an action to recover taxes which have been paid.

x x x Neither has [herein petitioner corporation] presented sales invoices
or receipts showing sales of gold, copper concentrates, and pyrite to the CBP,
[PASAR], and [PHILPHOS], respectively, and the dates and amounts of the
same, nor any evidence of actual receipt by the said buyers of the mineral
products. It merely presented receipts of purchases from suppliers on which
input VATs were allegedly paid. Thus, the Court of Tax Appeals correctly denied
the claims for refund of input VATs or the issuance of tax credit certificates of
petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this
Court directed the parties to file memoranda discussing, among others, the
submission of proof for its [petitioners] sales of gold, copper concentrates, and
pyrite to buyers. Nevertheless, the parties, including the petitioner, failed to
address this issue, thereby necessitating the affirmance of the ruling of the Court
of Tax Appeals on this point.
[39]



This Court is, therefore, bound by the foregoing facts, as found by the
appellate court, for well-settled is the general rule that the jurisdiction of this Court
in cases brought before it from the Court of Appeals, by way of a Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are
conclusive.
[40]
This Court is not a trier of facts. It is not its function to review,
examine and evaluate or weigh the probative value of the evidence presented.
[41]


The distinction between a question of law and a question of fact is clear-
cut. It has been held that "[t]here is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts; there is a
question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts."
[42]


Whether petitioner corporation actually made zero-rated sales; whether it
paid input VAT on these sales in the amount it had declared in its returns; whether
all the input VAT subject of its applications for refund/credit can be attributed to
its zero-rated sales; and whether it had not previously applied the input VAT
against its output VAT liabilities, are all questions of fact which could only be
answered after reviewing, examining, evaluating, or weighing the probative value
of the evidence it presented, and which this Court does not have the jurisdiction to
do in the present Petitions for Review on Certiorari under Rule 45 of the revised
Rules of Court.

Granting that there are exceptions to the general rule, when this Court
looked into questions of fact under particular circumstances,
[43]
none of these exist
in the instant cases. The Court of Appeals, in both cases, found a dearth of
evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Petitioner corporation itself
cannot dispute its non-compliance with the requirements set forth in Revenue
Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its
arguments on its assertion that the substantiation requirements under Revenue
Regulations No. 2-88 should not have applied to it, while being conspicuously
silent on the evidentiary requirements mandated by other relevant regulations.

Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner
corporation for the re-opening of its cases or holding of new trial before the CTA
for the reception of additional evidence, may be granted. Petitioner corporation
prays that the Court exercise its discretion on the matter in its favor, consistent
with the policy that rules of procedure be liberally construed in pursuance of
substantive justice.

This Court, however, cannot grant the prayer of petitioner corporation.

An aggrieved party may file a motion for new trial or reconsideration of a
judgment already rendered in accordance with Section 1, Rule 37 of the revised
Rules of Court, which provides

SECTION 1. Grounds of and period for filing motion for new
trial or reconsideration. Within the period for taking an appeal, the
aggrieved party may move the trial court to set aside the judgment or
final order and grant a new trial for one or more of the following causes
materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which
ordinary prudence could not have guarded against and by reason of
which such aggrieved party has probably been impaired in his rights; or

(b) Newly discovered evidence, which he could not, with
reasonable diligence, have discovered and produced at the trial, and
which if presented would probably alter the result.

Within the same period, the aggrieved party may also move fore
reconsideration upon the grounds that the damages awarded are
excessive, that the evidence is insufficient to justify the decision or final
order, or that the decision or final order is contrary to law.


In G.R. No. 148763, petitioner corporation attempts to justify its motion for
the re-opening of its cases and/or holding of new trial before the CTA by
contending that the [f]ailure of its counsel to adduce the necessary evidence
should be construed as excusable negligence or mistake which should constitute
basis for such re-opening of trial as for a new trial, as counsel was of the belief that
such evidence was rendered unnecessary by the presentation
of unrebutted evidence indicating that respondent [Commissioner] has
acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-
rated.
[44]
The CTA denied such motion on the ground that it was not
accompanied by an affidavit of merit as required by Section 2, Rule 37 of the
revised Rules of Court. The Court of Appeals affirmed the denial of the motion,
but apart from this technical defect, it also found that there was no justification to
grant the same.

On the matter of the denial of the motion of the petitioner corporation for the
re-opening of its cases and/or holding of new trial based on the technicality that
said motion was unaccompanied by an affidavit of merit, this Court rules in favor
of the petitioner corporation. The facts which should otherwise be set forth in a
separate affidavit of merit may, with equal effect, be alleged and incorporated in
the motion itself; and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual
with personal knowledge of the facts, take oath as to the truth thereof, in effect
converting the entire motion for new trial into an affidavit.
[45]
The motion of
petitioner corporation was prepared and verified by its counsel, and since the
ground for the motion was premised on said counsels excusable negligence or
mistake, then the obvious conclusion is that he had personal knowledge of the facts
relating to such negligence or mistake. Hence, it can be said that the motion of
petitioner corporation for the re-opening of its cases and/or holding of new trial
was in substantial compliance with the formal requirements of the revised Rules of
Court.

Even so, this Court finds no sufficient ground for granting the motion of
petitioner corporation for the re-opening of its cases and/or holding of new trial.

In G.R. No. 141104, petitioner corporation invokes the
Resolution,
[46]
dated 20 July 1998, by the CTA in another case, CTA Case No.
5296, involving the claim of petitioner corporation for refund/credit of input VAT
for the third quarter of 1993. The said Resolution allowed the re-opening of CTA
Case No. 5296, earlier dismissed by the CTA, to give the petitioner corporation the
opportunity to present the missing export documents.

The rule that the grant or denial of motions for new trial rests on the
discretion of the trial court,
[47]
may likewise be extended to the CTA. When the
denial of the motion rests upon the discretion of a lower court, this Court will not
interfere with its exercise, unless there is proof of grave abuse thereof.
[48]


That the CTA granted the motion for re-opening of one case for the
presentation of additional evidence and, yet, deny a similar motion in another case
filed by the same party, does not necessarily demonstrate grave abuse of discretion
or arbitrariness on the part of the CTA. Although the cases involve identical
parties, the causes of action and the evidence to support the same can very well be
different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA
Case No. 5296, petitioner corporation was claiming refund/credit of the input VAT
on its zero-rated sales, consisting of actual export sales, to Mitsubishi Metal
Corporation in Tokyo, Japan. The CTA took into account the presentation by
petitioner corporation of inward remittances of its export sales for the quarter
involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual
Report showing its sales to the said foreign corporation, and its application for
refund. In contrast, the present Petitions involve the claims of petitioner
corporation for refund/credit of the input VAT on its purchases of capital
goods and on its effectively zero-rated sales to CBP and EPZA-registered
enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of
1990 and first quarter of 1992. There being a difference as to the bases of the
claims of petitioner corporation for refund/credit of input VAT in CTA Case No.
5926 and in the Petitions at bar, then, there are resulting variances as to the
evidence required to support them.

Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No.
5296, invoked by petitioner corporation, emphasizes that the decision of the CTA
to allow petitioner corporation to present evidence is applicable pro hac vice or in
this occasion only as it is the finding of [the CTA] that petitioner [corporation] has
established a few of the aforementioned material points regarding the possible
existence of the export documents together with the prior and succeeding returns
for the quarters involved, x x x [Emphasis supplied.] Therefore, the CTA, in the
present cases, cannot be bound by its ruling in CTA Case No. 5296, when these
cases do not involve the exact same circumstances that compelled it to grant the
motion of petitioner corporation for re-opening of CTA Case No. 5296.

Finally, assuming for the sake of argument that the non-presentation of the
required documents was due to the fault of the counsel of petitioner corporation,
this Court finds that it does not constitute excusable negligence or mistake which
would warrant the re-opening of the cases and/or holding of new trial.

Under Section 1, Rule 37 of the Revised Rules of Court, the negligence
must be excusable and generally imputable to the party because if it is imputable to
the counsel, it is binding on the client. To follow a contrary rule and allow a party
to disown his counsels conduct would render proceedings indefinite, tentative, and
subject to re-opening by the mere subterfuge of replacing the counsel. What the
aggrieved litigant should do is seek administrative sanctions against the erring
counsel and not ask for the reversal of the courts ruling.
[49]


As elucidated by this Court in another case,
[50]
the general rule is that the
client is bound by the action of his counsel in the conduct of his case and he cannot
therefore complain that the result of the litigation might have been otherwise had
his counsel proceeded differently. It has been held time and again that blunders
and mistakes made in the conduct of the proceedings in the trial court as a result of
the ignorance, inexperience or incompetence of counsel do not qualify as a ground
for new trial. If such were to be admitted as valid reasons for re-opening cases,
there would never be an end to litigation so long as a new counsel could be
employed to allege and show that the prior counsel had not been sufficiently
diligent, experienced or learned.

Moreover, negligence, to be excusable, must be one which ordinary
diligence and prudence could not have guarded against.
[51]
Revenue Regulations
No. 3-88, which was issued on 15 February 1988, had been in effect more than two
years prior to the filing by petitioner corporation of its earliest application for
refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No.
1-95 was issued only on 25 January 1995, after petitioner corporation had filed its
Petitions before the CTA, but still during the pendency of the cases of petitioner
corporation before the tax court. The counsel of petitioner corporation does not
allege ignorance of the foregoing administrative regulation and tax court circular,
only that he no longer deemed it necessary to present the documents required
therein because of the presentation of alleged unrebutted evidence of the zero-rated
sales of petitioner corporation. It was a judgment call made by the counsel as to
which evidence to present in support of his clients cause, later proved to be
unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the
non-presentation of the required documentary evidence was due to the excusable
mistake of its counsel, a ground under Section 1, Rule 37 of the revised Rules of
Court for the grant of a new trial. Mistake, as it is referred to in the said rule,
must be a mistake of fact, not of law, which relates to the case.
[52]
In the present
case, the supposed mistake made by the counsel of petitioner corporation is one of
law, for it was grounded on his interpretation and evaluation that Revenue
Regulations No. 3-88 and CTA Circular No. 1-95, as amended, did not apply to his
clients cases and that there was no need to comply with the documentary
requirements set forth therein. And although the counsel of petitioner corporation
advocated an erroneous legal position, the effects thereof, which did not amount to
a deprivation of his clients right to be heard, must bind petitioner
corporation. The question is not whether petitioner corporation succeeded in
establishing its interests, but whether it had the opportunity to present its side.
[53]


Besides, litigation is a not a trial and error proceeding. A party who
moves for a new trial on the ground of mistake must show that ordinary prudence
could not have guarded against it. A new trial is not a refuge for the
obstinate.
[54]
Ordinary prudence in these cases would have dictated the
presentation of all available evidence that would have supported the claims for
refund/credit of input VAT of petitioner corporation. Without sound legal basis,
counsel for petitioner corporation concluded that Revenue Regulations No. 3-88,
and later on, CTA Circular No. 1-95, as amended, did not apply to its clients
claims. The obstinacy of petitioner corporation and its counsel is demonstrated in
their failure, nay, refusal, to comply with the appropriate administrative regulations
and tax court circular in pursuing the claims for refund/credit, now subject of G.R.
Nos. 141104 and 148763, even though these were separately instituted in a span of
more than two years. It is also evident in the failure of petitioner corporation to
address the issue and to present additional evidence despite being given the
opportunity to do so by the Court of Appeals. As pointed out by the appellate
court, in its Decision, dated 15 September 2000, in CA-G.R. SP No. 46718

x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the
parties to file memoranda discussing, among others, the submission of proof for
its [petitioners] sales of gold, copper concentrates, and pyrite to
buyers. Nevertheless, the parties, including the petitioner, failed to address this
issue, thereby necessitating the affirmance of the ruling of the Court of Tax
Appeals on this point.
[55]


Summary

Hence, although this Court agreed with the petitioner corporation that the
two-year prescriptive period for the filing of claims for refund/credit of input VAT
must be counted from the date of filing of the quarterly VAT return, and that sales
to EPZA-registered enterprises operating within economic processing zones were
effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it
still denies the claims of petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated sales during the second, third,
and fourth quarters of 1990 and the first quarter of 1992, for not being established
and substantiated by appropriate and sufficient evidence. Petitioner corporation is
also not entitled to the re-opening of its cases and/or holding of new trial since the
non-presentation of the required documentary evidence before the BIR and the
CTA by its counsel does not constitute excusable negligence or mistake as
contemplated in Section 1, Rule 37 of the revised Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are
hereby DENIED, and the Decisions, dated 6 July 1999 and 15 September 2000, of
the Court of Appeals in CA-G.R. SP Nos. 47607 and 46718, respectively, are
hereby AFFIRMED. Costs against petitioner.

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,

- versus -


MIRANT PAGBILAO
CORPORATION (Formerly
SOUTHERN ENERGY QUEZON,
INC.),
Respondent.
G.R. No. 172129

Present:

QUISUMBING, J., Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.

Promulgated:

September 12, 2008
x-----------------------------------------------------------------------------------------x

D E C I S I O N

VELASCO, JR., J .:

Before us is a Petition for Review on Certiorari under Rule 45 assailing and
seeking to set aside the Decision
[1]
dated December 22, 2005 of the Court of
Appeals (CA) in CA-G.R. SP No. 78280 which modified the March 18, 2003
Decision
[2]
of the Court of Tax Appeals (CTA) in CTA Case No. 6133
entitled Mirant Pagbilao Corporation (Formerly Southern Energy Quezon, Inc.) v.
Commissioner of Internal Revenue and ordered the Bureau of Internal Revenue
(BIR) to refund or issue a tax credit certificate (TCC) in favor of respondent
Mirant Pagbilao Corporation (MPC) in the amount representing its unutilized input
value added tax (VAT) for the second quarter of 1998. Also assailed is the CAs
Resolution
[3]
of March 31, 2006 denying petitioners motion for reconsideration.

The Facts

MPC, formerly Southern Energy Quezon, Inc., and also formerly known as
Hopewell (Phil.) Corporation, is a domestic firm engaged in the generation of
power which it sells to the National Power Corporation (NPC). For the
construction of the electrical and mechanical equipment portion of its Pagbilao,
Quezon plant, which appears to have been undertaken from 1993 to 1996, MPC
secured the services of Mitsubishi Corporation (Mitsubishi) of Japan.

Under Section 13
[4]
of Republic Act No. (RA) 6395, the NPCs revised
charter, NPC is exempt from all taxes. In Maceda v. Macaraig,
[5]
the Court
construed the exemption as covering both direct and indirect taxes.

In the light of the NPCs tax exempt status, MPC, on the belief that its sale
of power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax
Code,
[6]
zero-rated for VAT purposes, filed on December 1, 1997 with Revenue
District Office (RDO) No. 60 in Lucena City an Application for Effective Zero
Rating. The application covered the construction and operation of its Pagbilao
power station under a Build, Operate, and Transfer scheme.

Not getting any response from the BIR district office, MPC refiled its
application in the form of a request for ruling with the VAT Review Committee
at the BIR national office on January 28, 1999. On May 13, 1999, the
Commissioner of Internal Revenue issued VAT Ruling No. 052-99, stating that
the supply of electricity by Hopewell Phil. to the NPC, shall be subject to the zero
percent (0%) VAT, pursuant to Section 108 (B) (3) of the National Internal
Revenue Code of 1997.

It must be noted at this juncture that consistent with its belief to be zero-
rated, MPC opted not to pay the VAT component of the progress billings from
Mitsubishi for the period covering April 1993 to September 1996for the E & M
Equipment Erection Portion of MPCs contract with Mitsubishi. This prompted
Mitsubishi to advance the VAT component as this serves as its output VAT which
is essential for the determination of its VAT payment. Apparently, it was only on
April 14, 1998 that MPC paid Mitsubishi the VAT component for the progress
billings from April 1993 to September 1996, and for which Mitsubishi issued
Official Receipt (OR) No. 0189 in the aggregate amount of PhP 135,993,570.

On August 25, 1998, MPC, while awaiting approval of its application
aforestated, filed its quarterly VAT return for the second quarter of 1998 where it
reflected an input VAT of PhP 148,003,047.62, which included PhP 135,993,570
supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue
Regulations No. 7-95, MPC filed onDecember 20, 1999 an administrative claim
for refund of unutilized input VAT in the amount of PhP 148,003,047.62.

Since the BIR Commissioner failed to act on its claim for refund and
obviously to forestall the running of the two-year prescriptive period under Sec.
229 of the National Internal Revenue Code (NIRC), MPC went to the CTA via a
petition for review, docketed as CTA Case No. 6133.

Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co.
Ltd. v. CIR,
[7]
asserted that MPCs claim for refund cannot be granted for this main
reason: MPCs sale of electricity to NPC is not zero-rated for its failure to secure
an approved application for zero-rating.

Before the CTA, among the issues stipulated by the parties for resolution
were, in gist, the following:

1. Whether or not [MPC] has unapplied or unutilized creditable
input VAT for the 2
nd
quarter of 1998 attributable to zero-rated sales to
NPC which are proper subject for refund pursuant to relevant provisions
of the NIRC;

2. Whether the creditable input VAT of MPC for said period, if
any, is substantiated by documents; and

3. Whether the unutilized creditable input VAT for said quarter, if
any, was applied against any of the VAT output tax of MPC in the
subsequent quarter.


To provide support to the CTA in verifying and analyzing documents and
figures and entries contained therein, the Sycip Gorres & Velayo (SGV), an
independent auditing firm, was commissioned.

