Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 188550

August 19, 2013

DEUTSCHE BANK AG MANILA BRANCH, PETITIONER,

vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION
SERENO, CJ.:
This is a Petition for Review1 filed by Deutsche Bank AG Manila Branch (petitioner) under
Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc
(CTA En Banc) Decision2 dated 29 May 2009 and Resolution3 dated 1 July 2009 in C.T.A.
EB No. 456.
THE FACTS
In accordance with Section 28(A)(5)4 of the National Internal Revenue Code (NIRC) of
1997, petitioner withheld and remitted to respondent on 21 October 2003 the amount of
PHP 67,688,553.51, which represented the fifteen percent (15%) branch profit remittance
tax (BPRT) on its regular banking unit (RBU) net income remitted to Deutsche Bank
Germany (DB Germany) for 2002 and prior taxable years.5
Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large
Taxpayers Assessment and Investigation Division on 4 October 2005 an administrative
claim for refund or issuance of its tax credit certificate in the total amount of PHP
22,562,851.17. On the same date, petitioner requested from the International Tax Affairs
Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under
the RP-Germany Tax Treaty.6
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for
Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the refund or
issuance of its tax credit certificate for the amount of PHP 22,562,851.17 representing
the alleged excess BPRT paid on branch profits remittance to DB Germany.
THE CTA SECOND DIVISION RULING8
After trial on the merits, the CTA Second Division found that petitioner indeed paid the
total amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU profits
amounting to PHP 451,257,023.29 for 2002 and prior taxable years. Records also
disclose that for the year 2003, petitioner remitted to DB Germany the amount of EURO
5,174,847.38 (or PHP 330,175,961.88 at the exchange rate of PHP 63.804:1 EURO),
which is net of the 15% BPRT.
However, the claim of petitioner for a refund was denied on the ground that the
application for a tax treaty relief was not filed with ITAD prior to the payment by the
former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to
its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax

Treaty provision. The court a quo held that petitioner violated the fifteen (15) day period
mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 12000.
Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation
(formerly Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of
Internal Revenue9 (Mirant) where the CTA En Banc ruled that before the benefits of the
tax treaty may be extended to a foreign corporation wishing to avail itself thereof, the
latter should first invoke the provisions of the tax treaty and prove that they indeed apply
to the corporation.
THE CTA EN BANC RULING10
The CTA En Banc affirmed the CTA Second Divisions Decision dated 29 August 2008
and Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held that a ruling
from the ITAD of the BIR must be secured prior to the availment of a preferential tax rate
under a tax treaty. Applying the principle of stare decisis et non quieta movere, the CTA
En Banc took into consideration that this Court had denied the Petition in G.R. No.
168531 filed by Mirant for failure to sufficiently show any reversible error in the assailed
judgment.11 The CTA En Banc ruled that once a case has been decided in one way, any
other case involving exactly the same point at issue should be decided in the same
manner.
The court likewise ruled that the 15-day rule for tax treaty relief application under RMO
No. 1-2000 cannot be relaxed for petitioner, unlike in CBK Power Company Limited v.
Commissioner of Internal Revenue.12 In that case, the rule was relaxed and the claim for
refund of excess final withholding taxes was partially granted. While it issued a ruling to
CBK Power Company Limited after the payment of withholding taxes, the ITAD did not
issue any ruling to petitioner even if it filed a request for confirmation on 4 October 2005
that the remittance of branch profits to DB Germany is subject to a preferential tax rate of
10% pursuant to Article 10 of the RP-Germany Tax Treaty.
ISSUE
This Court is now confronted with the issue of whether the failure to strictly comply with
RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.
THE COURTS RULING
The Petition is meritorious.
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject
to a tax of 15% based on the total profits applied for or earmarked for remittance without
any deduction of the tax component. However, petitioner invokes paragraph 6, Article 10
of the RP-Germany Tax Treaty, which provides that where a resident of the Federal
Republic of Germany has a branch in the Republic of the Philippines, this branch may be
subjected to the branch profits remittance tax withheld at source in accordance with
Philippine law but shall not exceed 10% of the gross amount of the profits remitted by
that branch to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the
Philippines, remitting to its head office in Germany, the benefit of a preferential rate
equivalent to 10% BPRT.

On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of
the tax treaty relief must be preceded by an application with ITAD at least 15 days before
the transaction. The Order was issued to streamline the processing of the application of
tax treaty relief in order to improve efficiency and service to the taxpayers. Further, it also
aims to prevent the consequences of an erroneous interpretation and/or application of
the treaty provisions (i.e., filing a claim for a tax refund/credit for the overpayment of
taxes or for deficiency tax liabilities for underpayment). 13
The crux of the controversy lies in the implementation of RMO No. 1-2000.
Petitioner argues that, considering that it has met all the conditions under Article 10 of the
RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO
No. 1-2000. The filing of a tax treaty relief application is not a condition precedent to the
availment of a preferential tax rate. Further, petitioner posits that, contrary to the ruling of
the CTA, Mirant is not a binding judicial precedent to deny a claim for refund solely on the
basis of noncompliance with RMO No. 1-2000.
Respondent counters that the requirement of prior application under RMO No. 1-2000 is
mandatory in character. RMO No. 1-2000 was issued pursuant to the unquestioned
authority of the Secretary of Finance to promulgate rules and regulations for the effective
implementation of the NIRC. Thus, courts cannot ignore administrative issuances which
partakes the nature of a statute and have in their favor a presumption of legality.
The CTA ruled that prior application for a tax treaty relief is mandatory, and
noncompliance with this prerequisite is fatal to the taxpayers availment of the preferential
tax rate.
We disagree.
A minute resolution is not a binding precedent
At the outset, this Courts minute resolution on Mirant is not a binding precedent. The
Court has clarified this matter in Philippine Health Care Providers, Inc. v. Commissioner
of Internal Revenue14 as follows:
It is true that, although contained in a minute resolution, our dismissal of the petition was
a disposition of the merits of the case. When we dismissed the petition, we effectively
affirmed the CA ruling being questioned. As a result, our ruling in that case has already
become final. When a minute resolution denies or dismisses a petition for failure to
comply with formal and substantive requirements, the challenged decision, together with
its findings of fact and legal conclusions, are deemed sustained. But what is its effect on
other cases?
With respect to the same subject matter and the same issues concerning the same
parties, it constitutes res judicata. However, if other parties or another subject matter
(even with the same parties and issues) is involved, the minute resolution is not binding
precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v.
Baier-Nickel involving the same parties and the same issues, was previously disposed of
by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the
CA. Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter
case because the two cases involved different subject matters as they were concerned
with the taxable income of different taxable years.
Besides, there are substantial, not simply formal, distinctions between a minute
resolution and a decision. The constitutional requirement under the first paragraph of
Section 14, Article VIII of the Constitution that the facts and the law on which the

judgment is based must be expressed clearly and distinctly applies only to decisions, not
to minute resolutions. A minute resolution is signed only by the clerk of court by authority
of the justices, unlike a decision. It does not require the certification of the Chief Justice.
Moreover, unlike decisions, minute resolutions are not published in the Philippine
Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. Indeed,
as a rule, this Court lays down doctrines or principles of law which constitute binding
precedent in a decision duly signed by the members of the Court and certified by the
Chief Justice. (Emphasis supplied)
Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot
bind this Court in cases of a similar nature. There are differences in parties, taxes,
taxable periods, and treaties involved; more importantly, the disposition of that case was
made only through a minute resolution.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general principles of international law as
part of the law of the land.15The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the
states that enter into the agreement. Every treaty in force is binding upon the parties, and
obligations under the treaty must be performed by them in good faith. 16 More importantly,
treaties have the force and effect of law in this jurisdiction.17
Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting
parties and, in turn, help the taxpayer avoid simultaneous taxations in two different
jurisdictions."18 CIR v. S.C. Johnson and Son, Inc. further clarifies that "tax conventions
are drafted with a view towards the elimination of international juridical double taxation,
which is defined as the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods. The apparent
rationale for doing away with double taxation is to encourage the free flow of goods and
services and the movement of capital, technology and persons between countries,
conditions deemed vital in creating robust and dynamic economies. Foreign investments
will only thrive in a fairly predictable and reasonable international investment climate and
the protection against double taxation is crucial in creating such a climate." 19
Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax
treaty or double tax agreements.
"A state that has contracted valid international obligations is bound to make in its
legislations those modifications that may be necessary to ensure the fulfillment of the
obligations undertaken."20 Thus, laws and issuances must ensure that the reliefs granted
under tax treaties are accorded to the parties entitled thereto. The BIR must not impose
additional requirements that would negate the availment of the reliefs provided for under
international agreements. More so, when the RP-Germany Tax Treaty does not provide
for any pre-requisite for the availment of the benefits under said agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would
indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15day period. We recognize the clear intention of the BIR in implementing RMO No. 12000, but the CTAs outright denial of a tax treaty relief for failure to strictly comply with
the prescribed period is not in harmony with the objectives of the contracting state to
ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons
or corporations.