The Ruling of the CTA

On the basis of its affirmative resolution of the first issue, the CTA, by its
Decision dated March 18, 2003, granted MPCs claim for input VAT refund or
credit, but only for the amount of PhP 10,766,939.48. The fallo of the CTAs
decision reads:

In view of all the foregoing, the instant petition is PARTIALLY
GRANTED. Accordingly, respondent is hereby ORDERED to
REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE
in favor of the petitioner its unutilized input VAT payments directly
attributable to its effectively zero-rated sales for the second quarter of
1998 in the reduced amount of P10,766,939.48, computed as follows:

Claimed Input VAT P148,003,047.62

Less: Disallowances

a.) As summarized by SGV & Co. in its initial report (Exh. P)
I. Input Taxes on Purchases of Services:
1. Supported by documents
other than VAT Ors P 10,629.46
2. Supported by photocopied VAT OR 879.09
II. Input Taxes on Purchases of Goods:
1. Supported by documents other than
VAT invoices 165,795.70
2. Supported by Invoices with TIN only 1,781.82
3. Supported by photocopied VAT
invoices 3,153.62
III. Input Taxes on Importation of Goods:
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs
(BOC) Ors] 716,250.00
2. Supported by brokers computations 91,601.00 990,090.69

b.) Input taxes without supporting documents as
summarized in Annex A of SGV & Co.s
supplementary report (CTA records, page 134) 252,447.45

c.) Claimed input taxes on purchases of services from
Mitsubishi Corp. for being substantiated by dubious OR 135,996,570.00
[8]


Refundable Input P10,766,939.48

SO ORDERED.
[9]



Explaining the disallowance of over PhP 137 million claimed input VAT,
the CTA stated that most of MPCs purchases upon which it anchored its claims
for refund or tax credit have not been amply substantiated by pertinent documents,
such as but not limited to VAT ORs, invoices, and other supporting documents.
Wrote the CTA:

We agree with the above SGV findings that out of the remaining
taxes of P136,246,017.45, the amount of P252,477.45 was not supported
by any document and should therefore be outrightly disallowed.

As to the claimed input tax of P135,993,570.00 (P136,246,017.45
less P252,477.45 ) on purchases of services from Mitsubishi
Corporation, Japan, the same is found to be of doubtful veracity. While it
is true that said amount is substantiated by a VAT official receipt
with Serial No. 0189 dated April 14, 1998 x x x, it must be observed,
however, that said VAT allegedly paid pertains to the services which
were rendered for the period 1993 to 1996. x x x

The Ruling of the CA

Aggrieved, MPC appealed the CTAs Decision to the CA via a petition for
review under Rule 43, docketed as CA-G.R. SP No. 78280. On December 22,
2005, the CA rendered its assailed decision modifying that of the CTA decision by
granting most of MPCs claims for tax refund or credit. And in a Resolution
of March 31, 2006, the CA denied the BIR Commissioners motion for
reconsideration. The decretal portion of the CA decision reads:

WHEREFORE, premises considered, the instant petition is
GRANTED. The assailed Decision of the Court of Tax Appeals
dated March 18, 2003 is hereby MODIFIED. Accordingly, respondent
Commissioner of Internal Revenue is ordered to refund or issue a tax
credit certificate in favor of petitioner Mirant Pagbilao Corporation its
unutilized input VAT payments directly attributable to its effectively
zero-rated sales for the second quarter of 1998 in the total amount of
P146,760,509.48.

SO ORDERED.
[10]




The CA agreed with the CTA on MPCs entitlement to (1) a zero-rating for
VAT purposes for its sales and services to tax-exempt NPC; and (2) a refund or tax
credit for its unutilized input VAT for the second quarter of 1998. Their
disagreement, however, centered on the issue of proper documentation, particularly
the evidentiary value of OR No. 0189.

The CA upheld the disallowance of PhP 1,242,538.14 representing zero-
rated input VAT claims supported only by photocopies of VAT OR/Invoice,
documents other than VAT Invoice/OR, and mere brokers computations. But the
CA allowed MPCs refund claim of PhP 135,993,570 representing input VAT
payments for purchases of goods and/or services from Mitsubishi supported by OR
No. 0189. The appellate court ratiocinated that the CTA erred in disallowing said
claim since the OR from Mitsubishi was the best evidence for the payment of input
VAT by MPC to Mitsubishi as required under Sec. 110(A)(1)(b) of the NIRC. The
CA ruled that the legal requirement of a VAT Invoice/OR to substantiate creditable
input VAT was complied with through OR No. 0189 which must be viewed as
conclusive proof of the payment of input VAT. To the CA, OR No. 0189
represented an undisputable acknowledgment and receipt by Mitsubishi of the
input VAT payment of MPC.

The CA brushed aside the CTAs ruling and disquisition casting doubt on
the veracity and genuineness of the Mitsubishi-issued OR No. 0189. It reasoned
that the issuance date of the said receipt, April 14, 1998, must be taken
conclusively to represent the input VAT payments made by MPC to Mitsubishi as
MPC had no real control on the issuance of the OR. The CA held that the use of a
different exchange rate reflected in the OR is of no consequence as what the OR
undeniably attests and acknowledges was Mitsubishis receipt of MPCs input
VAT payment.

The Issue

Hence, the instant petition on the sole issue of whether or not respondent
[MPC] is entitled to the refund of its input VAT payments made from 1993 to 1996
amounting to [PhP] 146,760,509.48.
[11]


The Courts Ruling

As a preliminary matter, it should be stressed that the BIR Commissioner,
while making reference to the figure PhP 146,760,509.48, joins the CA and the
CTA on their disposition on the propriety of the refund of or the issuance of a TCC
for the amount of PhP 10,766,939.48. In fine, the BIR Commissioner trains his
sight and focuses his arguments on the core issue of whether or not MPC is entitled
to a refund for PhP 135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48 = PhP
135,993,570) it allegedly paid as creditable input VAT for services and goods
purchased from Mitsubishi during the 1993 to 1996 stretch.


The divergent factual findings and rulings of the CTA and CA impel us to
evaluate the evidence adduced below, particularly the April 14, 1998 OR 0189 in
the amount of PhP 135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of
exchange]. Verily, a claim for tax refund may be based on a statute granting tax
exemption, or, as Commissioner of Internal Revenue v. Fortune Tobacco
Corporation
[12]
would have it, the result of legislative grace. In such case, the
claim is to be construed strictissimi juris against the taxpayer,
[13]
meaning that the
claim cannot be made to rest on vague inference. Where the rule of strict
interpretation against the taxpayer is applicable as the claim for refund partakes of
the nature of an exemption, the claimant must show that he clearly falls under the
exempting statute. On the other hand, a tax refund may be, as usually it is,
predicated on tax refund provisions allowing a refund of erroneous or excess
payment of tax. The return of what was erroneously paid is founded on the
principle of solutio indebiti, a basic postulate that no one should unjustly enrich
himself at the expense of another. The caveat against unjust enrichment covers the
government.
[14]
And as decisional law teaches, a claim for tax refund proper, as
here, necessitates only the preponderance-of-evidence threshold like in any
ordinary civil case.
[15]


We apply the foregoing elementary principles in our evaluation on whether
OR 0189, in the backdrop of the factual antecedents surrounding its issuance,
sufficiently proves the alleged unutilized input VAT claimed by MPC.

The Court can review issues of fact where there are
divergent findings by the trial and appellate courts

As a matter of sound practice, the Court refrains from reviewing the factual
determinations of the CA or reevaluate the evidence upon which its decision is
founded. One exception to this rule is when the CA and the trial court diametrically
differ in their findings,
[16]
as here. In such a case, it is incumbent upon the Court to
review and determine if the CA might have overlooked, misunderstood, or
misinterpreted certain facts or circumstances of weight, which, if properly
considered, would justify a different conclusion.
[17]
In the instant case, the CTA,
unlike the CA, doubted the veracity of OR No. 0189 and did not appreciate the
same to support MPCs claim for tax refund or credit.

Petitioner BIR Commissioner, echoing the CTAs stand, argues against the
sufficiency of OR No. 0189 to prove unutilized input VAT payment by MPC. He
states in this regard that the BIR can require additional evidence to prove and
ascertain payment of creditable input VAT, or that the claim for refund or tax
credit was filed within the prescriptive period, or had not previously been refunded
to the taxpayer.

To bolster his position on the dubious character of OR No. 0189, or its
insufficiency to prove input VAT payment by MPC, petitioner proffers the
following arguments:

(1) The input tax covered by OR No. 0189 pertains to purchases by MPC
from Mitsubishi covering the period from 1993 to 1996; however, MPCs claim
for tax refund or credit was filed on December 20, 1999, clearly way beyond the
two-year prescriptive period set in Sec. 112 of the NIRC;

(2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi
(Manila) when the invoices which the VAT were originally billed came from the
Mitsubishis head office in Japan;
(3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203:
USD 1 or the exchange rate prevailing in 1993 to 1996, when, on April 14, 1998,
the date OR No. 0189 was issued, the exchange rate was already PhP 38.01 to a US
dollar;

(4) OR No. 0189 does not show or include payment of accrued interest
which Mitsubishi was charging and demanded from MPC for having advanced a
considerable amount of VAT. The demand, per records, is embodied in the May
12, 1995 letter of Mitsubishi to MPC;

(5) MPC failed to present to the CTA its VAT returns for the second and
third quarters of 1995, when the bulk of the VAT payment covered by OR No.
0189specifically PhP 109,329,135.17 of the total amount of PhP 135,993,570
was billed by Mitsubishi, when such return is necessary to ascertain that the total
amount covered by the receipt or a large portion thereof was not previously
refunded or credited; and

(6) No other documents proving said input VAT payment were presented
except OR No. 0189 which, considering the fact that OR No. 0188 was likewise
issued by Mitsubishi and presented before the CTA but admittedly for payments
made by MPC on progress billings covering service purchases from 1993 to 1996,
does not clearly show if such input VAT payment was also paid for the period
1993 to 1996 and would be beyond the two-year prescriptive period.

The petition is partly meritorious.

Belated payment by MPC of its obligation for creditable input VAT

As no less found by the CTA, citing the SGVs report, the payments covered
by OR No. 0189 were for goods and service purchases made by MPC through the
progress billings from Mitsubishi for the period covering April 1993 to September
1996for the E & M Equipment Erection Portion of MPCs contract with
Mitsubishi.
[18]
It is likewise undisputed that said payments did not include
payments for the creditable input VAT of MPC. This fact is shown by the May 12,
1995 letter
[19]
from Mitsubishi where, as earlier indicated, it apprised MPC of the
advances Mitsubishi made for the VAT payments, i.e., MPCs creditable input
VAT, and for which it was holding MPC accountable for interest therefor.

In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996
transactions adverted to, immediately pay the corresponding input VAT. OR No.
0189 issued on April 14, 1998 clearly reflects the belated payment of input VAT
corresponding to the payment of the progress billings from Mitsubishi for the
period covering April 7, 1993 to September 6, 1996. SGV found that OR No.
0189 in the amount of PhP 135,993,570 (USD 5,190,000) was duly supported by
bank statement evidencing payment to Mitsubishi (Japan).
[20]
Undoubtedly, OR
No. 0189 proves payment by MPC of its creditable input VAT relative to its
purchases from Mitsubishi.

OR No. 0189 by itself sufficiently proves payment of VAT

The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189
constituted sufficient proof of payment of creditable input VAT for the progress
billings from Mitsubishi for the period covering April 7, 1993 to September 6,
1996. Sec. 110(A)(1)(B) of the NIRC pertinently provides:

Section 110. Tax Credits.

A. Creditable Input Tax.

(1) Any input tax evidenced by a VAT invoice or official receipt issued in
accordance with Section 113 hereof on the following transactions shall be
creditable against the output tax:

(a) Purchase or importation of goods:

x x x x

(b) Purchase of services on which a value-added tax has been
actually paid. (Emphasis ours.)



Without necessarily saying that the BIR is precluded from requiring
additional evidence to prove that input tax had indeed paid or, in fine, that the
taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree with
the CAs above disposition. As the Court distinctly notes, the law considers a duly-
executed VAT invoice or OR referred to in the above provision as sufficient
evidence to support a claim for input tax credit. And any doubt as to what OR No.
0189 was for or tended to prove should reasonably be put to rest by the SGV report
on which the CTA notably placed much reliance. The SGV report stated that
[OR] No. 0189 dated April 14, 1998 is for the payment of the VAT on the
progress billings from Mitsubishi Japan for the period April 7, 1993 to
September 6, 1996 for the E & M Equipment Erection Portion of the Companys
contract with Mitsubishi Corporation (Japan).
[21]


VAT presumably paid on April 14, 1998

While available records do not clearly indicate when MPC actually paid the
creditable input VAT amounting to PhP 135,993,570 (USD 5,190,000) for the
aforesaid 1993 to 1996 service purchases, the presumption is that payment was
made on the date appearing on OR No. 0189, i.e., April 14, 1998. In fact, said
creditable input VAT was reflected in MPCs VAT return for the second quarter of
1998.

The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides
collaborating proof of the belated payment of the creditable input VAT angle. To
reiterate, Mitsubishi, via said letter, apprised MPC of the VAT component of the
service purchases MPC made and reminded MPC that Mitsubishi had advanced
VAT payments to which Mitsubishi was entitled and from which it was demanding
interest payment. Given the scenario depicted in said letter, it is understandable
why Mitsubishi, in its effort to recover the amount it advanced, used the PhP
26.203: USD 1 exchange formula in OR No. 0189 for USD 5,190,000.

No showing of interest payment not fatal to claim for refund

Contrary to petitioners posture, the matter of nonpayment by MPC of the
interests demanded by Mitsubishi is not an argument against the fact of payment
by MPC of its creditable input VAT or of the authenticity or genuineness of OR
No. 0189; for at the end of the day, the matter of interest payment was between
Mitsubishi and MPC and may very well be covered by another receipt. But the
more important consideration is the fact that MPC, as confirmed by the SGV, paid
its obligation to Mitsubishi, and the latter issued to MPC OR No. 0189, for the
VAT component of its 1993 to 1996 service purchases.

The next question is, whether or not MPC is entitled to a refund or a TCC
for the alleged unutilized input VAT of PhP 135,993,570 covered by OR No. 0189
which sufficiently proves payment of the input VAT.

We answer the query in the negative.

Claim for refund or tax credit filed out of time

The claim for refund or tax credit for the creditable input VAT payment
made by MPC embodied in OR No. 0189 was filed beyond the period provided by
law for such claim. Sec. 112(A) of the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-
registered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has
not been applied against output tax: x x x. (Emphasis ours.)

The above proviso clearly provides in no uncertain terms that unutilized
input VAT payments not otherwise used for any internal revenue tax due the
taxpayer must be claimed within two years reckoned from the close of the
taxable quarter when the relevant sales were made pertaining to the input
VAT regardless of whether said tax was paid or not. As the CA aptly puts it,
albeit it erroneously applied the aforequoted Sec. 112(A), [P]rescriptive period
commences from the close of the taxable quarter when the sales were made and not
from the time the input VAT was paid nor from the time the official receipt was
issued.
[22]
Thus, when a zero-rated VAT taxpayer pays its input VAT a year after
the pertinent transaction, said taxpayer only has a year to file a claim for refund or
tax credit of the unutilized creditable input VAT. The reckoning frame would
always be the end of the quarter when the pertinent sales or transaction was made,
regardless when the input VAT was paid. Be that as it may, and given that the last
creditable input VAT due for the period covering the progress billing of September
6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for
unutilized creditable input VAT refund or tax credit for said quarter prescribed two
years after September 30, 1996 or, to be precise, on September 30,
1998. Consequently, MPCs claim for refund or tax credit filed on December 10,
1999 had already prescribed.

Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C)
or 229 of the NIRC which, for the purpose of refund, prescribes a different starting
point for the two-year prescriptive limit for the filing of a claim therefor. Secs.
204(C) and 229 respectively provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. The Commissioner may
x x x x

(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 filed showing an overpayment shall be
considered as a written claim for credit or refund.

x x x x

Sec. 229. Recovery of Tax Erroneously or Illegally 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, of any sum alleged to have been excessively or in any manner
wrongfully 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 been 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
therefor, 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. (Emphasis ours.)


Notably, the above provisions also set a two-year prescriptive period,
reckoned from date of payment of the tax or penalty, for the filing of a claim of
refund or tax credit. Notably too, both provisions apply only to instances of
erroneous payment or illegal collection of internal revenue taxes.

MPCs creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is an
indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of
the goods, properties, or services of the taxpayer. The fact that the subsequent sale
or transaction involves a wholly-tax exempt client, resulting in a zero-rated or
effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of
its right to a refund for any unutilized creditable input VAT, albeit the erroneous,
illegal, or wrongful payment angle does not enter the equation.
In Commissioner of Internal Revenue v. Seagate Technology
(Philippines), the Court explained the nature of the VAT and the entitlement to tax
refund or credit of a zero-rated taxpayer:

Viewed broadly, the VAT is a uniform tax x x x levied on every
importation of goods, whether or not in the course of trade or business, or
imposed on each sale, barter, exchange or lease of goods or properties or on each
rendition of services in the course of trade or business as they pass along the
production and distribution chain, the tax being limited only to the value added to
such goods, properties or services by the seller, transferor or lessor. It is an
indirect tax that may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services. As such, it should be understood not in the
context of the person or entity that is primarily, directly and legally liable for its
payment, but in terms of its nature as a tax on consumption. In either case,
though, the same conclusion is arrived at.

The law that originally imposed the VAT in the country, as well as the
subsequent amendments of that law, has been drawn from the tax credit
method. Such method adopted the mechanics and self-enforcement features of the
VAT as first implemented and practiced in Europe x x x. Under the present
method that relies on invoices, an entity can credit against or subtract from the
VAT charged on its sales or outputs the VAT paid on its purchases, inputs and
imports.

If at the end of a taxable quarter the output taxes charged by a seller are
equal to the input taxes passed on by the suppliers, no payment is required. It is
when the output taxes exceed the input taxes that the excess has to be paid. If,
however, the input taxes exceed the output taxes, the excess shall be carried over
to the succeeding quarter or quarters. Should the input taxes result from zero-
rated or effectively zero-rated transactions or from the acquisition of capital
goods, any excess over the output taxes shall instead be refunded to the taxpayer
or credited against other internal revenue taxes.

x x x x

Zero-rated transactions generally refer to the export sale of goods and
supply of services. The tax rate is set at zero. When applied to the tax base,
such rate obviously results in no tax chargeable against the purchaser. The seller
of such transactions charges no output tax, but can claim a refund of or a tax
credit certificate for the VAT previously charged by suppliers.
[23]
(Emphasis
added.)


Considering the foregoing discussion, it is clear that Sec. 112(A) of the
NIRC, providing a two-year prescriptive period reckoned from the close of the
taxable quarter when the relevant sales or transactions were made pertaining to the
creditable input VAT, applies to the instant case, and not to the other actions which
refer to erroneous payment of taxes.
As a final consideration, the Court wishes to remind the BIR and other tax
agencies of their duty to treat claims for refunds and tax credits with proper
attention and urgency. Had RDO No. 60 and, later, the BIR proper acted, instead of
sitting, on MPCs underlying application for effective zero rating, the matter of
addressing MPCs right, or lack of it, to tax credit or refund could have plausibly
been addressed at their level and perchance freed the taxpayer and the government
from the rigors of a tedious litigation.