Bearing in mind the rationale of tax treaties, the period of application for the availment of
tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement
to the relief as it would constitute a violation of the duty required by good faith in
complying with a tax treaty. The denial of the availment of tax relief for the failure of a
taxpayer to apply within the prescribed period under the administrative issuance would
impair the value of the tax treaty. At most, the application for a tax treaty relief from the
BIR should merely operate to confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of
RMO No. 1-2000. Logically, noncompliance with tax treaties has negative implications
on international relations, and unduly discourages foreign investors. While the
consequences sought to be prevented by RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other system management processes, e.g.,
the imposition of a fine or penalty. But we cannot totally deprive those who are entitled to
the benefit of a treaty for failure to strictly comply with an administrative issuance
requiring prior application for tax treaty relief.
1wphi1

Prior Application vs. Claim for Refund

Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or
application of the treaty provisions. The objective of the BIR is to forestall assessments
against corporations who erroneously availed themselves of the benefits of the tax treaty
but are not legally entitled thereto, as well as to save such investors from the tedious
process of claims for a refund due to an inaccurate application of the tax treaty
provisions. However, as earlier discussed, noncompliance with the 15-day period for prior
application should not operate to automatically divest entitlement to the tax treaty relief
especially in claims for refund.
The underlying principle of prior application with the BIR becomes moot in refund cases,
such as the present case, where the very basis of the claim is erroneous or there is
excessive payment arising from non-availment of a tax treaty relief at the first instance. In
this case, petitioner should not be faulted for not complying with RMO No. 1-2000 prior to
the transaction. It could not have applied for a tax treaty relief within the period
prescribed, or 15 days prior to the payment of its BPRT, precisely because it erroneously
paid the BPRT not on the basis of the preferential tax rate under
the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence,
the prior application requirement becomes illogical. Therefore, the fact that petitioner
invoked the provisions of the RP-Germany Tax Treaty when it requested for a
confirmation from the ITAD before filing an administrative claim for a refund should be
deemed substantial compliance with RMO No. 1-2000.
Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for tax
recovery when there has been an erroneous payment of tax. The outright denial of
petitioners claim for a refund, on the sole ground of failure to apply for a tax treaty relief
prior to the payment of the BPRT, would defeat the purpose of Section 229.
1wphi1

Petitioner is entitled to a refund

It is significant to emphasize that petitioner applied though belatedly for a tax treaty
relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR would have
confirmed whether petitioner was entitled to the lower rate of 10% BPRT pursuant to the
RP-Germany Tax Treaty.
Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:

Based on the evidence presented, both documentary and testimonial, petitioner was able
to establish the following facts:
a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a
corporation organized and existing under the laws of the Federal Republic of
Germany;
b. That on October 21, 2003, it filed its Monthly Remittance Return of Final
Income Taxes Withheld under BIR Form No. 1601-F and remitted the amount
of P67,688,553.51 as branch profits remittance tax with the BIR; and
c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a
clearance, petitioner remitted to Frankfurt Head Office the amount of
EUR5,174,847.38 (or P330,175,961.88 at 63.804 Peso/Euro) representing its
2002 profits remittance.22
The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its
RBU net income, due for remittance to DB Germany amounting to PHP 451,257,023.29
for 2002 and prior taxable years.23
Likewise, both the administrative and the judicial actions were filed within the two-year
prescriptive period pursuant to Section 229 of the NIRC.24
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of
10% BPRT in accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income
amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10%
BPRT. Thus, it is proper to grant petitioner a refund ofthe difference between the PHP
67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP
22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the
Court of Tax Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July
2009 are REVERSED and SET ASIDE. A new one is hereby entered ordering respondent
Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of
petitioner Deutsche Bank AG Manila Branch the amount of TWENTY TWO MILLION
FIVE HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND
SEVENTEEN CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the
erroneously paid BPRT for 2002 and prior taxable years.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
LUCAS P. BERSAMIN
Associate Justice

JOSE C. MENDOZA*
Associate Justice

BIENVENIDO L. REYES
Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned, to the
writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
Designated additional member in lieu of Associate Justice Martin S. Villarama,
Jr. per Special Order No. 1502.
*

Rollo, pp. 12-60.

Id. at 68-78; penned by Associate Justice Lovell R. Bautista and concurred in by

then Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C.
Castaneda Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez.
2

Id. at 79-80.

SEC. 28. Rates of Income Tax on Foreign Corporations.(A) Tax on Resident Foreign Corporations.xxxx
(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to
its head office shall be subject to a tax of fifteen percent (15%) which
shall be based on the total profits applied or earmarked for remittance
without any deduction for the tax component thereof (except those
activities which are registered with the Philippine Economic Zone
Authority). The tax shall be collected and paid in the same manner as
provided in Sections 57 and 58 of this Code: Provided, That interests,
dividends, rents, royalties, including remuneration for technical services,
salaries, wages, premiums, annuities, emoluments or other fixed or
determinable annual, periodic or casual gains, profits, income and capital
gains received by a foreign corporation during each taxable year from all
sources within the Philippines shall not be treated as branch profits
unless the same are effectively connected with the conduct of its trade or
business in the Philippines.

Rollo, pp. 69-70.

Id. at 70.

Id. at 150-157.

Id. at 109-125; CTA Second Division Decision dated 29 August 2008, penned by
Associate Justice Erlinda P. Uy and concurred in by Associate Justices Juanito C.
Castaeda, Jr. and Olga Palanca-Enriquez.
8

C.T.A. EB No. 40 (CTA Case No. 6382), 7 June 2005, penned by Associate
Justice Erlinda P. Uy and concurred in by then Presiding Justice Ernesto D.
Acosta, and Associate Justices Juanito C. Castaeda Jr., Lovell R. Bautista,
Caesar A. Casanova and Olga Palanca-Enriquez. The case was affirmed by the
Supreme Court in the Resolutions dated 12 November 2007 and 18 February
2008 in G.R. No. 168531; (visited 5 June 2013). Pertinent portion of Mirant
provides:
9

"However, it must be remembered that a foreign corporation wishing to

avail of the benefits of the tax treaty should invoke the provisions of the
tax treaty and prove that indeed the provisions of the tax treaty applies to
it, before the benefits may be extended to such corporation. In other
words, a resident or non-resident foreign corporation shall be taxed
according to the provisions of the National Internal Revenue Code, unless
it is shown that the treaty provisions apply to the said corporation, and
that, in cases the same are applicable, the option to avail of the tax
benefits under the tax treaty has been successfully invoked.
Under Revenue Memorandum Order 01-2000 of the Bureau of Internal
Revenue, it is provided that the availment of a tax treaty provision must
be preceded by an application for a tax treaty relief with its International
Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation
and/or application of the treaty provisions with which the Philippines is a
signatory to. The implementation of the said Revenue Memorandum
Order is in harmony with the objectives of the contracting state to ensure
that the granting of the benefits under the tax treaties are enjoyed by the
persons or corporations duly entitled to the same."
10

Supra note 2.

11

SC Minute Resolutions dated 12 November 2007 and 18 February 2008.

CBK Power Company Limited v. Commissioner of Internal Revenue, C.T.A.

Case Nos. 6699, 6884 & 7166, 12 February 1999, penned by Associate Justice
Caesar A. Casanova and concurred in by then Presiding Justice Ernesto D.
Acosta and Associate Justice Lovell R. Bautista.
12

13

REVENUE MEMORANDUM ORDER NO. 01-00

SUBJECT : Procedures for Processing Tax Treaty Relief Application
TO : All Internal Revenue Officers and Others Concerned
I. Objectives:
This Order is issued to streamline the processing of the tax treaty relief
application in order to improve efficiency and service to the taxpayers.
Furthermore, it is to the best interest of both the taxpayer and the Bureau
of Internal Revenue that any availment of the tax treaty provisions be
preceded by an application for treaty relief with the International Tax

Affairs Division (ITAD). In this way, the consequences of any erroneous

interpretation and/or application of the treaty provisions (i.e., claim for tax
refund/credit for overpayment of taxes, or deficiency tax liabilities for
underpayment) can be averted before proceeding with the transaction
and or paying the tax liability covered by the tax treaty.
xxxx
III. Policies:
In order to achieve the above-mentioned objectives, the following policies
shall be observed:
xxxx
2. Any availment of the tax treaty relief shall be preceded by an
application by filing BIR Form No. 0901 (Application for Relief from
Double Taxation) with ITAD at least 15 days before the transaction i.e.
payment of dividends, royalties, etc., accompanied by supporting
documents justifying the relief. Consequently, BIR Form Nos. TC 001 and
TC 002 prescribed under RMO 10-92 are hereby declared obsolete.
x x x x.
14

G.R. No. 167330, 18 September 2009, 600 SCRA 413, 446-447.

15

Art. 2, Sec. 2.

16

Vienna Convention on the Law on Treaties (1969), Art. 26.

Luna v. Court of Appeals, G.R. No. 100374-75, 27 November 1992, 216 SCRA
107, 111-112.
17

18

CIR v. S.C. Johnson and Son, Inc., 368 Phil. 388, 404 (1999).

19

Id. at 404-405.

20

Taada v. Angara, 388 Phil. 546, 592 (1997).

Section 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.
21

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.
22

Rollo. pp.114-115.

23

Id. at 117-118.

24

Id. at 117.

Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 179260

April 2, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
TEAM [PHILIPPINES] OPERATIONS CORPORATION [formerly MIRANT (PHILS)
OPERATIONS CORPORATION], Respondent.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside
the 19 June 2007 Decision and the 13 August 2007 Resolution of the Court of Tax
Appeals (CTA) En Banc in C.T.A. EB No. 224 which affirmed in toto the Decision and
Resolution dated 4 August 2006 and 8 November 2006, respectively, of the First Division
of the CTA (CTA in Division) in C.T.A. Case No. 6623, granting Team (Philippines)
Operations Corporations (respondent) claim for refund in the amount of P69,562,412.00
representing unutilized tax credits for taxable period ending 31 December 2001.
1

The Facts
The factual antecedents of the case are undisputed:
Petitioner is the duly appointed Commissioner of Internal Revenue, charged with the duty
of enforcing the provisions of the National Internal Revenue Code (NIRC), including the
power to decide and approve administrative claims for refund.
Respondent, on the other hand, is a corporation duly organized and existing under and
virtue of the laws of the Republic of the Philippines, with its principal office at Bo. Ibabang
Pulo, Pagbilao Grande Island, Pagbilao, Quezon Province. It is primarily engaged in the
business of designing, constructing, erecting, assembling, commissioning, operating,
maintaining, rehabilitating and managing gas turbine and other power generating plants
and related facilities for the conversion into electricity of coal, distillate and other fuels
provided by and under contract with the Government of the Republic of the Philippines,
or any subdivision, instrumentality or agency thereof, or any government owned or

controlled corporations or other entity engaged in the development, supply or distribution

of energy.
On 30 April 2001, respondent secured from the Securities and Exchange Commission
(SEC) its Certificate of Filing of Amended Articles of Incorporation, reflecting its change of
name from Southern Energy Asia-Pacific Operations (Phils.), Inc. to Mirant (Philippines)
Operations Corporation. Prior to its use of the name Southern Energy Asia-Pacific
Operations (Phils.), Inc., respondent operated under the corporate names CEPA
Operations (Philippines) Corporation, CEPA Tileman Project Management Corporation
and Hopewell Tileman Project Management Corporation. The changes in respondents
corporate name from CEPA Operations (Philippines) Corp. to Southern Energy AsiaPacific Operations (Phils.) Inc., from CEPA Tileman Project Management Corporation to
CEPA Operations (Philippines) Corp. and from Hopewell Tileman Project Management
Corporation to CEPA Tileman Project Management Corp., were approved by the SEC on
24 November 2000, 21 November 1997 and 29 July 1994, respectively.
Under its original corporate name, Hopewell Tileman Project Management Corp.,
respondent was registered with the Bureau of Internal Revenue (BIR) with Tax
Identification No. 003-057-796 as shown by its original BIR Certificate of Registration
issued on 29 March 1994.
In line with its primary purpose, respondent entered into Operating and Management
Agreements with Mirant Pagbilao Corporation (MPC) [formerly Southern Energy Quezon,
Inc.] and Mirant Sual Corporation (MSC) [formerly Southern Energy Pangasinan, Inc.] to
provide MPC and MSC with operation and maintenance services in connection with the
operation, construction and commissioning of the coal-fired thermal power stations
situated in Pagbilao, Quezon and Sual, Pangasinan, respectively. Payments received by
respondent from MPC and MSC relative to the said agreements were allegedly subjected
to creditable withholding taxes.
On 15 April 2002, respondent filed its 2001 income tax return with the BIR, reporting an
income tax overpayment in the amount of P69,562,412.00 arising from unutilized
creditable taxes withheld during the year, detailed as follows:
4

Sales/Revenues
Less: Cost of Sales/Services
Gross Income from Operation
Add: Non-Operating & Other Income
Total Gross Income
Less: Deductions
Taxable Income
Tax Rate
Income Tax

P922,569,303.00
938,543,252.00
(P15,973,949.00)
74,995,982.00
P 59,022,033.00
59,022,033.00
32%
NIL

Less: Tax Credits/Payments

Creditable Tax Withheld for the
First Three Quarters
Creditable Tax Withheld for the

P 27,784,217.00

Fourth Quarter

41,778,195.00

Total Tax Credits/Payments

Tax Payable/(Overpayment)

P 69,652,412.00
(P69,562,412.00)

Respondent marked the appropriate box manifesting its intent to have the above
overpayment refunded.
On 19 March 2003, pursuant to Section 76 in relation to Section 204 of the NIRC of 1997,
as amended, respondent filed with the BIR, a letter requesting for the refund or issuance
of a tax credit certificate corresponding to its reported unutilized creditable withholding
taxes for taxable year 2001 in the amount of P69,562,412.00.
Thereafter, on 27 March 2003, respondent filed a Petition for Review before the CTA, in
order to toll the running of the two-year prescriptive period provided under Section 229 of
the NIRC of 1997, as amended, which was docketed as C.T.A. Case No. 6623.
The Ruling of the CTA in Division
In a Decision dated 4 August 2006, the CTA in Division granted respondents Petition
and ordered petitioner to refund or issue a tax credit certificate in favor of the former the
entire amount of P69,562,412.00, representing its unutilized tax credits for the taxable
year ended 31 December 2001.
5

The CTA in Division based its ruling on the numerous documentary evidence presented
by respondent during the proceedings, such as its Income Tax Returns (ITRs) for taxable
years 2001 and 2002, various Certificates of Creditable Tax Withheld at Source for
taxable year 2001 duly issued to it by its withholding agents, and Report of the
Commissioned Independent Certified Public Accountant dated 15 March 2004, among
others. The court a quo reasoned that respondent has indeed established its entitlement
to a refund/tax credit of its excess creditable withholding taxes in compliance with the
following basic requirements: (1) that the claim for refund (or issuance of a tax credit
certificate) was filed within the two-year prescriptive period prescribed under Section
204(C), in relation to Section 229 of the NIRC of 1997, as amended; (2) that the fact of
withholding is established by a copy of a statement duly issued by the payor (withholding
agent) to the payee, showing the amount paid and the amount of tax withheld therefrom;
and (3) that the income upon which the taxes were withheld was included in the return of
the recipient.
6

Subsequently, on 8 November 2006, the CTA in Division denied petitioners Motion for
Reconsideration for lack of merit.
7

Aggrieved, petitioner appealed to the CTA En Banc by filing a Petition for Review
pursuant to Section 18 of Republic Act (RA) No. 1125, as amended by RA No. 9282 on 6
December 2006, docketed as CTA EB No. 224.
8

The Ruling of the CTA En Banc

The CTA En Banc affirmed in toto both the aforesaid Decision and Resolution rendered
by the CTA in Division in CTA Case No. 6623, pronouncing that there was no cogent
reason to disturb the findings and conclusion spelled out therein. It revealed that what the
petition seeks to accomplish was for the CTA En Banc to view and appreciate the
evidence in another perspective, which unfortunately had already been considered and
passed upon correctly by the CTA in Division.

Upon denial of petitioners Motion for Reconsideration of the 19 June 2007 Decision of
the CTA En Banc, it filed this Petition for Review on Certiorari before this Court seeking
the reversal of the aforementioned Decision and the 13 August 2007
Resolution rendered in CTA EB No. 224. Petitioner relies on the sole ground that the
CTA En Banc gravely erred on a question of law in affirming the CTA in Divisions ruling
which ordered a refund or issuance of tax credit certificate in favor of respondent despite
the fact that it is not supported by the evidence on record.
9

10

11

12

The Issue and Our Ruling

The core issue for the Courts resolution is whether or not respondent has established its
entitlement for the refund or issuance of a tax credit certificate in its favor the entire
amount of P69,562,412.00 representing its unutilized tax credits for taxable year ended
31 December 2001, pursuant to the applicable provisions of the NIRC of 1997, as
amended.
This is not novel.
In order to be entitled to a refund claim or issuance of a tax credit certificate representing
any excess or unutilized creditable withholding tax, it must be shown that the claimant
has complied with the essential basic conditions set forth under pertinent provisions of
law and existing jurisprudential declarations.
In Banco Filipino Savings and Mortgage Bank v. Court of Appeals, this Court had
previously articulated that there are three essential conditions for the grant of a claim for
refund of creditable withholding income tax, to wit: (1) the claim is filed with the
Commissioner of Internal Revenue within the two-year period from the date of payment
of the tax; (2) it is shown on the return of the recipient that the income payment received
was declared as part of the gross income; and (3) the fact of withholding is established
by a copy of a statement duly issued by the payor to the payee showing the amount paid
and the amount of the tax withheld therefrom.
13

14

15

The first condition is pursuant to Sections 204(C) and 229 of the NIRC of 1997, as
amended, viz:
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. The Commissioner may
xxxx
(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. (Emphasis
supplied)
xxxx
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 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 supplied)
The second and third conditions are anchored on Section 2.58.3(B) of Revenue
Regulations No. 2-98, which states:
16

Sec. 2.58.3.Claim for Tax Credit or Refund

xxxx
(B) Claims for tax credit or refund of any creditable income tax which was deducted and
withheld on income payments shall be given due course only when it is shown that the
income payment has been declared as part of the gross income and the fact of
withholding is established by a copy of the withholding tax statement duly issued by the
payor to the payee showing the amount paid and the amount of tax withheld therefrom.
(Emphasis supplied)
In addition to the abovementioned requisites, the NIRC of 1997, as amended, likewise
provides for the strict observance of the concept of the irrevocability rule, the focal
provision of which is Section 76 thereof, quoted hereunder for easy reference:
17

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 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)
Applying the foregoing discussion to the present case, we find that respondent had
indeed complied with the abovementioned requirements.