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.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated
December 22, 2005 and the Resolution dated March 31, 2006 of the CA in CA-
G.R. SP No. 78280 are AFFIRMED with the MODIFICATION that the claim of
respondent MPC for tax refund or credit to the extent of PhP 135,993,570,
representing its input VAT payments for service purchases from Mitsubishi
Corporation of Japan for the construction of a portion of its Pagbilao, Quezon
power station, is DENIED on the ground that the claim had
prescribed. Accordingly, petitioner Commissioner of Internal Revenue is ordered
to refund or, in the alternative, issue a tax credit certificate in favor of MPC, its
unutilized input VAT payments directly attributable to its effectively zero-rated
sales for the second quarter in the total amount of PhP 10,766,939.48.

No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

COMMISSIONER OF INTERNAL G.R. No. 184823
REVENUE,
Petitioner,
Present:

CORONA, C. J., Chairperson,
- versus - VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
AICHI FORGING COMPANY
OF

ASIA, INC., Promulgated:
Respondent. October 6, 2010
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - x


D E C I S I O N


DEL CASTILLO, J .:


A taxpayer is entitled to a refund either by authority of a statute expressly granting
such right, privilege, or incentive in his favor, or under the principle of solutio
indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a
taxpayer must prove not only his entitlement to a refund but also his compliance with the
procedural due process as non-observance of the prescriptive periods within which to file
the administrative and the judicial claims would result in the denial of his claim.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks
to set aside the July 30, 2008 Decision
[1]
and the October 6, 2008 Resolution
[2]
of the
Court of Tax Appeals (CTA) En Banc.
Factual Antecedents

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized
and existing under the laws of the Republic of the Philippines, is engaged in the
manufacturing, producing, and processing of steel and its by-products.
[3]
It is registered
with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity
[4]
and its
products, close impression die steel forgings and tool and dies, are registered with the
Board of Investments (BOI) as a pioneer status.
[5]


On September 30, 2004, respondent filed a claim for refund/credit of input VAT
for the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82
with the petitioner Commissioner of Internal Revenue (CIR), through the Department of
Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.
[6]


Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review
[7]
with the CTA for the
refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065 and
was raffled to the Second Division of the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to
September 30, 2002, it generated and recorded zero-rated sales in the amount
of P131,791,399.00,
[8]
which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3)
of the National Internal Revenue Code of 1997 (NIRC);
[9]
that for the said period, it
incurred and paid input VAT amounting to P3,912,088.14 from purchases and
importation attributable to its zero-rated sales;
[10]
and that in its application for
refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center, it only claimed the amount of P3,891,123.82.
[11]


In response, petitioner filed his Answer
[12]
raising the following special and
affirmative defenses, to wit:

4. Petitioners alleged claim for refund is subject to administrative
investigation by the Bureau;

5. Petitioner must prove that it paid VAT input taxes for the period in
question;

6. Petitioner must prove that its sales are export sales contemplated under
Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;

7. Petitioner must prove that the claim was filed within the two (2) year
period prescribed in Section 229 of the Tax Code;

8. In an action for refund, the burden of proof is on the taxpayer to
establish its right to refund, and failure to sustain the burden is fatal to the
claim for refund; and

9. Claims for refund are construed strictly against the claimant for the same
partake of the nature of exemption from taxation.
[13]



Trial ensued, after which, on January 4, 2008, the Second Division of the CTA
rendered a Decision partially granting respondents claim for refund/credit. Pertinent
portions of the Decision read:

For a VAT registered entity whose sales are zero-rated, to validly claim
a refund, Section 112 (A) of the NIRC of 1997, as amended, provides:

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-
registered person, whose sales are zero-rated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: x x x

Pursuant to the above provision, petitioner must comply with the
following requisites: (1) the taxpayer is engaged in sales which are zero-rated
or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim
must be filed within two years after the close of the taxable quarter when such
sales were made; and (4) the creditable input tax due or paid must be
attributable to such sales, except the transitional input tax, to the extent that
such input tax has not been applied against the output tax.

The Court finds that the first three requirements have been complied
[with] by petitioner.

With regard to the first requisite, the evidence presented by petitioner,
such as the Sales Invoices (Exhibits II to II-262, JJ to JJ-431, KK to
KK-394 and LL) shows that it is engaged in sales which are zero-rated.

The second requisite has likewise been complied with. The Certificate
of Registration with OCN 1RC0000148499 (Exhibit C) with the BIR proves
that petitioner is a registered VAT taxpayer.

In compliance with the third requisite, petitioner filed its administrative
claim for refund on September 30, 2004 (Exhibit N) and the present Petition
for Review on September 30, 2004, both within the two (2) year prescriptive
period from the close of the taxable quarter when the sales were made, which
is from September 30, 2002.

As regards, the fourth requirement, the Court finds that there are some
documents and claims of petitioner that are baseless and have not been
satisfactorily substantiated.

x x x x

In sum, petitioner has sufficiently proved that it is entitled to a refund
or issuance of a tax credit certificate representing unutilized excess input VAT
payments for the period July 1, 2002 to September 30, 2002, which are
attributable to its zero-rated sales for the same period, but in the reduced
amount of P3,239,119.25, computed as follows:

Amount of Claimed Input VAT P 3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37
Net Creditable Input VAT P 3,850,103.45
Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT P 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is
PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED
TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of
petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED
THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100
PESOS (P3,239,119.25), representing the unutilized input VAT incurred for
the months of July to September 2002.

SO ORDERED.
[14]



Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,
[15]
insisting that the administrative and the judicial claims were filed
beyond the two-year period to claim a tax refund/credit provided for under Sections
112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the
filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year
period, which expired on September 29, 2004.
[16]
He cited as basis Article 13 of the Civil
Code,
[17]
which provides that when the law speaks of a year, it is equivalent to 365
days. In addition, petitioner argued that the simultaneous filing of the administrative and
the judicial claims contravenes Sections 112 and 229 of the NIRC.
[18]
According to the
petitioner, a prior filing of an administrative claim is a condition precedent
[19]
before a
judicial claim can be filed. He explained that the rationale of such requirement rests not
only on the doctrine of exhaustion of administrative remedies but also on the fact that the
CTA is an appellate body which exercises the power of judicial review over
administrative actions of the BIR.
[20]


The Second Division of the CTA, however, denied petitioners Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En
Banc via a Petition for Review.
[21]


Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision
allowing the partial tax refund/credit in favor of respondent. However, as to the
reckoning point for counting the two-year period, the CTA En Banc ruled:

Petitioner argues that the administrative and judicial claims were filed
beyond the period allowed by law and hence, the honorable Court has no
jurisdiction over the same. In addition, petitioner further contends that
respondent's filing of the administrative and judicial [claims] effectively
eliminates the authority of the honorable Court to exercise jurisdiction over the
judicial claim.

We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax.

(A) In General. Every person liable to pay the value-added tax
imposed under this Title shall file a quarterly return of the amount of his gross
sales or receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.

[x x x x ]

Based on the above-stated provision, a taxpayer has twenty five (25)
days from the close of each taxable quarter within which to file a quarterly
return of the amount of his gross sales or receipts. In the case at bar, the
taxable quarter involved was for the period of July 1, 2002 to September 30,
2002. Applying Section 114 of the 1997 NIRC, respondent has until October
25, 2002 within which to file its quarterly return for its gross sales or receipts
[with] which it complied when it filed its VAT Quarterly Return on October
20, 2002.

In relation to this, the reckoning of the two-year period provided under
Section 229 of the 1997 NIRC should start from the payment of tax subject
claim for refund. As stated above, respondent filed its VAT Return for the
taxable third quarter of 2002 on October 20, 2002. Thus, respondent's
administrative and judicial claims for refund filed on September 30, 2004 were
filed on time because AICHI has until October 20, 2004 within which to file
its claim for refund.

In addition, We do not agree with the petitioner's contention that the
1997 NIRC requires the previous filing of an administrative claim for refund
prior to the judicial claim. This should not be the case as the law does not
prohibit the simultaneous filing of the administrative and judicial claims for
refund. What is controlling is that both claims for refund must be filed within
the two-year prescriptive period.

In sum, the Court En Banc finds no cogent justification to disturb the
findings and conclusion spelled out in the assailed January 4, 2008 Decision
and March 13, 2008 Resolution of the CTA Second Division. What the instant
petition seeks is for the Court En Banc to view and appreciate the evidence in
their own perspective of things, which unfortunately had already been
considered and passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED
DUE COURSE and DISMISSED for lack of merit. Accordingly, the January
4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division
in CTA Case No. 7065 entitled, AICHI Forging Company of Asia, Inc.
petitioner vs. Commissioner of Internal Revenue, respondent are hereby
AFFIRMED in toto.

SO ORDERED.
[22]



Petitioner sought reconsideration but the CTA En Banc denied
[23]
his Motion for
Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether
respondents judicial and administrative claims for tax refund/credit were filed
within the two-year prescriptive period provided in Sections 112(A) and 229 of

the NIRC.
[24]


Petitioners Arguments

Petitioner maintains that respondents administrative and judicial claims for tax
refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC.
[25]
He
posits that pursuant to Article 13 of the Civil Code,
[26]
since the year 2004 was a leap
year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the
two-year period, which expired onSeptember 29, 2004.
[27]


Petitioner further argues that the CTA En Banc erred in applying Section 114(A)
of the NIRC in determining the start of the two-year period as the said provision pertains
to the compliance requirements in the payment of VAT.
[28]
He asserts that it is Section
112, paragraph (A), of the same Code that should apply because it specifically provides
for the period within which a claim for tax refund/ credit should be made.
[29]


Petitioner likewise puts in issue the fact that the administrative claim with the BIR
and the judicial claim with the CTA were filed on the same day.
[30]
He opines that the
simultaneous filing of the administrative and the judicial claims contravenes Section 229
of the NIRC, which requires the prior filing of an administrative claim.
[31]
He insists that
such procedural requirement is based on the doctrine of exhaustion of administrative
remedies and the fact that the CTA is an appellate body exercising judicial review over
administrative actions of the CIR.
[32]



Respondents Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized
input VAT for the period July 1, 2002 to September 30, 2002 as a matter of right because
it has substantially complied with all the requirements provided by law.
[33]
Respondent
likewise defends the CTA En Banc in applying Section 114(A) of the NIRC in
computing the prescriptive period for the claim for tax refund/credit. Respondent
believes that Section 112(A) of the NIRC must be read together with Section 114(A) of
the same Code.
[34]


As to the alleged simultaneous filing of its administrative and judicial claims,
respondent contends that it first filed an administrative claim with the One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a judicial
claim with the CTA.
[35]
To prove this, respondent points out that its Claimant
Information Sheet No. 49702
[36]
and BIR Form No. 1914 for the third quarter of
2002,
[37]
which were filed with the DOF, were attached as Annexes M and N,
respectively, to the Petition for Review filed with the CTA.
[38]
Respondent further
contends that the non-observance of the 120-day period given to the CIR to act on the
claim for tax refund/credit in Section 112(D) is not fatal because what is important is that
both claims are filed within the two-year prescriptive period.
[39]
In support thereof,
respondent cites Commissioner of Internal Revenue v. Victorias Milling Co.,
Inc.
[40]
where it was ruled that [i]f, however, the [CIR] takes time in deciding the claim,
and the period of two years is about to end, the suit or proceeding must be started in the
[CTA] before the end of the two-year period without awaiting the decision of the
[CIR].
[41]
Lastly, respondent argues that even if the period had already lapsed, it may be
suspended for reasons of equity considering that it is not a jurisdictional requirement.
[42]


Our Ruling

The petition has merit.

Unutilized input VAT must be claimed within
two years after the close of the taxable quarter
when the sales were made


In computing the two-year prescriptive period for claiming a refund/credit of
unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the
NIRC, which states:

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-rated or Effectively Zero-rated Sales Any VAT-
registered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied against output
tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable
foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid
cannot be directly and entirely attributed to any one of the transactions, it shall
be allocated proportionately on the basis of the volume of sales. (Emphasis
supplied.)


The CTA En Banc, on the other hand, took into consideration Sections 114 and
229 of the NIRC, which read:

SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax
imposed under this Title shall file a quarterly return of the amount of his
gross sales or receipts within twenty-five (25) days following the close of
each taxable quarter prescribed for each taxpayer: Provided, however,
That VAT-registered persons shall pay the value-added tax on a monthly
basis.
Any person, whose registration has been cancelled in accordance with
Section 236, shall file a return and pay the tax due thereon within twenty-five
(25) days from the date of cancellation of registration: Provided, That only one
consolidated return shall be filed by the taxpayer for his principal place of
business or head office and all branches.
x x x x

SEC. 229. Recovery of tax erroneously or illegally 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 been 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 written claim
therefor, 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. (Emphasis supplied.)


Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a
claim for refund/credit of unutilized input VAT should start from the date of payment of
tax and not from the close of the taxable quarter when the sales were made.
[43]


The pivotal question of when to reckon the running of the two-year prescriptive
period, however, has already been resolved in Commissioner of Internal Revenue v.
Mirant Pagbilao Corporation,
[44]
where we ruled that Section 112(A) of the NIRC is the
applicable provision in determining the start of the two-year period for claiming a
refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are
inapplicable as both provisions apply only to instances of erroneous payment or illegal
collection of internal revenue taxes.
[45]
We explained that:

The above proviso [Section 112 (A) of the NIRC] clearly provides in
no uncertain terms that unutilized input VAT payments not otherwise used
for any internal revenue tax due the taxpayer must be claimed within two
years reckoned from the close of the taxable quarter when the relevant
sales were made pertaining to the input VAT regardless of whether said
tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the
aforequoted Sec. 112 (A), [P]rescriptive period commences from the close of
the taxable quarter when the sales were made and not from the time the input
VAT was paid nor from the time the official receipt was issued. Thus, when
a zero-rated VAT taxpayer pays its input VAT a year after the pertinent
transaction, said taxpayer only has a year to file a claim for refund or tax credit
of the unutilized creditable input VAT. The reckoning frame would always be
the end of the quarter when the pertinent sales or transaction was made,
regardless when the input VAT was paid. Be that as it may, and given that the
last creditable input VAT due for the period covering the progress billing of
September 6, 1996 is the third quarter of 1996 ending on September 30, 1996,
any claim for unutilized creditable input VAT refund or tax credit for said
quarter prescribed two years after September 30, 1996 or, to be precise, on
September 30, 1998. Consequently, MPCs claim for refund or tax credit filed
on December 10, 1999 had already prescribed.

Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec.
204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a
different starting point for the two-year prescriptive limit for the filing of a
claim therefor. Secs. 204(C) and 229 respectively provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. The Commissioner may

x x x x

(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 filed showing
an overpayment shall be considered as a written claim for credit or refund.

x x x x

Sec. 229. Recovery of Tax Erroneously or Illegally 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, of any sum alleged to have been excessively or in any manner
wrongfully 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 been 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 therefor, 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.

Notably, the above provisions also set a two-year prescriptive period,
reckoned from date of payment of the tax or penalty, for the filing of a claim
of refund or tax credit. Notably too, both provisions apply only to instances
of erroneous payment or illegal collection of internal revenue taxes.

MPCs creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is
an indirect tax which can be shifted or passed on to the buyer, transferee, or
lessee of the goods, properties, or services of the taxpayer. The fact that the
subsequent sale or transaction involves a wholly-tax exempt client, resulting in
a zero-rated or effectively zero-rated transaction, does not, standing alone,
deprive the taxpayer of its right to a refund for any unutilized creditable input
VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter
the equation.

x x x x

Considering the foregoing discussion, it is clear that Sec. 112 (A) of
the NIRC, providing a two-year prescriptive period reckoned from the
close of the taxable quarter when the relevant sales or transactions were
made pertaining to the creditable input VAT, applies to the instant case,
and not to the other actions which refer to erroneous payment of
taxes.
[46]
(Emphasis supplied.)


In view of the foregoing, we find that the CTA En Banc erroneously applied
Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive period for
claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is
the pertinent provision for the refund/credit of input VAT. Thus, the two-year period
should be reckoned from the close of the taxable quarter when the sales were made.

The administrative claim was timely filed


Bearing this in mind, we shall now proceed to determine whether the
administrative claim was timely filed.

Relying on Article 13 of the Civil Code,
[47]
which provides that a year is
equivalent to 365 days, and taking into account the fact that the year 2004 was a leap
year, petitioner submits that the two-year period to file a claim for tax refund/ credit for
the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.
[48]


We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,
[49]
we
said that as between the Civil Code, which provides that a year is equivalent to 365 days,
and theAdministrative Code of 1987, which states that a year is composed of 12 calendar
months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat
priori.
[50]
Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I
of the Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to 365
days whether it be a regular year or a leap year. Under the Administrative
Code of 1987, however, a year is composed of 12 calendar months. Needless
to state, under the Administrative Code of 1987, the number of days is
irrelevant.

There obviously exists a manifest incompatibility in the manner
of
computing legal periods under the Civil Code and the Administrative Code of
1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the
computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code
of 1987 to this case, the two-year prescriptive period (reckoned from the time
respondent filed its final adjusted return on April 14, 1998) consisted of 24
calendar months, computed as follows:

Year 1 1
st
calendar
month
April 15, 1998 to May 14, 1998
2
nd
calendar month May 15, 1998 to June 14, 1998
3
rd
calendar month June 15, 1998 to July 14, 1998
4
th
calendar month July 15, 1998 to August 14, 1998
5
th
calendar month August 15, 1998 to September 14, 1998
6
th
calendar month September 15, 1998 to October 14, 1998
7
th
calendar month October 15, 1998 to November 14, 1998
8
th
calendar month November 15, 1998 to December 14, 1998
9
th
calendar month December 15, 1998 to January 14, 1999
10
th
calendar month January 15, 1999 to February 14, 1999
11
th
calendar month February 15, 1999 to March 14, 1999
12
th
calendar month March 15, 1999 to April 14, 1999

Year 2 13
th
calendar month April 15, 1999 to May 14, 1999
14
th
calendar month May 15, 1999 to June 14, 1999
15
th
calendar month June 15, 1999 to July 14, 1999
16
th
calendar month July 15, 1999 to August 14, 1999
17
th
calendar month August 15, 1999 to September 14, 1999
18
th
calendar month September 15, 1999 to October 14, 1999
19
th
calendar month October 15, 1999 to November 14, 1999
20
th
calendar month November 15, 1999 to December 14, 1999
21
st
calendar month December 15, 1999 to January 14, 2000
22
nd
calendar month January 15, 2000 to February 14, 2000
23
rd
calendar month February 15, 2000 to March 14, 2000
24
th
calendar month March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000)
was filed on the last day of the 24th calendar month from the day respondent
filed its final adjusted return. Hence, it was filed within the reglementary
period.
[51]



Applying this to the present case, the two-year period to file a claim for tax
refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30,
2004. Hence, respondents administrative claim was timely filed.

The filing of the judicial claim was premature


However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondents claim for tax refund/credit for having been filed in
violation of Section 112(D) of the NIRC, which provides that:

SEC. 112. Refunds or Tax Credits of Input Tax.
x x x x
(D) Period within which Refund or Tax Credit of Input Taxes shall
be Made. In proper cases, the Commissioner shall grant a refund or issue the
tax credit certificate for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents in support
of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the application
within the period prescribed above, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)


Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the
date of the submission of the complete documents in support of the application [for tax
refund/credit], within which to grant or deny the claim. In case of full or partial denial
by the CIR, the taxpayers recourse is to file an appeal before the CTA within 30 days
from receipt of the decision of the CIR. However, if after the 120-day period the CIR
fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal
the inaction of the CIR to CTA within 30 days.

In this case, the administrative and the judicial claims were simultaneously filed
on September 30, 2004. Obviously, respondent did not wait for the decision of the CIR
or the lapse of the 120-day period. For this reason, we find the filing of the judicial claim
with the CTA premature.

Respondents assertion that the non-observance of the 120-day period is not fatal
to the filing of a judicial claim as long as both the administrative and the judicial claims
are filed within the two-year prescriptive period
[52]
has no legal basis.

There is nothing in Section 112 of the NIRC to support respondents
view. Subsection (A) of the said provision states that any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales. The
phrase within two (2) years x x x apply for the issuance of a tax credit certificate or
refund refers to applications for refund/credit filed with the CIR and not to appeals made
to the CTA. This is apparent in the first paragraph of subsection (D) of the same
provision, which states that the CIR has 120 days from the submission of complete
documents in support of the application filed in accordance with Subsections (A) and
(B) within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory
Section 112(D) of the NIRC, which already provides for a specific period within which a
taxpayer should appeal the decision or inaction of the CIR. The second paragraph of
Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the
CIR before the lapse of the 120-day period; and (2) when no decision is made after the
120-day period. In both instances, the taxpayer has 30 days within which to file an
appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal
with the CTA.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co.,
Inc.
[53]
relied upon by respondent, we find the same inapplicable as the tax provision
involved in that case is Section 306, now Section 229 of the NIRC. And as already
discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant
case.

In fine, the premature filing of respondents claim for refund/credit of input VAT
before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the
CTA.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008
Decision and the October 6, 2008 Resolution of the Court of Tax Appeals are
hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is
DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 187485 October 8, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SAN ROQUE POWER CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
R E S O L U T I O N
CARPIO, J .:
This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for
Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the
Comment to the Motion for Reconsideration filed by the Commissioner of Internal Revenue (CIR) in
G.R. No. 187485, the Motion for Reconsideration filed by the CIR in G.R.No. 196113, and the
Comment to the Motion for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R.
No. 196113.
San Roque prays that the rule established in our 12 February 2013 Decision be given only a
prospective effect, arguing that "the manner by which the Bureau of Internal Revenue (BIR) and the
Court of Tax Appeals(CTA) actually treated the 120 + 30 day periods constitutes an operative fact
the effects and consequences of which cannot be erased or undone."
1

The CIR, on the other hand, asserts that Taganito Mining Corporation's (Taganito) judicial claim for
tax credit or refund was prematurely filed before the CTA and should be disallowed because BIR
Ruling No. DA-489-03 was issued by a Deputy Commissioner, not by the Commissioner of Internal
Revenue.
We deny both motions.
The Doctrine of Operative Fact
The general rule is that a void law or administrative act cannot be the source of legal rights or duties.
Article 7 of the Civil Code enunciates this general rule, as well as its exception: "Laws are repealed
only by subsequent ones, and their violation or non-observance shall not be excused by disuse, or
custom or practice to the contrary. When the courts declared a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern. Administrative or executive acts,
orders and regulations shall be valid only when they are not contrary to the laws or the Constitution."
The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of
invalidity may not necessarily obliterate all the effects and consequences of a void act prior to such
declaration.
2
In Serrano de Agbayani v. Philippine National Bank,
3
the application of the doctrine of
operative fact was discussed as follows:
The decision now on appeal reflects the orthodox view that an unconstitutional act, for that matter an
executive order or a municipal ordinance likewise suffering from that infirmity, cannot be the source
of any legal rights or duties. Nor can it justify any official act taken under it. Its repugnancy to the
fundamental law once judicially declared results in its being to all intents and purposes a mere scrap
of paper. As the new Civil Code puts it: "When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern. Administrative or executive acts,
orders and regulations shall be valid only when they are not contrary to the laws of the Constitution."
It is understandable why it should be so, the Constitution being supreme and paramount. Any
legislative or executive act contrary to its terms cannot survive.
Such a view has support in logic and possesses the merit of simplicity. It may not however be
sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such challenged
legislative or executive act must have been in force and had to be complied with. This is so as until
after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and
respect. Parties may have acted under it and may have changed their positions. What could be more
fitting than that in a subsequent litigation regard be had to what has been done while such legislative
or executive act was in operation and presumed to be valid in all respects. It is now accepted as a
doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely
to reflect awareness that precisely because the judiciary is the governmental organ which has the
final say on whether or not a legislative or executive measure is valid, a period of time may have
elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It
would be to deprive the law of its quality of fairness and justice then, if there be no recognition of
what had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute, prior to
such a determination of unconstitutionality, is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect
of the subsequent ruling as to invalidity may have to be considered in various aspects, with respect
to particular relations, individual and corporate, and particular conduct, private and official." This
language has been quoted with approval in a resolution in Araneta v. Hill and the decision in Manila
Motor Co., Inc. v. Flores. An even more recent instance is the opinion of Justice Zaldivar speaking
for the Court in Fernandez v. Cuerva and Co. (Boldfacing and italicization supplied)
Clearly, for the operative fact doctrine to apply, there must be a "legislative or executive measure,"
meaning a law or executive issuance, that is invalidated by the court. From the passage of such law
or promulgation of such executive issuance until its invalidation by the court, the effects of the law or
executive issuance, when relied upon by the public in good faith, may have to be recognized as
valid. In the present case, however, there is no such law or executive issuance that has been
invalidated by the Court except BIR Ruling No. DA-489-03.
To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that
"the BIR and the CTA in actual practice did not observe and did not require refund seekers to comply
with the120+30 day periods."
4
This is glaring error because an administrative practice is neither a
law nor an executive issuance. Moreover, in the present case, there is even no such administrative
practice by the BIR as claimed by San Roque.
In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finances One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) asked the BIR to rule on the
propriety of the actions taken by Lazi Bay Resources Development, Inc. (LBRDI). LBRDI filed an
administrative claim for refund for alleged input VAT for the four quarters of 1998. Before the lapse
of 120 days from the filing of its administrative claim, LBRDI also filed a judicial claim with the CTA
on 28March 2000 as well as a supplemental judicial claim on 29 September 2000.In its
Memorandum dated 13 August 2002 before the BIR, the DOF-OSS pointed out that LBRDI is "not
yet on the right forum in violation of the provision of Section 112(D) of the NIRC" when it sought
judicial relief before the CTA. Section 112(D) provides for the 120+30 day periods for claiming tax
refunds.
The DOF-OSS itself alerted the BIR that LBRDI did not follow the120+30 day periods. In BIR Ruling
No. DA-489-03, Deputy Commissioner Jose Mario C. Buag ruled that "a taxpayer-claimant need
not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review." Deputy Commissioner Buag, citing the 7February 2002 decision of the Court
of Appeals (CA) in Commissioner of Internal Revenue v. Hitachi Computer Products (Asi a)
Corporation
5
(Hitachi), stated that the claim for refund with the Commissioner could be pending
simultaneously with a suit for refund filed before the CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no
administrative practice by the BIR that supported simultaneous filing of claims. Prior to BIR Ruling
No. DA-489-03, the BIR considered the 120+30 day periods mandatory and jurisdictional.
Thus, prior to BIR Ruling No. DA-489-03, the BIRs actual administrative practice was to contest
simultaneous filing of claims at the administrative and judicial levels, until the CA declared in Hitachi
that the BIRs position was wrong. The CAs Hitachi decision is the basis of BIR Ruling No. DA-489-
03 dated 10 December 2003 allowing simultaneous filing. From then on taxpayers could rely in good
faith on BIR Ruling No. DA-489-03 even though it was erroneous as this Court subsequently decided
in Aichi that the 120+30 day periods were mandatory and jurisdictional.
We reiterate our pronouncements in our Decision as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section112(C) expressly grants the Commissioner 120 days within which to
decide the taxpayers claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall
grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents." Following the verbalegis doctrine,
this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners decision within the
120-daymandatory and jurisdictional period. The CTA will have no jurisdiction because there will be
no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San
Roques case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim
with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period,
and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner x x x.
x x x x
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer.1wp hi1One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.
6

San Roques argument must, therefore, fail. The doctrine of operative fact is an argument for the
application of equity and fair play. In the present case, we applied the doctrine of operative fact when
we recognized simultaneous filing during the period between 10 December 2003, when BIR Ruling
No. DA-489-03 was issued, and 6 October 2010, when this Court promulgated Aichi declaring the
120+30 day periods mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-03.
The doctrine of operative fact is in fact incorporated in Section 246 of the Tax Code, which provides:
SEC. 246. Non-Retroactivity 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:
(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 gathered 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. (Emphasis supplied)
Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the
time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is
not given retroactive effect. This, in essence, is the doctrine of operative fact. There must, however,
be a rule or ruling issued by the Commissioner that is relied upon by the taxpayer in good faith. A
mere administrative practice, not formalized into a rule or ruling, will not suffice because such a mere
administrative practice may not be uniformly and consistently applied. An administrative practice, if
not formalized as a rule or ruling, will not be known to the general public and can be availed of only
by those within formal contacts with the government agency.
Since the law has already prescribed in Section 246 of the Tax Code how the doctrine of operative
fact should be applied, there can be no invocation of the doctrine of operative fact other than what
the law has specifically provided in Section 246. In the present case, the rule or ruling subject of the
operative fact doctrine is BIR Ruling No. DA-489-03 dated 10 December 2003. Prior to this date,
there is no such rule or ruling calling for the application of the operative fact doctrine in Section 246.
Section246, being an exemption to statutory taxation, must be applied strictly against the taxpayer
claiming such exemption.
San Roque insists that this Court should not decide the present case in violation of the rulings of the
CTA; otherwise, there will be adverse effects on the national economy. In effect, San Roques
doomsday scenario is a protest against this Courts power of appellate review. San Roque cites
cases decided by the CTA to underscore that the CTA did not treat the 120+30 day periods as
mandatory and jurisdictional. However, CTA or CA rulings are not the executive issuances covered
by Section 246 of the Tax Code, which adopts the operative fact doctrine. CTA or CA decisions are
specific rulings applicable only to the parties to the case and not to the general public. CTA or CA
decisions, unlike those of this Court, do not form part of the law of the land. Decisions of lower courts
do not have any value as precedents. Obviously, decisions of lower courts are not binding on this
Court. To hold that CTA or CA decisions, even if reversed by this Court, should still prevail is to turn
upside down our legal system and hierarchy of courts, with adverse effects far worse than the
dubious doomsday scenario San Roque has conjured.
San Roque cited cases
7
in its Supplemental Motion for Reconsideration to support its position that
retroactive application of the doctrine in the present case will violate San Roques right to equal
protection of the law. However, San Roque itself admits that the cited cases never mentioned the
issue of premature or simultaneous filing, nor of compliance with the 120+30 day period
requirement. We reiterate that "any issue, whether raised or not by the parties, but not passed upon
by the Court, does not have any value as precedent."
8
Therefore, the cases cited by San Roque to
bolster its claim against the application of the 120+30 day period requirement do not have any value
as precedents in the present case.
Authority of the Commissioner
to Delegate Power
In asking this Court to disallow Taganitos claim for tax refund or credit, the CIR repudiates the
validity of the issuance of its own BIR Ruling No. DA-489-03. "Taganito cannot rely on the
pronouncements in BIR Ruling No. DA-489-03, being a mere issuance of a Deputy Commissioner."
9

Although Section 4 of the 1997 Tax Code provides that the "power to interpret the provisions of this
Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance," Section 7 of the same Code does not prohibit the
delegation of such power. Thus, "the Commissioner may delegate the powers vested in him under
the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a
division chief or higher, subject to such limitations and restrictions as may be imposed under rules
and regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner."
WHEREFORE, we DENY with FINALITY the Motions for Reconsideration filed by San Roque Power
Corporation in G.R. No. 187485,and the Commissioner of Internal Revenue in G.R. No. 196113.
SO ORDERED.

SECOND DIVISION
[G.R. No. 144653. August 28, 2001]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, respondent.
D E C I S I O N
MENDOZA, J .:
This is a petition for review on certiorari of the decision, dated April 14, 2000, of the Court
of Appeals,
[1]
affirming the decision of the Court of Tax Appeals (which denied petitioner Bank
of the Philippine Islands claim for tax refund for 1985), and the appeals courts resolution, dated
August 21, 2000, denying reconsideration.
The facts are as follows:
Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1, 1985, the
Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its leased
properties and interest from its treasury notes for the period January 1 to June 30, 1985. As
required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent
of the rental income, in the amount of P118,609.17, while the Central Bank, from which the
treasury notes were purchased by FBTC, withheld P55,456.60 from the interest earned thereon.
Creditable withholding taxes in the total amount of P174,065.77 were remitted to respondent
Commissioner of Internal Revenue.
FBTC, however, suffered a net loss of about P64,000,000.00 during the period in
question. It also had an excess credit of P2,146,072.57 from the previous year. Thus, upon its
dissolution in 1985, FBTC had a refundable amount of P2,320,138.34, representing that years
tax credit of P174,065.77 and the previous years excess credit of P2,146,072.57.
As FBTCs successor-in-interest, petitioner BPI claimed this amount as tax refund, but
respondent Commissioner of Internal Revenue refunded only the amount of P2,146,072.57,
leaving a balance of P174,065.77. Accordingly, petitioner filed a petition for review in the Court
of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid amount.
[2]
However,
in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioners
petition for review and denied its claim for refund on the ground that the claim had already
prescribed.
[3]
In its resolution, dated August 4, 1995, the Court of Tax Appeals denied
petitioners motion for reconsideration.
[4]

Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000,
the appeals court affirmed the decision of the CTA.
[5]
The appeals court subsequently denied
petitioners motion for reconsideration.
[6]
Hence this petition.
The sole issue in this case is whether petitioners claim is barred by prescription. The
resolution of this question requires a determination of when the two-year period of prescription
under 292 of the Tax Code started to run. This provision states:
Recovery of tax erroneously or illegally 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
excessive or in any manner wrongfully collected, until a claim for refund or credit has
been 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 begun after the expiration of two 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 therefor, 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.
There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger with
petitioner BPI. The merger was approved by the Securities and Exchange Commission on July 1,
1985. Petitioner contends, however, that its claim for refund has not yet prescribed because the
two-year prescriptive period commenced to run only after it had filed FBTCs Final Adjustment
Return on April 15, 1986, pursuant to 46(a) of the National Internal Revenue Code of 1977 (the
law applicable at the time of this transaction) which provided that
Corporation returns. (a) Requirement. Every corporation, subject to the tax
herein imposed, except foreign corporations not engaged in trade or business in the
Philippines shall render, in duplicate, a true and accurate quarterly income tax return
and final or adjustment return in accordance with the provisions of Chapter X of this
Title. The return shall be filed by the president, vice-president, or other principal
officer, and shall be sworn to by such officer and by the treasurer or assistant
treasurer.
On the other hand, the Court of Tax Appeals ruled that the prescriptive period should be
counted from July 31, 1985, 30 days after the approval by the SEC of the plan of dissolution in
view of 78 of the Code, which provided that
Every corporation shall, within thirty days after the adoption by the corporation of a
resolution or plan for the dissolution of the corporation or for the liquidation of the
whole or any part of its capital stock, including corporations which have been notified
of possible involuntary dissolution by the Securities and Exchange Commission,
render a correct return to the Commissioner of Internal Revenue, verified under oath,
setting forth the terms of such resolution or plan and such other information as the
Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior
to the issuance of the Certificate of Dissolution by the Securities and Exchange
Commission shall secure a certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the Securities and Exchange
Commission.
Failure to render the return and secure the certificate of tax clearance as above-
mentioned shall subject the officer(s) of the corporation required by law to file the
return under Section 46(a) of this Code, to a fine of not less than Five Thousand Pesos
or imprisonment of not less than two years and shall make them liable for all
outstanding or unpaid tax liabilities of the dissolving corporation.
Its ruling was sustained by the Court of Appeals.
After due consideration of the parties arguments, we are of the opinion that, in case of the
dissolution of a corporation, the period of prescription should be reckoned from the date of filing
of the return required by 78 of the Tax Code. Accordingly, we hold that petitioners claim for
refund is barred by prescription.
First. Generally speaking, it is the Final Adjustment Return, in which amounts of the
gross receipts and deductions have been audited and adjusted, which is reflective of the results of
the operations of a business enterprise. It is only when the return, covering the whole year, is
filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be
claimed based on the adjusted and audited figures.
[7]
Hence, this Court has ruled that, at the
earliest, the two-year prescriptive period for claiming a refund commences to run on the date of
filing of the adjusted final tax return.
[8]