Here, it is undisputed that the claim for refund was filed within the two-year prescriptive
period prescribed under Section 229 of the NIRC of 1997, as amended. Respondent
filed its income tax return for taxable year 2001 on 15 April 2002. Counting from said
date, it indeed had until 14 April 2004 within which to file its claim for refund or issuance
of tax credit certificate in its favor both administratively and judicially. Thus, petitioners
administrative claim and petition for review filed on 19 March 2003 and 27 March 2003,
respectively, fell within the abovementioned prescriptive period.
18

19

20

Likewise, respondent was able to present various certificates of creditable tax withheld at
source from its payors, MPC and MSC, for taxable year 2001, showing creditable
withholding taxes in the aggregate amount ofP70,805,771.42 (although the refund claim
was only P69,562,412.00). Moreover, as determined by the CTA in Division, respondent
declared the income related to the claimed creditable withholding taxes
of P69,562,412.00 on its return.
21

22

Lastly, in compliance with Section 76 of the NIRC of 1997, as amended, respondent

opted to be refunded of its unutilized tax credit (as evidenced by the "x" mark in the
appropriate box of its 2001 income tax return), and the same was not carried over in its
2002 income tax return; therefore, the entire amount of P69,562,412.00 may be a proper
subject of a claim for refund/tax credit certificate.
23

It is apt to restate here the hornbook doctrine that the findings and conclusions of the
CTA are accorded the highest respect and will not be lightly set aside. The CTA, by the
very nature of its functions, is dedicated exclusively to the resolution of tax problems and
has accordingly developed an expertise on the subject unless there has been an abusive
or improvident exercise of authority.
24

Consequently, its conclusions will not be overturned unless there has been an abuse or
improvident exercise of authority. Its findings can only be disturbed on appeal if they are
not supported by substantial evidence or there is a showing of gross error or abuse on
the part of the Tax Court. In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered a decision which is valid in
every respect.
25

The Court in this case agrees with the conclusion of the CTA in Division and subsequent
affirmation of the CTA En Banc that respondent complied with all the requirements for the
refund of its unutilized creditable withholding taxes for taxable period ending 31
December 2001. We adopt the factual and legal findings as follows:
On the first ground, [petitioner] argues that [respondent] failed to present the various
withholding agents/payors to testify on the validity of the contents of the Certificates of
Creditable Tax Withheld at Source ("certificates"). Thus, the certificates presented by
[respondent] are not valid. And even assuming that the certificates are valid, this Court
cannot entertain the claim for refund/tax credit certificates because the certificates were
not submitted to [petitioner].
[Petitioners] arguments are untenable since the certificates presented (Exhibits "R", "S",
"T", "U", "V", "W", and "X") were duly signed and prepared under penalties of perjury, the
figures appearing therein are presumed to be true and correct. Thus, the testimony of the
various agents/payors need not be presented to validate the authenticity of the
certificates.
In addition, that [respondent] did not submit the certificates to the [petitioner] is of no
moment. The administrative and judicial claim for refund and/or tax credit certificates
must be filed within the two-year prescriptive period starting from the date of payment of
the tax (Section 229, NIRC). In the instant case, [respondent] filed its judicial claim (after

filing its administrative claim) precisely to preserve its right to claim. Otherwise,
[respondent's] right to the claim would have been barred. Considering that this [c]ourt
had jurisdiction over the claim, frespondent] rightfully presented the certificates before
this [c]ourt. Besides, any records that [petitioner] may have on the administrative claim
would eventually be transmitted to this [c]ourt under Section S(b), Rule 6 of the Revised
Rules of the Court of (Tax) Appeals.
As for the second ground, this [ c ]ourt finds [petitioner's] contention unmeritorious. The
requirements for claiming a tax refund/tax credit certificates had been laid down in
Citibank N.A. vs. Court of Appeals, G.R. No. 107434, October 10, 1997. Nowhere in the
case cited is proof of actual remittance of the withheld taxes to the [petitioner] required
before the taxpayer may claim for a tax refund/tax credit certificates. (Emphasis
supplied)
1wphi1

26

In the same vein, this Court finds no abusive or improvident exercise of authority on the
part of the CT A in Division. Since there is no showing of gross error or abuse on the part
of the CT A in Division, and its findings are supported by substantial evidence which were
thoroughly considered during the trial, there is no cogent reason to disturb its findings
and conclusions.
All told, respondent complied with all the legal requirements and it is entitled, as it opted,
to a refund of its excess creditable withholding tax for the taxable year 2001 in the
amount of P69,562,412.00.
WHEREFORE, the petition is hereby DENIED for lack of merit. Accordingly, the Decision
dated 19 June 2007 and Resolution dated 13 August 2007 of the CTA En Banc are
hereby AFFIRMED. No costs.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R T I F I C AT I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's
Attestation, it is hereby certified that the conclusions in the above Decision were reached
in consultation before the case was assigned to the writer of the opinion of the Court's
Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
Rollo, pp. 46-57; Penned by Associate Justice Caesar A. Casanova with
Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C. Castaneda,
Jr., Lovell R. Bautista, Erlinda P. Uy and Olga Palanca-Enriquez concurring.
1

Id. at 59-61.

CTA in Division rollo, pp. 456-465 and 486-488, respectively; Chaired by

Presiding Justice Ernesto D. Acosta with Associate Justices Lovell R. Bautista
and Caesar A. Casanova as members.
3

Rollo, p. 48.

CTA in Division rollo, pp. 456-465.

Id. at 462.

Id. at 486-488.

RA No. 1125, otherwise known as "An Act Creating the Court of Tax Appeals,"
as amended by RA No. 9282, also known as "An Act Expanding the Jurisdiction
of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate
Court with Special Jurisdiction and Enlarging its Membership, Amending for the
Purpose Certain Sections of Republic Act No. 1125, As Amended, Otherwise
Known As the Law Creating the Court of Tax Appeals, and for Other Purposes,"
which took effect on 23 April 2004.
8

10

Rollo, pp. 9-20.

Id. at 22-24.

Id. at 189-190. On 23 March 2009, this Court has resolved to note and grant
respondents motion to change caption of this case to reflect the new corporate
name of respondent to "Commissioner of Internal Revenue vs. Team (Philippines)
Operations Corporation". (Underscoring supplied)
11

12

Id. at 33.

548 Phil. 32, 36-37 (2007). See also Commissioner of Internal Revenue v. Far
East Bank & Trust Company (now Bank of the Philippine Islands), G.R. No.
173854, 15 March 2010, 615 SCRA 417, 424.
13

Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence, 329 (2006)
citing Gibb v. Collector, 107 Phil. 230 (1960).
14

Calamba Steel Center, Inc. v. Commissioner on Internal Revenue, 497 Phil. 23,
32 (2005).
15

SUBJECT: Implementing Republic Act No. 8424, "An Act Amending The
National Internal Revenue Code, as Amended" Relative to the Withholding on
Income Subject to the Expanded Withholding Tax and Final Withholding Tax,
Withholding on Income Tax on Compensation, Withholding of Creditable ValueAdded Tax and Other Percentage Taxes.
16

Section 76 gives two options to a taxable corporation who is entitled to a tax

credit or refund of the excess income taxes paid in a given taxable year, namely:
(1) to carry-over the excess credit to the quarters of the succeeding taxable
years; or (2) to apply for the issuance of a tax credit certificate or to claim a cash
refund. However, once the option to carry over has been made, such shall be
irrevocable for that taxable period and no application for cash refund or issuance
of tax credit certificate shall be allowed. This is known as the irrevocability rule.
(See Philam Asset Management, Inc. v. Commissioner of Internal Revenue, 514
Phil. 147, 162 [2005]).
17

It bears emphasis that the operation of the irrevocability rule not only
removes from the taxpayer the option for cash refund or tax credit, after
the taxpayer opts to carry-over its excess tax credit to the following
taxable period, the question of whether or not it actually gets to apply said
tax credit does not matter. Section 76 of the NIRC of 1997 is explicit in
stating that once the option to carry over has been made, "no application
for tax refund or issuance of a tax credit certificate shall be allowed
therefor." In other words, once the carry-over option is taken, actually or
constructively, it becomes irrevocable. The aforesaid section mentioned
no exception or qualification to the irrevocability rule. (See Commissioner
of Internal Revenue v. Bank of the Philippine Islands, G.R. No. 178490, 7
July 2009, 592 SCRA 219, 231).
Furthermore, the last sentence of Section 76, which mentioned of the
phrase "for that taxable period", merely identifies the excess income tax,
subject of the option, by referring to the taxable period when it was
acquired by the taxpayer. Hence, the evident intent of the legislature, in
adding the last sentence to Section 76 of the NIRC of 1997, as amended,
is to keep the taxpayer from flip-flopping on its options, and avoid
confusion and complication as regards said taxpayers excess tax credit.
(See Commissioner of Internal Revenue v. Bank of the Philippine Islands,
G.R. No. 178490, 7 July 2009, 592 SCRA 219, 231-232 and
Commissioner of Internal Revenue v. PL Management International
Philippines, Inc., G.R. No. 160949, 4 April 2011, 647 SCRA 72, 81).
Clearly, the corporation must signify in its Annual Corporate Adjustment
Return (by marking the option box provided in the BIR form) its intention,
whether to request a refund or claim an automatic tax credit for the
succeeding taxable year. To reiterate, these remedies are in the
alternative, and the choice of one precludes the other (See PBCom. v.
Commissioner of Internal Revenue, 361 Phil. 916, 932 [1999]).
See ACCRA Investments Corporation v. Court of Appeals, G.R. No. 96322, 20
December 1991, 204 SCRA 957, 963-964, where the Court ruled that the two18

year prescriptive period commences to run on the date when the final adjustment
return is filed, as that is the date when ACCRA could ascertain whether it made a
profit or incurred losses in its business operation. The Court therein stated that,
"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 reckoning of the two-year prescriptive period for the filing of the claim for
refund/tax credit certificates of excess creditable withholding tax/quarterly income
tax payment starts from the date of filing of the annual income tax return [See
ACCRA Investments Corporation v. Court of Appeals, et al., G.R. No. 96322, 20
December 1991, 204 SCRA 957; Commissioner of Internal Revenue v.TMX
Sales, Inc., G.R No. 83736, 15 January 1992, 205 SCRA 184, 192] because it is
only from this time that the refund is ascertained [See Com. of Internal Revenue
v. Philamlife, 314 Phil. 349, 366 (1995)].
19

20

Taxable year 2004 being a leap year.