In the case at bar, however, the Court of Tax Appeals, applying 78 of the Tax Code, held:
Before this Court can rule on the issue of prescription, it is noteworthy to point out
that based on the financial statements of FBTC and the independent auditors opinion
(Exhs. A-7 to A-17), FBTC operates on a calendar year basis. Its twelve (12)
months accounting period was shortened at the time it was merged with BPI. Thereby,
losing its corporate existence on July 1, 1985 when the Articles of Merger was
approved by the Security and Exchange Commission. Thus, respondent[s] stand that
FBTC operates on a fiscal year basis, based on its income tax return, holds no
ground. This Court believes that FBTC is operating on a calendar year period based
on the audited financial statements and the opinion thereof. The fiscal period ending
June 30, 1985 on the upper left corner of the income tax return can be concluded as an
error on the part of FBTC. It should have been for the six month period ending June
30, 1985. It should also be emphasized that where one corporation succeeds another
both are separate entities and the income earned by the predecessor corporation before
organization of its successor is not income to the successor (Mertens, Law of Federal
Income Taxation, Vol. 7 S 38.36).
Ruling now on the issue of prescription, this Court finds that the petition for review is
filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should
have filed its income tax return within thirty days after the cessation of its business or
thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of
the Tax Code and under Sec. 244 of Revenue Regulation No. 2. . .
[9]

As the FBTC did not file its quarterly income tax returns for the year 1985, there was no
need for it to file a Final adjustment Return because there was nothing for it to adjust or to
audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months,
from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was
contemplated under 78 of the Tax Code. It thus became necessary for FBTC to file its income
tax return within 30 days after approval by the SEC of its plan or resolution of dissolution.
Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months
after it ceased its operations, before filing its income tax return.
Thus, 46(a) of the Tax Code applies only to instances in which the corporation remains
subsisting and its business operations are continuing. In instances in which the corporation is
contemplating dissolution, 78 of the Tax Code applies. It is a rule of statutory construction that
[w]here there is in the same statute a particular enactment and also a general one which in its
most comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only such cases
within its general language as are not within the provisions of the particular enactment.
[10]

Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals do, that
78 applies in case a corporation contemplates dissolution would lead to absurd results. It
contends that it is not feasible for the certified public accountants to complete their report and
audited financial statements, which are required to be submitted together with the plan of
dissolution to the SEC, within the period contemplated by 78. It maintains that, in turn, the
SEC would not have sufficient time to process the papers considering that 78 also requires the
submission of a tax clearance certificate before the SEC, can approve the plan of dissolution.
As the Court of Tax Appeals observed, however, petitioner could have asked for an
extension of time to file its income tax return under 47 of the NIRC which provides:
Extension of time to file returns. The Commissioner of Internal Revenue may, in
meritorious cases, grant a reasonable extension of time for filing returns of income (or
final and adjustment returns in the case of corporations), subject to the provisions of
section fifty-one of this Code.
Petitioner further argues that the filing of a Final Adjustment Return would fall due on July
30, 1985, even before the due date for filing the quarterly return. This argument begs the
question. It assumes that a quarterly return was required when the fact is that, because its taxable
year was shortened, the FBTC did not have to file a quarterly return. In fact, petitioner presented
no evidence that the FBTC ever filed such quarterly return in 1985.
Finally, petitioner cites a hypothetical situation wherein the directors of a corporation would
convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but
would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the
same on October 1, 2000. Following 78 of the Tax Code, the corporation would be required to
submit its complete return on October 31, 2000, although its actual dissolution would take place
only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to 47 of the Tax
Code. The corporation can ask for an extension of time to file a complete income tax return until
December 31, 2000, when it would cease operations. This would obviate any difficulty which
may arise out of the discrepancies not covered by 78 of the Tax Code.
In any case, as held in Commissioner of Internal Revenue v. Santos,
[11]
Debatable questions
are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.
Second. Petitioner contends that what 78 required was an information return, not an
income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting
Commissioner of Internal Revenue Ruben B. Ancheta, referring to an information return in
interpreting Executive Order No. 1026, which amended 78.
[12]

The contention has no merit. The circular in question must be considered merely as an
administrative interpretation of the law which in no case is binding on the courts.
[13]
The opinion
in question cannot be given any effect inasmuch as it is contrary to 244 of Revenue Regulation
No. 2, as amended, which was issued by the Minister of Finance pursuant to the authority
granted to him by 78 of the Tax Code. This provision states:
Sec. 244. Return of corporations contemplating dissolution or retiring from
business. All corporations, partnership, joint accounts and associations,
contemplating dissolution or retiring from business without formal dissolution shall,
within 30 days after the approval of such resolution authorizing their dissolution, and
within the same period after their retirement from business, file their income tax
returns covering the profit earned or business done by them from the beginning of the
year up to the date of such dissolution or retirement and pay the corresponding income
tax due thereon upon demand by the Commissioner of Internal Revenue. . .
This regulation prevails over the memorandum circular of the Acting Commissioner of Internal
Revenue, which petitioner invokes.
Thus, as required by 244 of Revenue Regulation No. 2, any corporation contemplating
dissolution must submit tax return on the income earned by it from the beginning of the year up
to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the
Commissioner of Internal Revenue. Nothing in 78 of the Tax Code limited the return to be
filed by the corporation concerned to a mere information return.
It is noteworthy that 78 of the Tax Code was substantially reproduced first in 45(c), of the
amendments to the same Tax Code, and later in 52(C) of the National Internal Revenue Code of
1997. Through all the re-enactments of the law, there has been no change in the authority
granted to the Secretary (formerly Minister) of Finance to require corporations to submit such
other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in existence
prior to these amendments. Had Congress intended only information returns, it would have
expressly provided so.
Third. Considering that 78 of the Tax Code, in relation to 244 of Revenue Regulation No.
2, applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e.,
30 days after the approval by the SEC of its plan for dissolution. In accordance with 292 of the
Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes
withheld on the earned income. Consequently, the two-year period of prescription ended on July
30, 1987. As petitioners claim for tax refund before the Court of Tax Appeals was filed only on
December 29, 1987, it is clear that the claim is barred by prescription.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

FIRST DIVISION

SYSTRA PHILIPPINES, INC., G.R. No. 176290
Petitioner,
Present:

PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

COMMISSIONER OF
INTERNAL REVENUE,
Respondent. Promulgated:

September 21, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

R E S O L U T I O N
CORONA, J .:


This resolves petitioner Systra Philippines, Inc.s (1) motion for leave to file
a second motion for reconsideration and (2) second motion for reconsideration of
the Courts March 28, 2007 resolution.

On March 9, 2007, petitioner filed a petition for review on certiorari
assailing the January 18, 2007 decision
[1]
of the Court of Tax Appeals (CTA) in
CTA EB Case No. 135. The Court denied the petition in its March 28, 2007
resolution on the following grounds:
(a) failure of petitioners counsel to submit his IBP
[2]
O.R.
[3]
number
showing proof of payment of IBP dues for the current year (the IBP
O.R. No. was for 2006, i.e., it was dated November 20, 2006);
(b) submitting a verification of the petition, certification of non-forum
shopping and affidavit of service that failed to comply with the 2004
Rules on Notarial Practice with respect to competent evidence of
affiants identities and
(c) failure to give an explanation why service was not done personally as
required by Section 11, Rule 13 in relation to Section 3, Rule 45 and
Section 5(d), Rule 56 of the Rules of Court.

On July 5, 2007, petitioners motion for reconsideration was denied with
finality as there was no compelling reason to warrant a modification of the March
28, 2007 resolution. Thus, the present motions.

Petitioner claims that this Court has granted second and even third motions
for reconsideration for extraordinarily persuasive reasons. It avers that this Court
should look into the importance of the issues involved in deciding whether leave to
file a second motion for reconsideration should be granted or not. It prays that its
petition should not be denied on the basis of procedural lapses alone and points out
that the substantial amount involved in the petition justifies relaxation of technical
rules. It asserts that there is an important legal issue involved in this case: whether
the exercise of the option to carry over excess income tax credits under Section 76
of the National Internal Revenue Code of 1997, as amended (Tax Code) bars a
taxpayer from claiming the excess tax credits for refund even if the amount
remains unutilized in the succeeding taxable year. Finally, it contends that the
assailed CTA decision was contradictory to the decisions of the Court of Appeals
(CA)
[4]
in Bank of the Philippine Islands v. Commissioner of Internal
Revenue
[5]
and Raytheon Ebasco Overseas Ltd. Philippine Branch v.
Commissioner of Internal Revenue
[6]
which involved the same issue as that in this
case. According to petitioner, in view of those CA decisions, it is unjust to deprive
it of the right to claim a refund.

We deny petitioners motions.



A SECOND MOTION FOR
RECONSIDERATION IS
PROHIBITED


The denial of a motion for reconsideration is final. It means that the Court
will no longer entertain and consider further arguments or submissions from the
parties respecting the correctness of its decision or resolution.
[7]
It signifies that, in
the Courts considered view, nothing more is left to be discussed, clarified or done
in the case since all issues raised have been passed upon and definitely resolved.
Any other issue which could and should have been raised is deemed waived and is
no longer available as ground for a second motion. A denial with finality
underscores that the case is considered closed.
[8]
Thus, as a rule, a second motion
for reconsideration is a prohibited pleading.
[9]
The Court stressed in Ortigas and
Company Limited Partnership v. Velasco:
[10]


A second motion for reconsideration is forbidden except for
extraordinarily persuasive reasons, and only upon express leave first
obtained.
[11]
(emphasis supplied)

It is true that procedural rules may be relaxed in the interest of substantial
justice. They are not, however, to be disdained as mere technicalities that may be
ignored at will to suit the convenience of a party.
[12]
They are intended to ensure
the orderly administration of justice and the protection of substantive rights in
judicial proceedings.
[13]
Thus, procedural rules are not to be belittled or dismissed
simply because their non-observance may have resulted in prejudicing a partys
substantive rights.
[14]
Like all rules, they are required to be followed except only
when, for the most persuasive of reasons, they may be relaxed to relieve a litigant
of negative consequences commensurate with the degree of thoughtlessness in not
complying with the prescribed procedure.
[15]


In this case, contrary to petitioners claim, there was no compelling reason to
excuse non-compliance with the rules. Nor were the grounds raised by it
extraordinarily persuasive.
[16]


Moreover, petitioner can neither properly nor successfully rely on the
decisions of the CA in the Bank of the Philippine Islands and Raytheon Ebasco
Overseas Ltd. Philippine Branch cases. First, the CA and the CTA are now of the
same level pursuant to RA 9282.
[17]
Decisions of the CA are thus no longer
superior to nor reversive of those of the CTA. Second, a decision of the CA in an
action in personam binds only the parties in that case. A third party in an action in
personam cannot claim any right arising from a decision therein. Finally and most
importantly, while a ruling of the CA on any question of law is not conclusive on
this Court, all rulings of this Court on questions of law are conclusive and binding
on all courts including the CA. All courts must take their bearings from the
decisions of this Court.
[18]




ON THE SUBSTANTIVE ASPECT,
THE PETITION HAS NO MERI
T


The antecedents of this case are as follows:

On April 16, 2001, petitioner filed with the [Bureau of Internal
Revenue (BIR)] its Annual Income Tax Return (ITR) for the taxable
year ended December 31, 2000 declaring revenues in the amount of
[P18,252,719] the bulk of which consists of income from management
consultancy services rendered to the Philippine Branch of Group Systra
SA, France. Subjecting said income from consultancy services of
petitioner to 5% creditable withholding tax, a total amount of
[P4,703,019] was declared by petitioner as creditable taxes withheld for
the taxable year 2000.

For the same period, petitioner reflected a total gross income of
[P3,752,129], a net loss of [P17,930] and a minimum corporate income
tax (MCIT) of [P75,043]. Said MCIT of P75,043 was offset against its
total tax credits for the year 2000 amounting to [P4,703,019] thereby
leaving a total unutilized tax credits of [P4,627,976], computed as
follows:

Gross Income P3,752,129.00
Less: Deductions P3,770,059.00

Net
loss P 17,930.00

Minimum Corporate Income Tax Due P75,043.00

Less: Tax Credits
Prior years excess credits P -
Creditable taxes withheld P4,703,019.00 P4,703,019.00
during the year
Tax Overpayment P4,627,976.00

Petitioner opted to carry over the said excess tax credit to the
succeeding taxable year 2001.

For the taxable year ended December 31, 2001, petitioner filed
with the BIR its Annual ITR on April 12, 2002, reflecting a total gross
income of [P4,771,419] and a total creditable taxes withheld of
[P1,111,587] for consultancy services. It likewise declared a taxable
income of [P1,936,851] with corresponding normal income tax due in
the amount of [P619,792]. After deducting the unexpired excess of the
previous year MCIT [1999 and 2000] in the amount of [P222,475] from
the normal income tax due for the period, petitioners net tax due of
[P397,317] was applied against the accumulated tax credits of
[P5,739,563]. Said reported tax credits comprised of prior years excess
tax credits in the amount of [P4,627,976] and creditable taxes withheld
during the year 2001 in the sum of [P1,111,587]. These excess tax
credits were utilized to pay off the income tax still due of [P397,317]
resulting to an overpayment of [P5,342,246], computed as follows:

Gross Income P4,771,419.00
Less: Deductions P2,834,568.00

Taxable Income P1,936,851.00

Income Tax Due at the Normal Rate of 32% P 619,792.00
Less: Unexpired Excess of Prior Years MCIT
Over Normal Income Tax
Rate P 222,475.00
P 397,317.00
Income Tax Still Due
Less: Tax Credits
Prior years excess credits P4,627,976.00
Creditable taxes withheld
during the year 1,111,587.00 P5,739,563.00

Tax Overpayment P5,342,246.00

Petitioner indicated in the 2001 ITR the option To be issued a
Tax Credit Certificate relative to its tax overpayments.

On August 9, 2002, petitioner instituted a claim for refund or
issuance of a tax credit certificate with the BIR of its unutilized
creditable withholding taxes in the amount of P5,342,246.00 as of
December 31, 2001.

Due to the inaction of the BIR on petitioners claim for refund and
to preserve its right to claim for the refund to its unutilized CWT for
CYs 2000 and 2001 by judicial action, petitioner filed a petition for
review with the Court in Division on April 14, 2003.
[19]



In its August 3, 2005 decision, the First Division of the CTA partially
granted the petition and ordered the issuance of a tax credit certificate to petitioner
in the amount ofP1,111,587 representing the excess or unutilized creditable
withholding taxes for taxable year 2001. The CTA, however, denied petitioners
claim for refund of the excess tax credits for the year 2000 in the amount
of P4,627,976. It ruled that petitioner was precluded from claiming a refund
thereof or requesting a tax credit certificate therefor. Once it was made for a
particular taxable period, the option to carry over became irrevocable.

Petitioner moved for reconsideration but it was denied. Petitioner elevated
the case to the CTA en banc which rendered the assailed decision. Thus, this
petition.

As already stated, petitioner formulated the issue in this petition as follows:
whether the exercise of the option to carry-over excess income tax credits under
Section 76 of the Tax Code bars a taxpayer from claiming the excess tax credits for
refund even if the amount remains unutilized in the succeeding taxable year.
Petitioner contends that it does not.

We disagree.

Section 76 of the Tax Code provides:

SEC. 76. Final Adjustment Return. Every corporation liable to
tax under Section 27 shall file a final adjustment return covering the total
taxable income for the preceding calendar or fiscal year. If the sum of
the quarterly tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable net income of that year the
corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the
case may be.

In case the corporation is entitled to a tax credit or refund of the
excess estimated quarterly income taxes paid, the excess amount shown
on its final adjustment return may be carried over and credited against
the estimated quarterly income tax liabilities for the taxable quarters of
the succeeding taxable years. Once the option to carry-over and apply
the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made,
such option shall be considered irrevocable for that taxable period
and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor. (emphasis supplied)


A corporation entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid has two options: (1) to carry over the excess credit or
(2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If
the option to carry over the excess credit is exercised, the same shall be irrevocable
for that taxable period.

In exercising its option, the corporation must signify in its annual corporate
adjustment return (by marking the option box provided in the BIR form) its
intention either to carry over the excess credit or to claim a refund. To facilitate tax
collection, these remedies are in the alternative and the choice of one precludes the
other.
[20]

This is known as the irrevocability rule and is embodied in the last sentence
of Section 76 of the Tax Code. The phrase such option shall be considered
irrevocable for that taxable period means that the option to carry over the excess
tax credits of a particular taxable year can no longer be revoked.

The rule prevents a taxpayer from claiming twice the excess quarterly taxes
paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding
years for which no tax credit certificate has been issued and (2) as a tax credit
either for which a tax credit certificate will be issued or which will be claimed for
cash refund.
[21]


In this case, it was in the year 2000 that petitioner derived excess tax credits
and exercised the irrevocable option to carry them over as tax credits for the next
taxable year. Under Section 76 of the Tax Code, a claim for refund of such excess
credits can no longer be made. The excess credits will only be applied against
income tax due for the taxable quarters of the succeeding taxable years.

The legislative intent to make the option irrevocable becomes clearer when
Section 76 is viewed in comparison to Section 69 of the (old) 1977 Tax Code:

SECTION 69. Final Adjustment Return. Every corporation
liable to tax under Section 24 shall file a final adjustment return covering
the total net income for the preceding calendar or fiscal year. If the sum
of the quarterly tax payments made during the said taxable year is not
equal to the total tax due on the entire taxable net income of that year the
corporation shall either:

(A) Pay the excess tax still due; or

(B) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the
excess estimated quarterly income taxes paid, the refundable amount
shown on its final adjustment return may be credited against the
estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year.


Under Section 69 of the 1977 Tax Code, there was no irrevocability rule.
Instead of claiming a refund, the excess tax credits could be credited against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable year, that is, the immediately following year only. In contrast, Section 76
of the present Tax Code formulates an irrevocability rule which stresses and
fortifies the nature of the remedies or options as alternative, not cumulative. It also
provides that the excess tax credits may be carried over and credited against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable years until fully utilized.

Furthermore, this case is closely similar to Philam Asset Management, Inc.
v. Commissioner of Internal Revenue.
[22]
In that case, Philam Asset Management,
Inc. had an unapplied creditable withholding tax in the amount of P459,756.07 for
the year 1998. It carried over the said excess tax to the following taxable year,
1999. In the next succeeding year, it had a tax due in the amount of P80,042 and a
creditable withholding tax in the amount of P915,995. As such, the amount due for
the year 1999 (P80,042) was credited to itsP915,995 creditable withholding tax for
that year. Thus, its 1998 creditable withholding tax in the amount of P459,756.07
remained unutilized. Thereafter, it filed a claim for refund with respect to the
unapplied creditable withholding tax of P459,756.07 for the year 1998. The Court
denied the claim and ruled:

Section 76 [is] clear and unequivocal. Once the carry-over option is
taken, actually or constructively, it becomes irrevocable. Petitioner
has chosen that option for its 1998 creditable withholding taxes. Thus, it
is no longer entitled to a tax refund of P459,756.07, which corresponds
to its 1998 excess tax credit. Nonetheless, the amount will not be
forfeited in the governments favor, because it may be claimed by
petitioner as tax credits in the succeeding taxable years. (emphasis
supplied)

Since petitioner elected to carry over its excess credits for the year 2000 in
the amount of P4,627,976 as tax credits for the following year, it could no longer
claim a refund. Again, at the risk of being repetitive, once the carry over option
was made, actually or constructively, it became forever irrevocable regardless of
whether the excess tax credits were actually or fully utilized. Nevertheless, as held
in Philam Asset Management, Inc., the amount will not be forfeited in favor of the
government but will remain in the taxpayers account. Petitioner may claim and
carry it over in the succeeding taxable years, creditable against future income tax
liabilities until fully utilized.
[23]


WHEREFORE, petitioners motion for leave to file a second motion for
reconsideration and the second motion for reconsideration are hereby DENIED.

Costs against petitioner.


No further pleadings shall be entertained. Let entry of judgment be made in
due course.

SO ORDERED.


FIRST DIVISION

COMMISSIONER OF INTERNAL G.R. No. 166387
REVENUE,
Petitioner,
Present:

PUNO, C.J., Chairperson,
CARPIO,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.

ENRON SUBIC POWER
CORPORATION,
Respondent. Promulgated:

January 19, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

R E S O L U T I O N
CORONA, J .:


In this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Commissioner of Internal Revenue (CIR) assails the November 24, 2004
decision
[1]
of the Court of Appeals (CA) annulling the formal assessment notice
issued by the CIR against respondent Enron Subic Power Corporation (Enron) for
failure to state the legal and factual bases for such assessment.
Enron, a domestic corporation registered with the Subic Bay Metropolitan
Authority as a freeport enterprise,
[2]
filed its annual income tax return for the year
1996 on April 12, 1997. It indicated a net loss of P7,684,948. Subsequently, the
Bureau of Internal Revenue, through a preliminary five-day letter,
[3]
informed it of
a proposed assessment of an alleged P2,880,817.25 deficiency income
tax.
[4]
Enron disputed the proposed deficiency assessment in its first protest
letter.
[5]


On May 26, 1999, Enron received from the CIR a formal assessment
notice
[6]
requiring it to pay the alleged deficiency income tax of P2,880,817.25 for
the taxable year 1996. Enron protested this deficiency tax assessment.
[7]


Due to the non-resolution of its protest within the 180-day period, Enron
filed a petition for review in the Court of Tax Appeals (CTA). It argued that the
deficiency tax assessment disregarded the provisions of Section 228 of the
National Internal Revenue Code (NIRC), as amended,
[8]
and Section 3.1.4 of
Revenue Regulations (RR) No. 12-99
[9]
by not providing the legal and factual
bases of the assessment. Enron likewise questioned the substantive validity of the
assessment.
[10]


In a decision dated September 12, 2001, the CTA granted Enrons petition
and ordered the cancellation of its deficiency tax assessment for the year 1996. The
CTA reasoned that the assessment notice sent to Enron failed to comply with the
requirements of a valid written notice under Section 228 of the NIRC and RR No.
12-99. The CIRs motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.

The CIR appealed the CTA decision to the CA but the CA affirmed it. The
CA held that the audit working papers did not substantially comply with Section
228 of the NIRC and RR No. 12-99 because they failed to show the applicability of
the cited law to the facts of the assessment. The CIR filed a motion for
reconsideration but this was deemed abandoned when he filed a motion for
extension to file a petition for review in this Court.

The CIR now argues that respondent was informed of the legal and factual
bases of the deficiency assessment against it.

We adopt in toto the findings of fact of the CTA, as affirmed by the CA.
In Compagnie Financiere Sucres et Denrees v. CIR,
[11]
we held:

We reiterate the well-established doctrine that as a matter of practice and
principle, [we] will not set aside the conclusion reached by an agency,
like the CTA, especially if affirmed by the [CA]. By the very nature of
its function, it has dedicated itself to the study and consideration of tax
problems and has necessarily developed an expertise on the subject,
unless there has been an abuse or improvident exercise of authority on its
part, which is not present here.


The CIR errs in insisting that the notice of assessment in question complied
with the requirements of the NIRC and RR No. 12-99.

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to
respond to a Pre-Assessment Notice (PAN) within the prescribed period
of time, or whose reply to the PAN was found to be without merit. The
Notice of Assessment shall inform the [t]axpayer of this fact, and that
the report of investigation submitted by the Revenue Officer conducting
the audit shall be given due course.

The formal letter of demand calling for payment of the taxpayers
deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based,
otherwise the formal letter of demand and the notice of assessment
shall be void. (emphasis supplied)
[12]



Section 228 of the NIRC provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void. To implement the provisions of Section 228 of the NIRC, RR
No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads:

3.1.4. Formal Letter of Demand and Assessment Notice. The
formal letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of
demand calling for payment of the taxpayers deficiency tax or taxes
shall state the facts, the law, rules and regulations, or jurisprudence
on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent to
the taxpayer only by registered mail or by personal delivery. xxx
(emphasis supplied)


It is clear from the foregoing that a taxpayer must be informed in writing of
the legal and factual bases of the tax assessment made against him. The use of the
word shall in these legal provisions indicates the mandatory nature of the
requirements laid down therein. We note the CTAs findings:

In [this] case, [the CIR] merely issued a formal assessment and
indicated therein the supposed tax, surcharge, interest and compromise
penalty due thereon. The Revenue Officers of the [the CIR] in the
issuance of the Final Assessment Notice did not provide Enron with the
written bases of the law and facts on which the subject assessment is
based. [The CIR] did not bother to explain how it arrived at such an
assessment. Moreso, he failed to mention the specific provision of the
Tax Code or rules and regulations which were not complied with by
Enron.
[13]


Both the CTA and the CA concluded that the deficiency tax assessment
merely itemized the deductions disallowed and included these in the gross income.
It also imposed the preferential rate of 5% on some items categorized by Enron as
costs. The legal and factual bases were, however, not indicated.

The CIR insists that an examination of the facts shows that Enron was
properly apprised of its tax deficiency. During the pre-assessment stage, the CIR
advised Enrons representative of the tax deficiency, informed it of the proposed
tax deficiency assessment through a preliminary five-day letter and furnished
Enron a copy of the audit working paper
[14]
allegedly showing in detail the legal
and factual bases of the assessment. The CIR argues that these steps sufficed to
inform Enron of the laws and facts on which the deficiency tax assessment was
based.

We disagree. The advice of tax deficiency, given by the CIR to an employee
of Enron, as well as the preliminary five-day letter, were not valid substitutes for
the mandatory notice in writing of the legal and factual bases of the assessment.
These steps were mere perfunctory discharges of the CIRs duties in correctly
assessing a taxpayer.
[15]
The requirement for issuing a preliminary or final notice,
as the case may be, informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of what such notice must
contain. Just because the CIR issued an advice, a preliminary letter during the pre-
assessment stage and a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.

The law requires that the legal and factual bases of the assessment be stated
in the formal letter of demand and assessment notice. Thus, such cannot be
presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR
No. 12-99 would be rendered nugatory. The alleged factual bases in the advice,
preliminary letter and audit working papers did not suffice. There was no going
around the mandate of the law that the legal and factual bases of the assessment be
stated in writing in the formal letter of demand accompanying the assessment
notice.

We note that the old law merely required that the taxpayer be notified of the
assessment made by the CIR. This was changed in 1998 and the taxpayer must
now be informed not only of the law but also of the facts on which the assessment
is made.
[16]
Such amendment is in keeping with the constitutional principle that no
person shall be deprived of property without due process.
[17]
In view of the absence
of a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. We reiterate our ruling
in Reyes v. Almanzor, et al.:
[18]


Verily, taxes are the lifeblood of the Government and so
should be collected without unnecessary hindrance. However,
such collection should be made in accordance with law as any
arbitrariness will negate the very reason for the Government itself.
WHEREFORE, the petition is hereby DENIED. The November 24, 2004
decision of the Court of Appeals is AFFIRMED.

No costs.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-66160 May 21, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents.
Artemio M. Lobrin for private respondent.

PARAS, J .:
This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax
Appeals in CTA Case No. 2989 reversing the Commissioner of Internal Revenue.
In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal
Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping
Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and
1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit
"B"), received by petitioner on January 13, 1975, private respondent protested the assessment.
Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which
was served on private respondent's counsel, Clemente Celso, on November 25, 1976.
In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976
(Exhibit "D-1") private respondent reiterated its request for reinvestigation of the assessment and for
the reconsideration of the summary collection thru the Warrant of Distraint and Levy.
Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant
of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of
Manila and docketed as Civil Case No. 120459 against private respondent. Summons (Exhibit "E") in
the said collection case was issued to private respondent on December 28, 1978.
On January 10, 1979, private respondent filed with respondent court its Petition for Review of the
petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed
therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be
rendered holding that it is not liable for the payment of the income tax herein involved, or which may
be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March
29, 1979 (Rollo, pp. 50-53).
Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent

WHEREFORE, the decision of the Commissioner of Internal Revenue appealed
from, assessing against and demanding from petitioner the payment of deficiency
income tax, inclusive of 50% surcharge, interest and compromise penalties, in the
amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively,
is reversed.
Hence, the instant petition.
The Second Division of this Court, after the filing of the required pleadings, in a resolution dated
January 28, 1985, resolved to give due course to the petition, and directed petitioner therein, to file
his brief (Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151).
Respondents, on the other hand, filed their brief on June 6, 1985 (Rollo, p. 156).
The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax
Appeals has jurisdiction over this case and (b) on the merits, whether or not Union Shipping
Corporation acting as a mere "husbanding agent" of Yee Fong Hong Ltd. is liable for payment of
taxes on the gross receipts or earnings of the latter.
The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the
finality of an assessment because it is the most drastic action of all media of enforcing the collection
of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment.
Among others, petitioner contends that the warrant of distraint and levy was issued after respondent
corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's
final decision in the disputed assessments (Brief for petitioner, pp. 9 and 12).
Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run
from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent
corporation sought redress from the Tax Court, petitioner's decision has long become final and
executory.
On this issue, this Court had already laid down the dictum that the Commissioner should always
indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of
the disputed assessment.
Specifically, this Court ruled:
. . . we deem it appropriate to state that the Commissioner of Internal Revenue
should always indicate to the taxpayer in clear and unequivocal language whenever
his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by sections 7 and 11 of
Republic Act 1125, as amended. On the basis of this statement indubitably showing
that the Commissioner's communicated action is his final decision on the contested
assessment, the aggrieved taxpayer would then be able to take recourse to the tax
court at the opportune time. Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues. This rule of conduct
would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment and, consequently, the collection
of the amount demanded as taxes by repeated requests for recomputation and
reconsideration. On the part of the Commissioner, this would encourage his office to
conduct a careful and thorough study of every questioned assessment and render a
correct and definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and speculate as
to which action constitutes the decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing need for fair play, regularity, and
orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57 SCRA
523, 528, [1974]).
There appears to be no dispute that petitioner did not rule on private respondent's motion for
reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to
which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he
categorically stated that he denies private respondent's motion for reconsideration and that his
action constitutes his final determination on the disputed assessment, private respondent without
needless difficulty would have been able to determine when his right to appeal accrues and the
resulting confusion would have been avoided.
Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the
issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that
contained in the letter of its Commissioner, that such constitutes the final decision on the matter
which may be appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising
Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise
stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity
and orderliness in administrative action.
Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his
final action on the disputed assessment, legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the period to appeal commenced to run.
The request for reinvestigation and reconsideration was in effect considered denied by petitioner
when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979
when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only
thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.
On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent
corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:
Coming to the second issue, petitioner contended and was substantiated by
satisfactory uncontradicted testimonies of Clemente Celso, Certified Public
Accountant, and Rodolfo C. Cabalquinto, President and General Manager, of
petitioner that it is actually and legally the husbanding agent of the vessel of Yee
Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for
and in representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated
or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n.,
July 16, 1980); (2) it never solicited or procured cargo or freight in the Philippines or
elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3)
it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd.
(pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or
control, actual or constructive, over the funds representing payment by Philippine
shippers for cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner
never remitted to Yee Fong Hong, Ltd. any sum of money representing freight
incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the freight
payments made for cargo loaded in the Philippines for foreign destination were
actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of
the goods in the foreign ports. (Rollo, pp. 58-59).
On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's
counsel, opined that respondent corporation being merely a husbanding agent is not liable for the
payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines
(Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66).
Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue
Code since it is not in possession, custody or control of the funds received by and remitted to Yee
Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an
individual or corporation like the petitioner in this case, is not in the actual possession, custody, or
control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called
withholding tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67).
Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court
(Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal
Revenue, et al. (136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of
the decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The
findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by
substantial evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company,
135 SCRA 8 [1985]).
A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax
Appeals.
PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of
the Court of Tax Appeals is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-25289 June 28, 1974
SURIGAO ELECTRIC CO., INC., petitioner,
vs.
THE HONORABLE COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
David G. Nitafan for petitioner.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorney Franciso J. Malate, Jr. for respondents.

CASTRO, J .:p
The Court denies the present petition for review of the decision of the Court of Appeals dated
October 1, 1965 in its CTA Case No. 1438, which dismissed the appeal filed by the petitioner
Surigao Electric Company, Inc. with the tax court on August 1, 1963 on the ground that it was time-
barred.
In November 1961 the petitioner Surigao Electric Co., Inc., grantee of a legislative electric franchise,
received a warrant of distraint and levy to enforce the collection from "Mainit Electric" of a deficiency
franchise tax plus surcharge in the total amount of P718.59. In a letter to the Commissioner of
Internal Revenue, the petitioner contested this warrant, stating that it did not have a franchise in
Mainit, Surigao.
Thereafter the Commissioner, by letter dated April 2, 1961, advised the petitioner to take up the
matter with the General Auditing Office, enclosing a copy of the 4th Indorsement of the Auditor
General dated November 23, 1960. This indorsement indicated that the petitioner's liability for
deficiency franchise tax for the period from September 1947 to June 1959 was P21,156.06,
excluding surcharge. Subsequently, in a letter to the Auditor General dated August 2, 1962, the
petitioner asked for reconsideration of the assessment, admitting liability only for the 2% franchise
tax in accordance with its legislative franchise and not at the higher rate of 5% imposed by section
259 of the National Internal Revenue Code, as amended, which latter rate the Auditor General used
as basis in computing the petitioner's deficiency franchise tax.
An exchange of correspondence between the petitioner, on the one hand, and the Commissioner
and the Auditor General, on the other, ensued, all on the matter of the petitioner's liability for
deficiency franchise tax.
The controversy culminated in a revised assessment dated April 29, 1963 (received by the petitioner
on May 8, 1963) in the amount of P11,533.53, representing the petitioner's deficiency franchise-tax
and surcharges thereon for the period from April 1, 1956 to June 30, 1959. The petitioner then
requested a recomputation of the revised assessment in a letter to the Commissioner dated June 6,
1963 (sent by registered mail on June 7, 1963). The Commissioner, however, in a letter dated June
28, 1963 (received by the petitioner on July 16, 1963), denied the request for recomputation.
On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax court dismissed the
appeal on October 1, 1965 on the ground that the appeal was filed beyond the thirty-day period of
appeal provided by section 11 of Republic Act 1125.
Hence, the present recourse.
The case at bar raises only one issue: whether or not the petitioner's appeal to the Court of Tax
Appeals was time-barred. The parties disagree on which letter of the Commissioner embodies the
decision or ruling appealable to the tax court.
A close reading of the numerous letters exchanged between the petitioner and the Commissioner
clearly discloses that the letter of demand issued by the Commissioner on April 29, 1963 and
received by the petitioner on May 8, 1963 constitutes the definite determination of the petitioner's
deficiency franchise tax liability or the decision on the disputed assessment and, therefore, the
decision appealable to the tax court. This letter of April 29, 1963 was in response to the
communications of the petitioner, particularly the letter of August 2, 1962 wherein it assailed the 4th
Indorsement's data and findings on its deficiency, franchise tax liability computed at 5% (on the
ground that its franchise precludes the imposition of a rate higher than the 2% fixed in its legislative
franchise), and the letter of April 24, 1963 wherein it again questioned the assessment and
requested for a recomputation (on the ground that the Government could make an assessment only
for the period from May 29, 1956 to June 30, 1959). Thus, as early as August 2, 1962, the petitioner
already disputed the assessment made by the Commissioner.
Moreover, the letter of demand dated April 29, 1963 unquestionably constitutes the final action taken
by the Commissioner on the petitioner's several requests for reconsideration and recomputation. In
this letter, the Commissioner not only in effect demanded that the petitioner pay the amount of
P11,533.53 but also gave warning that in the event it failed to pay, the said Commissioner would be
constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of
the letter, specifically, the statement regarding the resort to legal remedies, unmistakably indicates
the final nature of the determination made by the Commissioner of the petitioner's deficiency
franchise tax liability.
The foregoing-view accords with settled jurisprudence and this despite the fact that nothing in
Republic Act 1125,
1
as amended, even remotely suggests the element truly determinative of the
appealability to the Court of Appeals of a ruling of the Commissioner of Internal Revenue. Thus, this
Court has considered the following communications sent by the Commissioner to taxpayers as
embodying rulings appealable to the tax court: (a) a letter which stated the result of the investigation
requested by the taxpayer and the consequent modification of the assessment;
2
(b) letter which denied
the request of the taxpayer for the reconsideration cancellation, or withdrawal of the original
assessment;
3
(c) a letter which contained a demand on the taxpayer for the payment of the revised or
reduced assessment;
4
and (d) a letter which notified the taxpayer of a revision of previous assessments.
5

To sustain the petitioner's contention that the Commissioner's letter of June 28, 1963 denying its
request for further amendment of the revised assessment constitutes the ruling appealable to the tax
court and that the thirty-day period should, therefore, be counted from July 16, 1963, the day it
received the June 28, 1963 letter, would, in effect, leave solely to the petitioner's will the
determination of the commencement of the statutory thirty-day period, and place the petitioner
and for that matter, any taxpayer in a position, to delay at will and on convenience the finality of a
tax assessment. This absurd interpretation espoused by the petitioner would result in grave
detriment to the interests of the Government, considering that taxes constitute its life-blood and their
prompt and certain availability is an imperative need.
6

The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be
counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8,
1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter
of June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse
of thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for
reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner
sent its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced
to run again on July 16, 1963. The petitioner filed its petition for review with the tax court on August
1, 1963 after the lapse of an additional sixteen days. The petition for review having been filed
beyond the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same.
The thirty-day period prescribed by section 11 of Republic Act 1125, as amended, within which a
taxpayer adversely affected by a decision of the Commissioner of Internal Revenue should file his
appeal with the tax court, is a jurisdictional requirement,
7
and the failure of a taxpayer to lodge his
appeal within the prescribed period bars his appeal and renders the questioned decision final and
executory.
8

Prescinding from all the foregoing, we deem it appropriate to state that the Commissioner of Internal
Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On
the basis of this indicium indubitably showing that the Commissioner's communicated action is his
final decision on the contested assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be
able to determine when his right to appeal to the tax court accrues. This rule of conduct would also
obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the
assessment and, consequently, the collection of the amount demanded as taxes by repeated
requests for recomputation and reconsideration. On the part of the Commissioner, this would
encourage his office to conduct a careful and thorough study of every questioned assessment and
render a correct and definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action
constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would
meet a pressing need for fair play, regularity, and orderliness in administrative action.
ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is affirmed, at
petitioner's cost.
Makalintal, C.J, Makasiar, Esguerra and Muoz Palma, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-29485 March 31, 1976
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
AYALA SECURITIES CORPORATION and THE HONORABLE COURT OF TAX
APPEALS, respondents.
Solicitor General Felix V. Makasiar, Assistant Solicitor General Isidro C. Borromeo, Solicitor Lolita O.
Gal-lang and Special Attorney Salvador D. David for petitioner.
B. V. Abela M. C. Gutierrez, J. U. Ong and F.J. Malate, Jr. for respondents.