21

CTA in Division rollo, p. 463.

22

Id. at 463-464.

23

Id. at 461-462.

Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal

Revenue, G.R. No. 157594, 9 March 2010, 614 SCRA 526, 561 citing
Commissioner of Internal Revenue v. Cebu Toyo Corporation, 491 Phil. 625, 640
(2005).
24

Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v.

Commissioner of Internal Revenue, 529 Phil. 785, 795 (2006) citing Sea-Land
Service Inc. v. Court of Appeals, G.R. No. 122605, 30 April 2001, 357 SCRA 441,
445-446 and Commissioner of Internal Revenue v. Mitsubishi Metal Corp., G.R.
No. 54908, 22 January 1990, 181 SCRA 214, 220.
25

26

CTA in Division rollo, pp. 487-488.

Republic of the Philippines

SUPREME COURT
Baguio
FIRST DIVISION
G.R. No. 188497

April 25, 2012

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Petitioner Commissioner of Internal Revenue appeals the Decision 1 dated March 25,
2009 and Resolution2 dated June 24, 2009 of the Court of Tax Appeals (CTA) En Banc in
CTA EB No. 415. The CTA dismissed the petition for review filed by petitioner assailing
the CTA First Divisions Decision3 dated April 25, 2008 and Resolution4 dated July 10,
2008 which ordered petitioner to refund the excise taxes paid by respondent Pilipinas
Shell Petroleum Corporation on petroleum products it sold to international carriers.
The facts are not disputed.
Respondent is engaged in the business of processing, treating and refining petroleum for
the purpose of producing marketable products and the subsequent sale thereof. 5
On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation
Division II of the Bureau of Internal Revenue (BIR) a formal claim for refund or tax credit
in the total amount of P28,064,925.15, representing excise taxes it allegedly paid on
sales and deliveries of gas and fuel oils to various international carriers during the period
October to December 2001. Subsequently, on October 21, 2002, a similar claim for
refund or tax credit was filed by respondent with the BIR covering the period January to
March 2002 in the amount of P41,614,827.99. Again, on July 3, 2003, respondent filed
another formal claim for refund or tax credit in the amount ofP30,652,890.55 covering
deliveries from April to June 2002.6
Since no action was taken by the petitioner on its claims, respondent filed petitions for
review before the CTA on September 19, 2003 and December 23, 2003, docketed as
CTA Case Nos. 6775 and 6839, respectively.
In its decision on the consolidated cases, the CTAs First Division ruled that respondent is
entitled to the refund of excise taxes in the reduced amount of P95,014,283.00. The CTA
First Division relied on a previous ruling rendered by the CTA En Banc in the case of
"Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue"7where the
CTA also granted respondents claim for refund on the basis of excise tax exemption for
petroleum products sold to international carriers of foreign registry for their use or
consumption outside the Philippines. Petitioners motion for reconsideration was denied
by the CTA First Division.
Petitioner elevated the case to the CTA En Banc which upheld the ruling of the First
Division. The CTA pointed out the specific exemption mentioned under Section 135 of
the National Internal Revenue Code of 1997 (NIRC) of petroleum products sold to
international carriers such as respondents clients. It said that this Courts ruling in
Maceda v. Macaraig, Jr.8 is inapplicable because said case only put to rest the issue of
whether or not the National Power Corporation (NPC) is subject to tax considering that
NPC is a tax-exempt entity mentioned in Sec. 135 (c) of the NIRC (1997), whereas the
present case involves the tax exemption of the sale of petroleum under Sec. 135 (a) of
the same Code. Further, the CTA said that the ruling in Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue9 likewise finds no application because the party
asking for the refund in said case was the seller-producer based on the exemption
granted under the law to the tax-exempt buyers, NPC and Voice of America (VOA),

whereas in this case it is the article or product which is exempt from tax and not the
international carrier.
Petitioner filed a motion for reconsideration which the CTA likewise denied.
Hence, this petition anchored on the following grounds:
I
SECTION 148 OF THE NATIONAL INTERNAL REVENUE CODE EXPRESSLY
SUBJECTS THE PETROLEUM PRODUCTS TO AN EXCISE TAX BEFORE THEY ARE
REMOVED FROM THE PLACE OF PRODUCTION.
II
THE ONLY SPECIFIC PROVISION OF THE LAW WHICH GRANTS TAX CREDIT OR
TAX REFUND OF THE EXCISE TAXES PAID REFERS TO THOSE CASES WHERE
GOODS LOCALLY PRODUCED OR MANUFACTURED ARE ACTUALLY EXPORTED
WHICH IS NOT SO IN THIS CASE.
III
THE PRINCIPLES LAID DOWN IN MACEDA VS. MACARAIG, JR. AND PHILIPPINE
ACETYLENE CO. VS. CIR ARE APPLICABLE TO THIS CASE. 10
The Solicitor General argues that the obvious intent of the law is to grant excise tax
exemption to international carriers and exempt entities as buyers of petroleum products
and not to the manufacturers or producers of said goods. Since the excise taxes are
collected from manufacturers or producers before removal of the domestic products from
the place of production, respondent paid the subject excise taxes as manufacturer or
producer of the petroleum products pursuant to Sec. 148 of the NIRC. Thus, regardless
of who the buyer/purchaser is, the excise tax on petroleum products attached to the said
goods before their sale or delivery to international carriers, as in fact respondent averred
that it paid the excise tax on its petroleum products when it "withdrew petroleum products
from its place of production for eventual sale and delivery to various international carriers
as well as to other customers."11 Sec. 135 (a) and (c) granting exemption from the
payment of excise tax on petroleum products can only be interpreted to mean that the
respondent cannot pass on to international carriers and exempt agencies the excise
taxes it paid as a manufacturer or producer.
As to whether respondent has the right to file a claim for refund or tax credit for the
excise taxes it paid for the petroleum products sold to international carriers, the Solicitor
General contends that Sec. 130 (D) is explicit on the circumstances under which a
taxpayer may claim for a refund of excise taxes paid on manufactured products, which
express enumeration did not include those excise taxes paid on petroleum products
which were eventually sold to international carriers (expressio unius est exclusio alterius).
Further, the Solicitor General asserts that contrary to the conclusion made by the CTA,
the principles laid down by this Court in Maceda v. Macaraig, Jr.12 and Philippine
Acetylene Co. v. Commissioner of Internal Revenue13 are applicable to this case.
Respondent must shoulder the excise taxes it previously paid on petroleum products
which it later sold to international carriers because it cannot pass on the tax burden to the
said international carriers which have been granted exemption under Sec. 135 (a) of the
NIRC. Considering that respondent failed to prove an express grant of a right to a tax
refund, such claim cannot be implied; hence, it must be denied.

On the other hand, respondent maintains that since petroleum products sold to qualified
international carriers are exempt from excise tax, no taxes should be imposed on the
article, to which goods the tax attaches, whether in the hands of the said international
carriers or the petroleum manufacturer or producer. As these excise taxes have been
erroneously paid taxes, they can be recovered under Sec. 229 of the NIRC. Respondent
contends that contrary to petitioners assertion, Sections 204 and 229 authorizes
respondent to maintain a suit or proceeding to recover such erroneously paid taxes on
the petroleum products sold to tax-exempt international carriers.
As to the jurisprudence cited by the petitioner, respondent argues that they are not
applicable to the case at bar. It points out that Maceda v. Macaraig, Jr. is an adjudication
on the issue of tax exemption of NPC from direct and indirect taxes given the passage of
various laws relating thereto. What was put in issue in said case was NPCs right to claim
for refund of indirect taxes. Here, respondents claim for refund is not anchored on the
exemption of the buyer from direct and indirect taxes but on the tax exemption of the
goods themselves under Sec. 135. Respondent further stressed that in Maceda v.
Macaraig, Jr., this Court recognized that if NPC purchases oil from oil companies, NPC is
entitled to claim reimbursement from the BIR for that part of the purchase price that
represents excise taxes paid by the oil company to the BIR. Philippine Acetylene Co. v.
CIR, on the other hand, involved sales tax, which is a tax on the transaction, which this
Court held as due from the seller even if such tax cannot be passed on to the buyers who
are tax-exempt entities. In this case, the excise tax is a tax on the goods themselves.
While indeed it is the manufacturer who has the duty to pay the said tax, by specific
provision of law, Sec. 135, the goods are stripped of such tax under the circumstances
provided therein. Philippine Acetylene Co., Inc. v. CIR was thus not anchored on an
exempting provision of law but merely on the argument that the tax burden cannot be
passed on to someone.
Respondent further contends that requiring it to shoulder the burden of excise taxes on
petroleum products sold to international carriers would effectively defeat the principle of
international comity upon which the grant of tax exemption on aviation fuel used in
international flights was founded. If the excise taxes paid by respondent are not allowed
to be refunded or credited based on the exemption provided in Sec. 135 (a), respondent
avers that the manufacturers or oil companies would then be constrained to shift the tax
burden to international carriers in the form of addition to the selling price.
Respondent cites as an analogous case Commissioner of International Revenue v. Tours
Specialists, Inc.14 which involved the inclusion of hotel room charges remitted by partner
foreign tour agents in respondent TSIs gross receipts for purposes of computing the 3%
contractors tax. TSI opposed the deficiency assessment invoking, among others,
Presidential Decree No. 31, which exempts foreign tourists from paying hotel room tax.
This Court upheld the CTA in ruling that while CIR may claim that the 3% contractors tax
is imposed upon a different incidence, i.e., the gross receipts of the tourist agency which
he asserts includes the hotel room charges entrusted to it, the effect would be to impose
a tax, and though different, it nonetheless imposes a tax actually on room charges. One
way or the other, said the CTA, it would not have the effect of promoting tourism in the
Philippines as that would increase the costs or expenses by the addition of a hotel room
tax in the overall expenses of said tourists.
The instant petition squarely raised the issue of whether respondent as manufacturer or
producer of petroleum products is exempt from the payment of excise tax on such
petroleum products it sold to international carriers.
In the previous cases15 decided by this Court involving excise taxes on petroleum
products sold to international carriers, what was only resolved is the question of who is
the proper party to claim the refund of excise taxes paid on petroleum products if such