ESGUERRA, J .:
Appeal from the decision of the Court of Tax Appeals dated June 20, 1968, in its CTA Case No.
1346, cancelling and declaring of no force and effect the assessment made by the petitioner,
Commissioner of Internal Revenue, against the accumulated surplus of the respondent, Ayala
Securities Corporation.
The factual background of the case is as follows:
On November 29, 1955, respondent Ayala Securities Corporation, a domestic corporation organized
and existing under the laws of the Philippines, filed its income tax returns with the office of the
petitioner for its fiscal year which ended on September 30, 1955. Attached to its income tax return
was the audited financial statements of the respondent corporation as of September 30, 1955,
showing a surplus of P2,758,442.37. The income tax due on the return of the respondent corporation
was duly paid for within the time prescribed by law.
In a letter dated February 21, 1961, petitioner advised the respondent corporation of the assessment
of P758.687.04 on its accumulated surplus reflected on its income tax return for the fiscal year which
ended September 30, 1955 (Exit. D). The respondent corporation, on the other hand, in a letter
dated April 19, 1961, protested against the assessment on its retained and accumulated surplus
pertaining to the taxable year 1955 and sought reconsideration thereof for the reasons (1) that the
accumulation of the surplus was for a bona fide business purpose and not to avoid the imposition of
income tax on the individual shareholders, and (2) that the said assessment was issued beyond the
five-year prescriptive period (Exh. E).
On May 30, 1961, petitioner wrote respondent corporation's auditing and accounting firm with the
"advise that your request for reconsideration will be the subject matter of further reinvestigation and
a thorough analysis of the issues involved conditioned, however, upon the execution of your client of
the enclosed form for waiver of the defense of prescription". (Exh. F) However, respondent
corporation did not execute the requested waiver of the statute of limitations, considering its claim
that the assessment in question had already prescribed.
On February 21, 1963, respondent corporation received a letter dated February 18, 1963, from the
Chief, Manila Examiners, of the Office of the herein petitioner, calling the attention of the respondent
corporation to its outstanding and unpaid tax in the amount of P708,687.04 and thereby requesting
for the payment of the said amount within five (5) days from receipt of the said letter (Exh. G).
Believing the aforesaid letter to be a denial of its protest, the herein respondent corporation filed with
the Court of Tax Appeals a Petition for Review of the assessment, docketed as CTA Case No. 1346.
Respondent corporation in its Petition for Review alleges that the assessment made by petitioner
Commissioner of Internal Revenue is illegal and invalid considering that (1) the assessment in
question, having been issued only on February 21, 1961, and received by the respondent
corporation on March 22, 1961, the same was issued beyond the five-year period from the date of
the filing of respondent corporations income tax return November 29, 1955, and, therefore,
petitioner's right to make the assessment has already prescribed, pursuant to the provision of
Section 331 of the National Internal Revenue Code; and (2) the respondent corporation's
accumulation of surplus for the taxable year 1955 was not improper, considering that the retention of
such surplus was intended for legitimate business purposes and was not availed of by the
corporation to prevent the imposition of the income tax upon its shareholders.
Petitioner in his answer alleged that the assessment made by his office on the accumulated surplus
of the corporation as reflected on its income tax return for the taxable year 1955 has not as yet
prescribed and, further, that the respondent corporation's accumulation of surplus for the taxable
year 1955 was improper as the retention of such surplus was availed of by the corporation to prevent
the imposition of the income tax upon the individual shareholders or members of the said
corporation.
After trial the Court of Tax Appeals rendered its decision of June 20, 1968, the dispositive portion of
which is as follows:
WHEREFORE, the decision of the respondent Commissioner of Internal Revenue
assessing petitioner the amount of P758,687.04 as 25 surtax and interest is
reversed. Accordingly, said assessment of respondent for 1955 is hereby cancelled
and declared of no force and effect. Without pronouncement as to costs.
From this decision, the Commissioner of Internal Revenue interposed this appeal.
Petitioner maintains that respondent Court of Tax Appeals erred in holding that the letter dated
February 18, 1963, (Exh. G) is a denial of the private respondent corporation's protest against the
assessment, and as such, is a decision contemplated under the provisions of Sections 7 and 11 of
Republic Act No. 1125. Petitioner contends that the letter dated February 18, 1963, is merely an
ordinary office letter designed to remind delinquent taxpayers of their obligations to pay their taxes to
the Government and, certainly, not a decision on a disputed or protested assessment contemplated
under Section 7(1) of R.A. 1125.
Petitioner likewise maintains that the respondent Court of Tax Appeals erred in holding that the
assessment of P758,687.04 as surtax on private respondent corporation's unreasonably
accumulated profits or surplus had already prescribed. Petitioner further contends that the applicable
provision of law to this case is Section 332 (a) of the National Internal Revenue Code which provides
for a ten (10) year prescriptive period of assessment, and not Section 331 thereof as held by the Tax
Court which provides a period of limitation of assessment for five (5) years only after the filing of the
return. Petitioner's theory, therefore, is to the effect that since the Corporate income tax return in
question was filed on, November 29, 1955, and the assessment thereto was issued on February 21,
1961, said assessment is not barred by prescription as the same was made very well within the ten
(10) year period allowed by law.
Petitioner also maintains that the respondent Court of Tax Appeals erred in not deciding the issue as
to whether or not the accumulated profits or surplus is indispensable to the business operations of
the private respondent corporation. It is the contention of the petitioner that the accumulation of
profits or surplus was resorted to by the respondent corporation in order to avoid the payment of
taxes by its stockholders or members, and was not availed of in order to meet the reasonable needs
of its business operations.
The legal issues for resolution by this Court in this case are: (1) Whether or not the instant case falls
within the jurisdiction of the respondent Court of Tax Appeals; (2) Whether or not the applicable
provision of law to this case is Section 331 of the National Internal Revenue Code, which provides
for a five-year period of prescription of assessment from the filing of the return, or Section 332(a) of
the same Code which provides for a ten-year period of limitation for the same purpose; and (3)
Whether or not the respondent Court of Tax Appeals committed a reversible error in not making any
ruling on the reasonableness or unreasonableness of the accumulated profits or surplus in question
of the private respondent corporation.
I
It is to be noted that the respondent Court of Tax Appeals is a court of special appellate jurisdiction
created under R. A. No. 1125. Thus under Section 7 (1), R. A. 1125, the Court of Tax Appeals
exercises exclusive appellate jurisdiction to review by appeal "decisions of the Collector of Internal
Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal Revenue".
The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the
reconsideration or protest of the respondent corporation on the assessment made by the petitioner,
considering that the said letter is in itself a reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already made, and for the immediate payment of the
sum of P758, 687.04 in spite of the vehement protest of the respondent corporation on April 21,
1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of
the disputed assessment in view of the continued refusal of the respondent corporation to execute
the waiver of the period of limitation upon the assessment in question.
This being so, the said letter amounts to a decision on a disputed or protested assessment and,
therefore, the court a quo did not err in taking cognizance of this case.
II
On the issue of whether Sec. 331 or See. 332(a) of the National Internal Revenue Code should
apply to this case, there is no iota of evidence presented by the petitioner as to any fraud or falsity
on the return with intent to evade payment of tax, not even in the income tax assessment (Exh. 5)
nor in the letter-decision of February 18, 1963 (Exh. G), nor in his answer to the petition for review.
Petitioner merely relies on the provisions of Sec 25 of the National Internal Revenue Code, violation
of which, according to Petitioner, presupposes the existence of fraud. But this is begging the
question and We do not subscribe to the view of the petitioner.
Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in
the court below. The finding of the trial court as to its existence and non- existence is final and
cannot be reviewed here unless clearly shown to be erroneous (Republic of the Philippines vs. Ker &
Company, Ltd., L-21609, Sept. 29, 1966, 18 SCRA 207; Commissioner of Internal Revenue vs. Lilia
Yusay Gonzales and the Court of Tax Appeals,
L-19495, Nov. 24, 1966, 18 SCRA 757). Fraud is never lightly to be presumed because it is serious
charge (Yutivo Sons Hardware Company vs. Court of Tax Appeals and Collector of Internal
Revenue, L-13203, January 28,1961, 1 SCRA 160).
The applicable provision of law in this case is Section 331 of the National Internal Revenue Code, to
wit:
SEC. 331. Period of limitation upon assessment and collection. Except as
provided in the succeeding section, internal revenue taxes shall be assessed within
five years after the return was filed, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the expiration of such period. For
the purposes of this section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this
Code.
Under Section 46(d) of the National Internal Revenue Code, the Ayala Securities Corporation
designated September 30, 1955, as the last day of the closing of its fiscal year, and under Section
46(b) the income tax returns for the said corporation shall be filed on or before the fifteenth (15th)
day of the fourth (4th) month following the close of its fiscal year. The Ayala Securities Corporation
could, therefore, file its income tax returns on or before January 15, 1956. The assessment by the
Commissioner of Internal Revenue shall be made within five (5) years from January 15, 1956, or not
later than January 15, 1961, in accordance with Section 331 of the National Internal Revenue Code
herein above-quoted. As the assessment issued on February 21, 1961, which was received by the
Ayala Securities Corporation on March 22, 1961, was made beyond the five-year period prescribed
under Section 331 of said Code, the same was made after the prescriptive period had expired and,
therefore, was no longer binding on the Ayala Securities Corporation.
This Court is of the opinion that the respondent court committed no reversible error in not making
any ruling on the reasonableness or unreasonableness of the accumulated profits or surplus of the
respondent corporation. For this reason, We are of the view that after reaching the conclusion that
the right of the Commissioner of Internal Revenue to assess the 25% surtax had already prescribed
under Section 331 of the National Internal Revenue Code, to delve further into the reasonableness
or unreasonableness of the accumulated profits or surplus of the respondent corporation for the
fiscal year ending September 30, 1955, will only be an exercise in futility.
WHEREFORE, the decision appealed from is hereby affirmed in toto.
Without special pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Muoz Palma and Martin, JJ., concur.


THIRD DIVISION


RIZAL COMMERCIAL G.R. No. 168498
BANKING CORPORATION,
Petitioner, Present:

Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Callejo, Sr.,
Chico-Nazario, and
Nachura, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
April 24, 2007
x ---------------------------------------------------------------------------------------- x


RESOLUTI ON

YNARES-SANTIAGO, J .:


For resolution is petitioners Motion for Reconsideration of our
Decision
[1]
dated June 16, 2006 affirming the Decision of the Court of Tax
Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the
Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and
November 5, 2004 in C.T.A. Case No. 6475, denying petitioners Petition for
Relief from Judgment and Motion for Reconsideration, respectively.

Petitioner reiterates its claim that its former counsels failure to file petition
for review with the Court of Tax Appeals within the period set by Section 228 of
the National Internal Revenue Code of 1997 (NIRC) was excusable and raised the
following issues for resolution:

A.

THE DENIAL OF PETITIONERS PETITION FOR RELIEF FROM
JUDGMENT WILL RESULT IN THE DENIAL OF SUBSTANTIVE
JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED
DECISIONS OF THIS HONORABLE COURT BECAUSE THE
ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY
PRESCRIBED A FACT NOT DENIED BY THE RESPONDENT IN
ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURTS DECISION, AND
FOLLOWING THE LASCONA DECISION, AS WELL AS THE 2005
REVISED RULES OF THE COURT OF TAX APPEALS,
PETITIONER TIMELY FILED ITS PETITION FOR REVIEW
BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF
TAX APPEALS HAD JURISDICTION OVER THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES
AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY ASSESSMENT
FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS
ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE
INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF
TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE
ISSUE BEFORE THE COURT OF TAX APPEALS.
[2]


Petitioners motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time,
the issues presented are a mere rehash of petitioners previous arguments, all of
which have been considered and found without merit in our Decision dated June
16, 2006.

Petitioner maintains that its counsels neglect in not filing the petition for
review within the reglementary period was excusable. It alleges that the counsels
secretary misplaced the Resolution hence the counsel was not aware of its issuance
and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to
appeal was due to the neglect of petitioners counsel. Otherwise, all that
a losing party would do to salvage his case would be to invoke neglect or
mistake of his counsel as a ground for reversing or setting aside the
adverse judgment, thereby putting no end to litigation.

Negligence to be excusable must be one which ordinary
diligence and prudence could not have guarded against and by reason of
which the rights of an aggrieved party have probably been
impaired. Petitioners former counsels omission could hardly be
characterized as excusable, much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system
whereby they can always receive promptly judicial notices and pleadings
intended for them. Apparently, petitioners counsel was not only remiss
in complying with this admonition but he also failed to check
periodically, as an act of prudence and diligence, the status of the
pending case before the CTA Second Division. The fact that counsel
allegedly had not renewed the employment of his secretary, thereby
making the latter no longer attentive or focused on her work, did not
relieve him of his responsibilities to his client. It is a problem personal
to him which should not in any manner interfere with his professional
commitments.
[3]



Petitioner also argues that, in the interest of substantial justice, the instant
case should be re-opened considering that it was allegedly not accorded its day in
court when the Court of Tax Appeals dismissed its petition for review for late
filing. It claims that rules of procedure are intended to help secure, not override,
substantial justice.

Petitioners arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated
June 7, 2005:

If indeed there was negligence, this is obviously on the part of
petitioners own counsel whose prudence in handling the case fell short
of that required under the circumstances. He was well aware of the
motion filed by the respondent for the Court to resolve first the issue of
this Courts jurisdiction on July 15, 2003, that a hearing was conducted
thereon on August 15, 2003 where both counsels were present and at
said hearing the motion was submitted for resolution. Petitioners
counsel apparently did not show enthusiasm in the case he was handling
as he should have been vigilant of the outcome of said motion and be
prepared for the necessary action to take whatever the outcome may
have been. Such kind of negligence cannot support petitioners claim for
relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in
good faith, and all presumptions are in favor of the correctness of a tax assessment
unless proven otherwise.
[4]
Also, petitioners failure to file a petition for review
with the Court of Tax Appeals within the statutory period rendered the disputed
assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription
of the Governments right to assess.
[5]


The Court of Tax Appeals is a court of special jurisdiction and can only take
cognizance of such matters as are clearly within its jurisdiction. Section 7 of
Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as
the Law Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as
herein provided:

(1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau
of Internal Revenue;

(2) Inaction by the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in
which case the inaction shall be deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the
Court of Tax Appeals
[6]
state:

RULE 4
Jurisdiction of the Court

x x x x

SECTION 3. Cases Within the Jurisdiction of the Court in
Divisions. The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by
appeal the following:

(1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal
Revenue Code or other applicable law provides a specific
period for action: Provided, that in case of disputed
assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under
Section 228 of the National Internal Revenue Code shall be
deemed a denial for purposes of allowing the taxpayer to
appeal his case to the Court and does not necessarily
constitute a formal decision of the Commissioner of
Internal Revenue on the tax case; Provided, further, that
should the taxpayer opt to await the final decision of the
Commissioner of Internal Revenue on the disputed
assessments beyond the one hundred eighty day-period
abovementioned, the taxpayer may appeal such final
decision to the Court under Section 3(a), Rule 8 of these
Rules; and Provided, still further, that in the case of claims
for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior
to the expiration of the two-year period under Section 229
of the National Internal Revenue Code;

x x x x





RULE 8
Procedure in Civil Cases

x x x x

SECTION 3. Who May Appeal; Period to File Petition. (a) A
party adversely affected by a decision, ruling or the inaction of the
Commissioner of Internal Revenue on disputed assessments or claims
for refund of internal revenue taxes, or by a decision or ruling of the
Commissioner of Customs, the Secretary of Finance, the Secretary of
Trade and Industry, the Secretary of Agriculture, or a Regional Trial
Court in the exercise of its original jurisdiction may appeal to the Court
by petition for review filed within thirty days after receipt of a copy of
such decision or ruling, or expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the disputed assessments. In
case of inaction of the Commissioner of Internal Revenue on claims for
refund of internal revenue taxes erroneously or illegally collected, the
taxpayer must file a petition for review within the two-year period
prescribed by law from payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax
Appeals has been expanded to include not only decisions or rulings but inaction as
well of the Commissioner of Internal Revenue. The decisions, rulings or inaction
of the Commissioner are necessary in order to vest the Court of Tax Appeals with
jurisdiction to entertain the appeal, provided it is filed within 30 days after the
receipt of such decision or ruling, or within 30 days after the expiration of the 180-
day period fixed by law for the Commissioner to act on the disputed
assessments. This 30-day period within which to file an appeal is jurisdictional
and failure to comply therewith would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain and determine the correctness of the
assessments. Such period is not merely directory but mandatory and it is beyond
the power of the courts to extend the same.
[7]


In case the Commissioner failed to act on the disputed assessment within the
180-day period from date of submission of documents, a taxpayer can either: 1)
file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or 2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to the
Court of Tax Appeals within 30 days after receipt of a copy of such
decision. However, these options are mutually exclusive, and resort to one bars the
application of the other.

In the instant case, the Commissioner failed to act on the disputed
assessment within 180 days from date of submission of documents. Thus,
petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was
filed more than 30 days after the lapse of the 180-day period. Consequently, it was
dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a
motion for reconsideration or make an appeal; hence, the disputed assessment
became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed
assessment is not yet final as it remained unacted upon by the Commissioner; that
it can still await the final decision of the Commissioner and thereafter appeal the
same to the Court of Tax Appeals. This legal maneuver cannot be
countenanced. After availing the first option, i.e.,filing a petition for review
which was however filed out of time, petitioner can not successfully resort to the
second option, i.e., awaiting the final decision of the Commissioner and appealing
the same to the Court of Tax Appeals, on the pretext that there is yet no final
decision on the disputed assessment because of the Commissioners inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first
time in the instant motion for reconsideration. Although the same was raised in the
petition for review, it was dismissed for late filing. No motion for reconsideration
was filed hence the disputed assessment became final, demandable and
executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for
relief from judgment. However, it failed to raise the issue of prescription
therein. After its petition for relief from judgment was denied by the Court of Tax
Appeals for lack of merit, petitioner filed a petition for review before this Court
without raising the issue of prescription. It is only in the instant motion for
reconsideration that petitioner raised the issue of prescription which is not
allowed. The rule is well-settled that points of law, theories, issues and arguments
not adequately brought to the attention of the lower court need not be considered
by the reviewing court as they cannot be raised for the first time on appeal,
[8]
much
more in a motion for reconsideration as in this case, because this would be
offensive to the basic rules of fair play, justice and due process.
[9]
This last ditch
effort to shift to a new theory and raise a new matter in the hope of a favorable
result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioners motion for
reconsideration is DENIED.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22492 September 5, 1967
BASILAN ESTATES, INC., petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Felix A. Gulfin and Antonio S. Alano for petitioner.
Office of the Solicitor General for respondents.

BENGZON, J.P., J .:
A Philippine corporation engaged in the coconut industry, Basilan Estates, Inc., with principal offices
in Basilan City, filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of
P8,028. On February 26, 1959, the Commissioner of Internal Revenue, per examiners' report of
February 19, 1959, assessed Basilan Estates, Inc., a deficiency income tax of P3,912 for 1953 and
P86,876.85 as 25% surtax on unreasonably accumulated profits as of 1953 pursuant to Section 25
of the Tax Code. On non-payment of the assessed amount, a warrant of distraint and levy was
issued but the same was not executed because Basilan Estates, Inc. succeeded in getting the
Deputy Commissioner of Internal Revenue to order the Director of the district in Zamboanga City to
hold execution and maintain constructive embargo instead. Because of its refusal to waive the
period of prescription, the corporation's request for reinvestigation was not given due course, and on
December 2, 1960, notice was served the corporation that the warrant of distraint and levy would be
executed.
On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax Appeals a petition for
review of the Commissioner's assessment, alleging prescription of the period for assessment and
collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and
error in finding the existence of unreasonably accumulated profits and the imposition of 25% surtax
thereon. On October 31, 1963, the Court of Tax Appeals found that there was no prescription and
affirmed the deficiency assessment in toto.
On February 21, 1964, the case was appealed to Us by the taxpayer, upon the following issues:
1. Has the Commissioner's right to collect deficiency income tax prescribed?
2. Was the disallowance of items claimed as deductible proper?
3. Have there been unreasonably accumulated profits? If so, should the 25% surtax be imposed on
the balance of the entire surplus from 1947-1953, or only for 1953?
4. Is the petitioner exempt from the penalty tax under Republic Act 1823 amending Section 25 of the
Tax Code?
PRESCRIPTION
There is no dispute that the assessment of the deficiency tax was made on February 26, 1959; but
the petitioner claims that it never received notice of such assessment or if it did, it received the
notice beyond the five-year prescriptive period. To show prescription, the annotation on the notice
(Exhibit 10, No. 52, ACR, p. 54-A of the BIR records) "No accompanying letter 11/25/" is advanced
as indicative of the fact that receipt of the notice was after March 24, 1959, the last date of the five-
year period within which to assess deficiency tax, since the original returns were filed on March 24,
1954.
Although the evidence is not clear on this point, We cannot accept this interpretation of the
petitioner, considering the presence of circumstances that lead Us to presume regularity in the
performance of official functions. The notice of assessment shows the assessment to have been
made on February 26, 1959, well within the five-year period. On the right side of the notice is also
stamped "Feb. 26, 1959" denoting the date of release, according to Bureau of Internal Revenue
practice. The Commissioner himself in his letter (Exh. H, p. 84 of BIR records) answering petitioner's
request to lift, the warrant of distraint and levy, asserts that notice had been sent to petitioner. In the
letter of the Regional Director forwarding the case to the Chief of the Investigation Division which the
latter received on March 10, 1959 (p. 71 of the BIR records), notice of assessment was said to have
been sent to petitioner. Subsequently, the Chief of the Investigation Division indorsed on March 18,
1959 (p. 24 of the BIR records) the case to the Chief of the Law Division. There it was alleged that
notice was already sent to petitioner on February 26, 1959. These circumstances pointing to official
performance of duty must necessarily prevail over petitioner's contrary interpretation. Besides, even
granting that notice had been received by the petitioner late, as alleged, under Section 331 of the
Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed
made when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is
not required that the notice be received by the taxpayer within the aforementioned five-year period.
1

ASSESSMENT
The questioned assessment is as follows:
Net Income per return P40,142.90
Add: Over-claimed depreciation P10,500.49

Mis. expenses disallowed 6,759.17

Officer's travelling expenses
disallowed

2,300.40


19,560.06

Net Income per Investigation P59,702.96
20% tax on P59,702.96 11,940.00
Less: Tax already assessed 8,028.00

Deficiency income tax P3,912.00
Add: Additional tax of 25% on P347,507.01 86,876.75
Tax Due & Collectible

P90,788.75
=========
The Commissioner disallowed:
Over-claimed depreciation P10,500.49
Miscellaneous expenses 6,759.17
Officer's travelling expenses 2,300.40
DEDUCTIONS
A. Depreciation. Basilan Estates, Inc. claimed deductions for the depreciation of its assets up to
1949 on the basis of their acquisition cost. As of January 1, 1950 it changed the depreciable value of
said assets by increasing it to conform with the increase in cost for their replacement. Accordingly,
from 1950 to 1953 it deducted from gross income the value of depreciation computed on the
reappraised value.
In 1953, the year involved in this case, taxpayer claimed the following depreciation deduction:
Reappraised assets P47,342.53
New assets consisting of hospital building and
equipment 3,910.45
Total depreciation

P51,252.98
Upon investigation and examination of taxpayer's books and papers, the Commissioner of Internal
Revenue found that the reappraised assets depreciated in 1953 were the same ones upon which
depreciation was claimed in 1952. And for the year 1952, the Commissioner had already
determined, with taxpayer's concurrence, the depreciation allowable on said assets to be
P36,842.04, computed on their acquisition cost at rates fixed by the taxpayer. Hence, the
Commissioner pegged the deductible depreciation for 1953 on the same old assets at P36,842.04
and disallowed the excess thereof in the amount of P10,500.49.
The question for resolution therefore is whether depreciation shall be determined on the acquisition
cost or on the reappraised value of the assets.
Depreciation is the gradual diminution in the useful value of tangible property resulting from wear
and tear and normal obsolescense. The term is also applied to amortization of the value of intangible
assets, the use of which in the trade or business is definitely limited in duration.
2
Depreciation
commences with the acquisition of the property and its owner is not bound to see his property
gradually waste, without making provision out of earnings for its replacement. It is entitled to see that
from earnings the value of the property invested is kept unimpaired, so that at the end of any given
term of years, the original investment remains as it was in the beginning. It is not only the right of a
company to make such a provision, but it is its duty to its bond and stockholders, and, in the case of
a public service corporation, at least, its plain duty to the public.
3
Accordingly, the law permits the
taxpayer to recover gradually his capital investment in wasting assets free from income
tax.
4
Precisely, Section 30 (f) (1) which states:
(1)In general. A reasonable allowance for deterioration of property arising out of its use or
employment in the business or trade, or out of its not being used: Provided, That when the
allowance authorized under this subsection shall equal the capital invested by the taxpayer .
. . no further allowance shall be made. . . .
allows a deduction from gross income for depreciation but limits the recovery to the capital invested
in the asset being depreciated.
The income tax law does not authorize the depreciation of an asset beyond its acquisition cost.
Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that
deductions from gross income are privileges,
5
not matters of right.
6
They are not created by
implication but upon clear expression in the law.
7

Moreover, the recovery, free of income tax, of an amount more than the invested capital in an asset
will transgress the underlying purpose of a depreciation allowance. For then what the taxpayer would
recover will be, not only the acquisition cost, but also some profit. Recovery in due time thru
depreciation of investment made is the philosophy behind depreciation allowance; the idea of profit
on the investment made has never been the underlying reason for the allowance of a deduction for
depreciation.
Accordingly, the claim for depreciation beyond P36,842.04 or in the amount of P10,500.49 has no
justification in the law. The determination, therefore, of the Commissioner of Internal Revenue
disallowing said amount, affirmed by the Court of Tax Appeals, is sustained.
B. Expenses. The next item involves disallowed expenses incurred in 1953, broken as follows:
Miscellaneous expenses P6,759.17
Officer's travelling expenses 2,300.40
Total

P9,059.57
These were disallowed on the ground that the nature of these expenses could not be satisfactorily
explained nor could the same be supported by appropriate papers.
Felix Gulfin, petitioner's accountant, explained the P6,759.17 was actual expenses credited to the
account of the president of the corporation incurred in the interest of the corporation during the
president's trip to Manila (pp. 33-34 of TSN of Dec. 5, 1962); he stated that the P2,300.40 was the
president's travelling expenses to and from Manila as to the vouchers and receipts of these, he said
the same were made but got burned during the Basilan fire on March 30, 1962 (p. 40 of same TSN).
Petitioner further argues that when it sent its records to Manila in February, 1959, the papers in
support of these miscellaneous and travelling expenses were not included for the reason that by
February 9, 1959, when the Bureau of Internal Revenue decided to investigate, petitioner had no
more obligation to keep the same since five years had lapsed from the time these expenses were
incurred (p. 41 of same TSN). On this ground, the petitioner may be sustained, for under Section
337 of the Tax Code, receipts and papers supporting such expenses need be kept by the taxpayer
for a period of five years from the last entry. At the time of the investigation, said five years had
lapsed. Taxpayer's stand on this issue is therefore sustained.
UNREASONABLY ACCUMULATED PROFITS
Section 25 of the Tax Code which imposes a surtax on profits unreasonably accumulated, provides:
Sec. 25. Additional tax on corporations improperly accumulating profits or surplus (a)
Imposition of tax. If any corporation, except banks, insurance companies, or personal
holding companies, whether domestic or foreign, is formed or availed of for the purpose of
preventing the imposition of the tax upon its shareholders or members or the shareholders or
members of another corporation, through the medium of permitting its gains and profits to
accumulate instead of being divided or distributed, there is levied and assessed against such
corporation, for each taxable year, a tax equal to twenty-five per centum of the undistributed
portion of its accumulated profits or surplus which shall be in addition to the tax imposed by
section twenty-four, and shall be computed, collected and paid in the same manner and
subject to the same provisions of law, including penalties, as that tax.1 awph l.nt
The Commissioner found that in violation of the abovequoted section, petitioner had unreasonably
accumulated profits as of 1953 in the amount of P347,507.01, based on the following circumstances
(Examiner's Report pp. 62-68 of BIR records):
1. Strong financial position of the petitioner as of December 31, 1953. Assets were
P388,617.00 while the liabilities amounted to only P61,117.31 or a ratio of 6:1.
2. As of 1953, the corporation had considerable capital adequate to meet the reasonable
needs of the business amounting to P327,499.69 (assets less liabilities).
3. The P200,000 reserved for electrification of drier and mechanization and the P50,000
reserved for malaria control were reverted to its surplus in 1953.
4. Withdrawal by shareholders, of large sums of money as personal loans.
5. Investment of undistributed earnings in assets having no proximate connection with the
business as hospital building and equipment worth P59,794.72.
6. In 1953, with an increase of surplus amounting to P677,232.01, the capital stock was
increased to P500,000 although there was no need for such increase.
Petitioner tried to show that in considering the surplus, the examiner did not take into account the
possible expenses for cultivation, labor, fertilitation, drainage, irrigation, repair, etc. (pp. 235-237 of
TSN of Dec. 7, 1962). As aptly answered by the examiner himself, however, they were already
included as part of the working capital (pp. 237-238 of TSN of Dec. 7, 1962).
In the unreasonable accumulation of P347,507.01 are included P200,000 for electrification of driers
and mechanization and P50,000 for malaria control which were reserved way back in 1948 (p. 67 of
the BIR records) but reverted to the general fund only in 1953. If there were any plans for these
amounts to be used in further expansion through projects, it did not appear in the records as was
properly indicated in 1948 when such amounts were reserved. Thus, while in 1948 it was already
clear that the money was intended to go to future projects, in 1953 upon reversion to the general
fund, no such intention was shown. Such reversion therefore gave occasion for the Government to
consider the same for tax purposes. The P250,000 reverted to the general fund was sought to be
explained as later used elsewhere: "part of it in the Hilano Industries, Inc. in building the factory site
and buildings to house technical men . . . part of it was spent in the facilities for the waterworks
system and for industrialization of the coconut industry" (p. 117 of TSN of Dec. 6, 1962). This is not
sufficient explanation. Persuasive jurisprudence on the matter such as those in the United States
from where our tax law was derived,
8
has it that: "In order to determine whether profits were
accumulated for the reasonable needs of the business or to avoid the surtax upon shareholders, the
controlling intention of the taxpayer is that which is manifested at the time of the accumulation, not
subsequently declared intentions which are merely the products of after-thought."
9
The reversion
here was made because the reserved amount was not enough for the projects intended, without any
intent to channel the same to some particular future projects in mind.
Petitioner argues that since it has P560,717.44 as its expenses for the year 1953, a surplus of
P347,507.01 is not unreasonably accumulated. As rightly contended by the Government, there is no
need to have such a large amount at the beginning of the following year because during the year,
current assets are converted into cash and with the income realized from the business as the year
goes, these expenses may well be taken care of (pp. 238 of TSN of Dec. 7, 1962). Thus, it is
erroneous to say that the taxpayer is entitled to retain enough liquid net assets in amounts
approximately equal to current operating needs for the year to cover "cost of goods sold and
operating expenses" for "it excludes proper consideration of funds generated by the collection of
notes receivable as trade accounts during the course of the year."
10
In fact, just because the fatal
accumulations are less than 70% of the annual operating expenses of the year, it does not mean
that the accumulations are reasonable as a matter of law."
11

Petitioner tried to show that investments were made with Basilan Coconut Producers Cooperative
Association and Basilan Hospital (pp. 103-105 of TSN of Dec. 6, 1962) totalling P59,794.72 as of
December 31, 1953. This shows all the more the unreasonable accumulation. As of December 31,
1953 already P59,794.72 was spent yet as of that date there was still a surplus of P347,507.01.
Petitioner questions why the examiner covered the period from 1948-1953 when the taxable year on
review was 1953. The surplus of P347,507.01 was taken by the examiner from the balance sheet of
petitioner for 1953. To check the figure arrived at, the examiner traced the accumulation process
from 1947 until 1953, and petitioner's figure stood out to be correct. There was no error in the
process applied, for previous accumulations should be considered in determining unreasonable
accumulations for the year concerned. "In determining whether accumulations of earnings or profits
in a particular year are within the reasonable needs of a corporation, it is neccessary to take into
account prior accumulations, since accumulations prior to the year involved may have been
sufficient to cover the business needs and additional accumulations during the year involved would
not reasonably be necessary."
12

Another factor that stands out to show unreasonable accumulation is the fact that large amounts
were withdrawn by or advanced to the stockholders. For the year 1953 alone these totalled
P197,229.26. Yet the surplus of P347,507.01 was left as of December 31, 1953. We find
unacceptable petitioner's explanation that these were advances made in furtherance of the business
purposes of the petitioner. As correctly held by the Court of Tax Appeals, while certain expenses of
the corporation were credited against these amounts, the unspent balance was retained by the
stockholders without refunding them to petitioner at the end of each year. These advances were in
fact indirect loans to the stockholders indicating the unreasonable accumulation of surplus beyond
the needs of the business.
ALLEGED EXEMPTION
Petitioner wishes to avail of the exempting proviso in Sec. 25 of the Internal Revenue Code as
amended by R.A. 1823, approved June 22, 1957, whereby accumulated profits or surplus if invested
in any dollar-producing or dollar-earning industry or in the purchase of bonds issued by the Central
Bank, may not be subject to the 25% surtax. We have but to point out that the unreasonable
accumulation was in 1953. The exemption was by virtue of Republic Act 1823 which amended Sec.
25 only on June 22, 1957 more than three years after the period covered by the assessment.
In resume, Basilan Estates, Inc. is liable for the payment of deficiency income tax and surtax for the
year 1953 in the amount of P88,977.42, computed as follows:
Net Income per return P40,142.90
Add: Over-claimed
depreciation
10,500.49
Net income per finding

P50,643.39

20% tax on P50,643.39 P10,128.67
Less: Tax already assessed 8,028.00
Deficiency income tax

P2,100.67
Add: 25% surtax on
P347,507.01
86,876.75
Total tax due and collectible

P88,977.42
===========
WHEREFORE, the judgment appealed from is modified to the extent that petitioner is allowed its
deductions for travelling and miscellaneous expenses, but affirmed insofar as the petitioner is liable
for P2,100.67 as deficiency income tax for 1953 and P86,876.75 as 25% surtax on the unreasonably
accumulated profit of P347,507.01. No costs. So ordered.