tax was either paid by the international carriers themselves or incorporated into the
selling price of the petroleum products sold to them. We have ruled in the said cases that
the statutory taxpayer, the local manufacturer of the petroleum products who is directly
liable for the payment of excise tax on the said goods, is the proper party to seek a tax
refund. Thus, a foreign airline company who purchased locally manufactured petroleum
products for use in its international flights, as well as a foreign oil company who likewise
bought petroleum products from local manufacturers and later sold these to international
carriers, have no legal personality to file a claim for tax refund or credit of excise taxes
previously paid by the local manufacturers even if the latter passed on to the said buyers
the tax burden in the form of additional amount in the price.
Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain
specified goods or articles manufactured or produced in the Philippines for domestic
sales or consumption or for any other disposition and to things imported into the
Philippines. These taxes are imposed in addition to the value-added tax (VAT). 16
As to petroleum products, Sec. 148 provides that excise taxes attach to the following
refined and manufactured mineral oils and motor fuels as soon as they are in existence
as such:
(a) Lubricating oils and greases;
(b) Processed gas;
(c) Waxes and petrolatum;
(d) Denatured alcohol to be used for motive power;
(e) Naphtha, regular gasoline and other similar products of distillation;
(f) Leaded premium gasoline;
(g) Aviation turbo jet fuel;
(h) Kerosene;
(i) Diesel fuel oil, and similar fuel oils having more or less the same generating
power;
(j) Liquefied petroleum gas;
(k) Asphalts; and
(l) Bunker fuel oil and similar fuel oils having more or less the same generating
capacity.
Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum
products and indigenous petroleum are required to be paid before their removal from the
place of production.17 However, Sec. 135 provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
Agencies. Petroleum products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or
consumption outside the Philippines: Provided, That the petroleum products sold

to these international carriers shall be stored in a bonded storage tank and may
be disposed of only in accordance with the rules and regulations to be prescribed
by the Secretary of Finance, upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other
international agreements for their use or consumption: Provided, however, That
the country of said foreign international carrier or exempt entities or agencies
exempts from similar taxes petroleum products sold to Philippine carriers, entities
or agencies; and
(c) Entities which are by law exempt from direct and indirect taxes.
Respondent claims it is entitled to a tax refund because those petroleum products it sold
to international carriers are not subject to excise tax, hence the excise taxes it paid upon
withdrawal of those products were erroneously or illegally collected and should not have
been paid in the first place. Since the excise tax exemption attached to the petroleum
products themselves, the manufacturer or producer is under no duty to pay the excise tax
thereon.
We disagree.
Under Chapter II "Exemption or Conditional Tax-Free Removal of Certain Goods" of Title
VI, Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified
goods or articles, whereas Sections 134 and 135 provide for tax exemptions. While the
exemption found in Sec. 134 makes reference to the nature and quality of the goods
manufactured (domestic denatured alcohol) without regard to the tax status of the buyer
of the said goods, Sec. 135 deals with the tax treatment of a specified article (petroleum
products) in relation to its buyer or consumer. Respondents failure to make this important
distinction apparently led it to mistakenly assume that the tax exemption under Sec. 135
(a) "attaches to the goods themselves" such that the excise tax should not have been
paid in the first place.
On July 26, 1996, petitioner Commissioner issued Revenue Regulations 8-96 18 ("Excise
Taxation of Petroleum Products") which provides:
SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum Products, NonMetallic Minerals and Indigenous Petroleum
I. Petroleum Products
xxxx
a) On locally manufactured petroleum products
The specific tax on petroleum products locally manufactured or produced in the
Philippines shall be paid by the manufacturer, producer, owner or person having
possession of the same, and such tax shall be paid within fifteen (15) days from date of
removal from the place of production. (Underscoring supplied.)
Thus, if an airline company purchased jet fuel from an unregistered supplier who could
not present proof of payment of specific tax, the company is liable to pay the specific tax
on the date of purchase.19 Since the excise tax must be paid upon withdrawal from the
place of production, respondent cannot anchor its claim for refund on the theory that the
excise taxes due thereon should not have been collected or paid in the first place.

Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An
"erroneous or illegal tax" is defined as one levied without statutory authority, or upon
property not subject to taxation or by some officer having no authority to levy the tax, or
one which is some other similar respect is illegal.20
Respondents locally manufactured petroleum products are clearly subject to excise tax
under Sec. 148. Hence, its claim for tax refund may not be predicated on Sec. 229 of the
NIRC allowing a refund of erroneous or excess payment of tax. Respondents claim is
premised on what it determined as a tax exemption "attaching to the goods themselves,"
which must be based on a statute granting tax exemption, or "the result of legislative
grace." Such a claim is to be construed strictissimi juris against the taxpayer, 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.21
The exemption from excise tax payment on petroleum products under Sec. 135 (a) is
conferred on international carriers who purchased the same for their use or consumption
outside the Philippines. The only condition set by law is for these petroleum products to
be stored in a bonded storage tank and may be disposed of only in accordance with the
rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
On January 22, 2008, or five years after the sale by respondent of the subject petroleum
products, then Secretary of Finance Margarito B. Teves issued Revenue Regulations No.
3-2008 "Amending Certain Provisions of Existing Revenue Regulations on the Granting
of Outright Excise Tax Exemption on Removal of Excisable Articles Intended for Export or
Sale/Delivery to International Carriers or to Tax-Exempt Entities/Agencies and
Prescribing the Provisions for Availing Claims for Product Replenishment." Said issuance
recognized the "tax relief to which the taxpayers are entitled" by availing of the following
remedies: (a) a claim for excise tax exemption pursuant to Sections 204 and 229 of the
NIRC; or (2) a product replenishment.
SEC. 2. IMPOSITION OF EXCISE TAX ON REMOVAL OF EXCISABLE ARTICLES FOR
EXPORT OR SALE/DELIVERY TO INTERNATIONAL CARRIERS AND OTHER TAXEXEMPT ENTITIES/AGENCIES. Subject to the subsequent filing of a claim for excise
tax credit/refund or product replenishment, all manufacturers of articles subject to excise
tax under Title VI of the NIRC of 1997, as amended, shall pay the excise tax that is
otherwise due on every removal thereof from the place of production that is intended for
exportation or sale/delivery to international carriers or to tax-exempt entities/agencies:
Provided, That in case the said articles are likewise being sold in the domestic market,
the applicable excise tax rate shall be the same as the excise tax rate imposed on the
domestically sold articles.
In the absence of a similar article that is being sold in the domestic market, the applicable
excise tax shall be computed based on the value appearing in the manufacturers sworn
statement converted to Philippine currency, as may be applicable.
x x x x (Emphasis supplied.)
In this case, however, the Solicitor General has adopted a position contrary to existing
BIR regulations and rulings recognizing the right of oil companies to seek a refund of
excise taxes paid on petroleum products they sold to international carriers. It is argued
that there is nothing in Sec. 135 (a) which explicitly grants exemption from the payment
of excise tax in favor of oil companies selling their petroleum products to international
carriers and that the only claim for refund of excise taxes authorized by the NIRC is the

payment of excise tax on exported goods, as explicitly provided in Sec. 130 (D), Chapter
I under the same Title VI:
(D) Credit for Excise Tax on Goods Actually Exported. -- When goods locally produced or
manufactured are removed and actually exported without returning to the Philippines,
whether so exported in their original state or as ingredients or parts of any manufactured
goods or products, any excise tax paid thereon shall be credited or refunded upon
submission of the proof of actual exportation and upon receipt of the corresponding
foreign exchange payment: Provided, That the excise tax on mineral products, except
coal and coke, imposed under Section 151 shall not be creditable or refundable even if
the mineral products are actually exported.
According to the Solicitor General, Sec. 135 (a) in relation to the other provisions on
excise tax and from the nature of indirect taxation, may only be construed as prohibiting
the manufacturers-sellers of petroleum products from passing on the tax to international
carriers by incorporating previously paid excise taxes into the selling price. In other
words, respondent cannot shift the tax burden to international carriers who are allowed to
purchase its petroleum products without having to pay the added cost of the excise tax.
We agree with the Solicitor General.
In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue 22 this Court held
that petitioner manufacturer who sold its oxygen and acetylene gases to NPC, a taxexempt entity, cannot claim exemption from the payment of sales tax simply because its
buyer NPC is exempt from taxation. The Court explained that the percentage tax on
sales of merchandise imposed by the Tax Code is due from the manufacturer and not
from the buyer.
Respondent attempts to distinguish this case from Philippine Acetylene Co., Inc. on
grounds that what was involved in the latter is a tax on the transaction (sales) and not
excise tax which is a tax on the goods themselves, and that the exemption sought therein
was anchored merely on the tax-exempt status of the buyer and not a specific provision
of law exempting the goods sold from the excise tax. But as already stated, the language
of Sec. 135 indicates that the tax exemption mentioned therein is conferred on specified
buyers or consumers of the excisable articles or goods (petroleum products). Unlike Sec.
134 which explicitly exempted the article or goods itself (domestic denatured alcohol)
without due regard to the tax status of the buyer or purchaser, Sec. 135 exempts from
excise tax petroleum products which were sold to international carriers and other taxexempt agencies and entities.
Considering that the excise taxes attaches to petroleum products "as soon as they are in
existence as such,"23there can be no outright exemption from the payment of excise tax
on petroleum products sold to international carriers. The sole basis then of respondents
claim for refund is the express grant of excise tax exemption in favor of international
carriers under Sec. 135 (a) for their purchases of locally manufactured petroleum
products. Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed
by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or
seller of the goods for any tax due to it as the manufacturer or seller. The excise tax
imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer
who cannot thus invoke the excise tax exemption granted to its buyers who are
international carriers.
In Maceda v. Macaraig, Jr.,24 the Court specifically mentioned excise tax as an example
of an indirect tax where the tax burden can be shifted to the buyer:

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the
burden upon someone else". For example, the excise and ad valorem taxes that the oil
companies pay to the Bureau of Internal Revenue upon removal of petroleum products
from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash"
and/or "selling price."
An excise tax is basically an indirect tax. Indirect taxes are those that are demanded, in
the first instance, from, or are paid by, one person in the expectation and intention that he
can shift the burden to someone else. Stated elsewise, indirect taxes are taxes wherein
the liability for the payment of the tax falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon goods
before reaching the consumer who ultimately pays for it. When the seller passes on the
tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the
purchaser as part of the price of goods sold or services rendered.25
Further, in Maceda v. Macaraig, Jr., the Court ruled that because of the tax exemptions
privileges being enjoyed by NPC under existing laws, the tax burden may not be shifted
to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC.
Thus:
In view of all the foregoing, the Court rules and declares that the oil companies which
supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil
sold to NPC. By the very nature of indirect taxation, the economic burden of such
taxation is expected to be passed on through the channels of commerce to the user or
consumer of the goods sold. Because, however, the NPC has been exempted from both
direct and indirect taxation, the NPC must be held exempted from absorbing the
economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the
taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the other hand, that the NPC may
refuse to pay that part of the "normal" purchase price of bunker fuel oil which represents
all or part of the taxes previously paid by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies because to do so may be more convenient
and ultimately less costly for NPC than NPC itself importing and hauling and storing the
oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the buying
price of NPC which verifiably represents the tax already paid by the oil company-vendor
to the BIR.26 (Emphasis supplied.)
In the case of international air carriers, the tax exemption granted under Sec. 135 (a) is
based on "a long-standing international consensus that fuel used for international air
services should be tax-exempt." The provisions of the 1944 Convention of International
Civil Aviation or the "Chicago Convention", which form binding international law, requires
the contracting parties not to charge duty on aviation fuel already on board any aircraft
that has arrived in their territory from another contracting state. Between individual
countries, the exemption of airlines from national taxes and customs duties on a range of
aviation-related goods, including parts, stores and fuel is a standard element of the
network of bilateral "Air Service Agreements."27 Later, a Resolution issued by the
International Civil Aviation Organization (ICAO) expanded the provision as to similarly
exempt from taxes all kinds of fuel taken on board for consumption by an aircraft from a
contracting state in the territory of another contracting State departing for the territory of
any other State.28 Though initially aimed at establishing uniformity of taxation among
parties to the treaty to prevent double taxation, the tax exemption now generally applies
to fuel used in international travel by both domestic and foreign carriers.
On April 21, 1978, then President Ferdinand E. Marcos issued Presidential Decree (P.D.)
No. 1359:

PRESIDENTIAL DECREE No. 1359

AMENDING SECTION 134 OF THE NATIONAL INTERNAL REVENUE CODE OF 1977.
WHEREAS, under the present law oil products sold to international carriers are subject to
the specific tax;
WHEREAS, some countries allow the sale of petroleum products to Philippine Carriers
without payment of taxes thereon;
WHEREAS, to foster goodwill and better relationship with foreign countries, there is a
need to grant similar tax exemption in favor of foreign international carriers;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue
of the powers vested in me by the Constitution, do hereby order and decree the following:
Section 1. Section 134 of the National Internal Revenue Code of 1977 is hereby
amended to read as follows:
"Sec. 134. Articles subject to specific tax. Specific internal revenue taxes apply to things
manufactured or produced in the Philippines for domestic sale or consumption and to
things imported, but not to anything produced or manufactured here which shall be
removed for exportation and is actually exported without returning to the Philippines,
whether so exported in its original state or as an ingredient or part of any manufactured
article or product.
"HOWEVER, PETROLEUM PRODUCTS SOLD TO AN INTERNATIONAL CARRIER
FOR ITS USE OR CONSUMPTION OUTSIDE OF THE PHILIPPINES SHALL NOT BE
SUBJECT TO SPECIFIC TAX, PROVIDED, THAT THE COUNTRY OF SAID CARRIER
EXEMPTS FROM TAX PETROLEUM PRODUCTS SOLD TO PHILIPPINE CARRIERS.
"In case of importations the internal revenue tax shall be in addition to the customs
duties, if any."
Section 2. This Decree shall take effect immediately.
Contrary to respondents assertion that the above amendment to the former provision of
the 1977 Tax Codesupports its position that it was not liable for excise tax on the
petroleum products sold to international carriers, we find that no such inference can be
drawn from the words used in the amended provision or its introductory part. Founded on
the principles of international comity and reciprocity, P.D. No. 1359 granted exemption
from payment of excise tax but only to foreign international carriers who are allowed to
purchase petroleum products free of specific tax provided the country of said carrier also
grants tax exemption to Philippine carriers. Both the earlier amendment in the 1977 Tax
Code and the present Sec. 135 of the 1997 NIRC did not exempt the oil companies from
the payment of excise tax on petroleum products manufactured and sold by them to
international carriers.
Because an excise tax is a tax on the manufacturer and not on the purchaser, and there
being no express grant under the NIRC of exemption from payment of excise tax to local
manufacturers of petroleum products sold to international carriers, and absent any
provision in the Code authorizing the refund or crediting of such excise taxes paid, the
Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the
burden of the excise tax to the international carriers who buys petroleum products from
the local manufacturers. Said provision thus merely allows the international carriers to

purchase petroleum products without the excise tax component as an added cost in the
price fixed by the manufacturers or distributors/sellers. Consequently, the oil companies
which sold such petroleum products to international carriers are not entitled to a refund of
excise taxes previously paid on the goods.
1wphi1

Time and again, we have held that tax refunds are in the nature of tax exemptions which
result to loss of revenue for the government. Upon the person claiming an exemption
from tax payments rests the burden of justifying the exemption by words too plain to be
mistaken and too categorical to be misinterpreted, 29 it is never presumed30 nor be allowed
solely on the ground of equity.31 These exemptions, therefore, must not rest on vague,
uncertain or indefinite inference, but should be granted only by a clear and unequivocal
provision of law on the basis of language too plain to be mistaken. Such exemptions
must be strictly construed against the taxpayer, as taxes are the lifeblood of the
government.32
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated
March 25, 2009 and Resolution dated June 24, 2009 of the Court of Tax Appeals En
Banc in CTA EB No. 415 are hereby REVERSED and SET ASIDE. The claims for tax
refund or credit filed by respondent Pilipinas Shell Petroleum Corporation are DENIED for
lack of basis.
No pronouncement as to costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions
in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes

Rollo, pp. 45-66. Penned by Associate Justice Erlinda P. Uy with Presiding

Justice Ernesto D. Acosta and Associate Justices Juanito C. Castaeda, Jr.,
Lovell R. Bautista, Caesar A. Casanova and Olga Palanca-Enriquez concurring.
1

Id. at 68-71.

Id. at 117-133. Penned by Associate Justice Caesar A. Casanova with Presiding

Justice Ernesto D. Acosta and Lovell R. Bautista concurring.
3

Id. at 153-156.

Joint Stipulation of Facts and Issues, records (CTA Case No. 6839), p. 206.

Rollo, p. 119.

CTA Case No. 6554, November 28, 2006, rollo, pp. 125-126.

G.R. No. 88291, June 8, 1993, 223 SCRA 217.

No. L-19707, August 17, 1967, 20 SCRA 1056.

10

Rollo, pp. 17-18.

11

Id. at 274.

12

Supra note 8.

13

Supra note 9.

14

G.R. No. 66416, March 21, 1990, 183 SCRA 402.

Silkair (Sigapore) Pte. Ltd. v. Commissioner of Internal Revenue, G.R. No.

166482, January 25, 2012; Exxonmobil Petroleum and Chemical Holdings, Inc.Philippine Branch v. Commissioner of Internal Revenue, G.R. No. 180909,
January 19, 2011, 640 SCRA 203; Silkair (Singapore) Pte. Ltd. v. Commissioner
of Internal Revenue, G.R. No. 184398, February 25, 2010, 613 SCRA 639; Silkair
(Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 &
172379, November 14, 2008, 571 SCRA 141; and Silkair (Singapore), Pte. Ltd. v.
Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008, 544
SCRA 100.
15

16

Sec. 129, NIRC (1997).

17

Sec. 130, par. (2).

Revenue Regulations Implementing Republic Act No. 8184, An Act

Restructuring the Excise Tax on Petroleum Products, Amending for this Purpose
Pertinent Sections of the National Internal Revenue Code, As Amended.
18

19

Sec. 5, id.

20

BLACKS LAW DICTIONARY, Fifth Edition, p. 486.

Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, G.R. No.

172129, September 12, 2008, 565 SCRA 154, 165, citing Commissioner of
Internal Revenue v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21,
2008, 559 SCRA 160, 183 and Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue, G.R. No. 159490, February
18, 2008, 546 SCRA 150, 163.
21

22

Supra note 9.

23

Sec. 148, par. 1.

G.R. No. 88291, May 31, 1991, 197 SCRA 771, 791, cited in Silkair (Singapore)
Pte. Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 & 172379,
November 14, 2008, supra note 15, at 155-156.
24

Commissioner of Internal Revenue v. Philippine Long Distance Telephone

Company, G.R. No. 140230, December 15, 2005, 478 SCRA 61, 72, citing
Commissioner of Internal Revenue v. Tours Specialists Inc., supra note 14, at
413.
25

26

Supra note 8, at 256.

Antony Seely, "Taxing Aviation Fuel" House of Commons Library, accessed

at www.parliament.uk/briefing -papers/SN00523.pdf , citing "Indirect Taxes on
International Aviation," by Michael Keen & John Strand, Fiscal Studies, Vol. 28
No. 1 2007 (pp. 6-7) and HM Treasury/Dept for Transport, Aviation and the
Environment: Using Economic Instruments, March 2003 (p. 10).
27

"Prohibition Against Taxes On International Airlines", prepared by The

International Air Transport Association
(IATA), globalwarming.house.gov/files/LTTR/ACES/IntlAirTransport...
28

Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R.

No. 166786, May 3, 2006, 489 SCRA 147, 155, citing Commissioner of Internal
Revenue v. Philippine Long Distance Telephone Company, supra note 25, at 74
and Commissioner of Internal Revenue v. Mitsubishi Metal Corporation, G.R.
Nos. 54908 & 80041, January 22, 1990, 181 SCRA 214, 224.
29

Province of Abra v. Hernando, No. L-49336, August 31, 1981, 107 SCRA 104,
109, citing early cases.
30

Commissioner of Internal Revenue v. Court of Appeals, G.R. Nos. 122161 &

120991, February 1, 1999, 302 SCRA 442, 453, citing Davao Gulf Lumber
Corporation v. Commissioner of Internal Revenue, G.R. No. 117359, July 23,
1998, 293 SCRA 76, 91.
31

Silkair(Singapore) PTE. Ltd. v. Commissioner of Internal Revenue, G.R. No.

184398, February 25, 2010, supra note 15, at 659, citing Commissioner of
Internal Revenue v. Solidbank Corporation, G.R. No. 148191, November 25,
2003, 416 SCRA 436, 461.
32

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 204429

February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner,

vs.
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.
DECISION
CARPIO, J.:
The Case
This petition for review challenges the 26 June 2012 Decision and 13 November 2012
Resolution of the Court of Tax. Appeals (CTA) En Banc.
1

Th e CTA En Banc affirmed the 17 December 2010 Decision and 7 April 2011
Resolution of the CTA First Division, which in turn affirmed the 2 December 2008
Decision and 21 May 2009 Order of the Regional Trial Court of Tanauan City, Batangas,
Branch 6. The trial court declared void the assessment imposed by respondent
Municipality of Malvar, Batangas against petitioner Smart Communications, Inc. for its
telecommunications tower for 2001 to July 2003 and directed respondent to assess
petitioner only for the period starting 1 October 2003.
4

The Facts
Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the
business of providing telecommunications services to the general public while
respondent Municipality of Malvar, Batangas (Municipality) is a local government unit
created by law.
In the course of its business, Smart constructed a telecommunications tower within the
territorial jurisdiction of the Municipality. The construction of the tower was for the
purpose of receiving and transmitting cellular communications within the covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An
Ordinance Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the Office
of the Mayor of the Municipality an assessment letter with a schedule of payment for the
total amount of P389,950.00 for Smarts telecommunications tower. The letter reads as
follows:
This is to formally submit to your good office your schedule of payments in the Municipal
Treasury of the Local Government Unit of Malvar, province of Batangas which
corresponds to the tower of your company built in the premises of the municipality, to wit:
TOTAL PROJECT COST:

PHP 11,000,000.00

For the Year 2001-2003

50% of 1% of the total project cost

Php55,000.00

Add: 45% surcharge

24,750.00
Php79,750.00

Multiply by 3 yrs. (2001, 2002, 2003)

Php239,250.00

For the year 2004

1% of the total project cost

Php110,000.00

37% surcharge

40,700.00
==========
Php150,700.00
TOTAL

Php389,950.00

Hoping that you will give this matter your preferential attention.

Due to the alleged arrears in the payment of the assessment, the Municipality also
caused the posting of a closure notice on the telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance
of the assessment and closure notice. In the same protest, Smart challenged the validity
of Ordinance No. 18 on which the assessment was based.
In a letter dated 28 September 2004, the Municipality denied Smarts protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas,
Branch 6, an "Appeal/Petition" assailing the validity of Ordinance No. 18. The case was
docketed as SP Civil Case No. 04-11-1920.
On 2 December 2008, the trial court rendered a Decision partly granting Smarts
Appeal/Petition. The trial court confined its resolution of the case to the validity of
the assessment, and did not rule on the legality of Ordinance No. 18. The trial court
held that the assessment covering the period from 2001 to July 2003 was void since
Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared
valid the assessment starting 1 October 2003, citing Article 4 of the Civil Code of the
Philippines, in relation to the provisions of Ordinance No. 18 and Section 166 of Republic
Act No. 7160 or the Local Government Code of 1991 (LGC). The dispositive portion of
the trial courts Decision reads:
9

10

WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment
dated August 24, 2004 against petitioner is hereby declared null and void insofar as the
assessment made from year 2001 to July 2003 and respondent is hereby prohibited from
assessing and collecting, from petitioner, fees during the said period and the Municipal
Government of Malvar, Batangas is directed to assess Smart Communications, Inc. only
for the period starting October 1, 2003.
No costs.
SO ORDERED.

11

The trial court denied the motion for reconsideration in its Order of 21 May 2009.
On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed as
CTA AC No. 58.
On 17 December 2010, the CTA First Division denied the petition for review. The
dispositive portion of the decision reads:
WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly,
the assailed Decision dated December 2, 2008 and the Order dated May 21, 2009 of
Branch 6 of the Regional Trial Court of Tanauan City, Batangas in SP. Civil Case No. 0411-1920 entitled "Smart Communications, Inc. vs. Municipality of Malvar, Batangas" are
AFFIRMED.
SO ORDERED.

12

On 7 April 2011, the CTA First Division issued a Resolution denying the motion for
reconsideration.
Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First
Divisions decision and resolution. The dispositive portion of the CTA En Bancs 26 June
2012 decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby
DISMISSED for lack of merit.
1wphi1

Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April
7, 2011 are hereby AFFIRMED.
SO ORDERED.

13

The CTA En Banc denied the motion for reconsideration.

Hence, this petition.
The Ruling of the CTA En Banc
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En
Banc declared that it is a court of special jurisdiction and as such, it can take cognizance
only of such matters as are clearly within its jurisdiction. Citing Section 7(a), paragraph 3,
of Republic Act No. 9282, the CTA En Banc held that the CTA has exclusive appellate
jurisdiction to review on appeal, decisions, orders or resolutions of the Regional Trial
Courts in local tax cases originally resolved by them in the exercise of their original or
appellate jurisdiction. However, the same provision does not confer on the CTA
jurisdiction to resolve cases where the constitutionality of a law or rule is challenged.
The Issues
The petition raises the following arguments:
1. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the CTA En Banc
should have exercised its jurisdiction and declared the Ordinance as illegal.

2. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the doctrine of
exhaustion of administrative remedies does not apply in [this case].
3. The [CTA En Banc Decision and Resolution] should be reversed and set aside
for being contrary to law and jurisprudence considering that the respondent has
no authority to impose the so-called "fees" on the basis of the void ordinance.
14

The Ruling of the Court

The Court denies the petition.
On whether the CTA has jurisdiction over the present case
Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart
maintains that the CTA has jurisdiction over the present case considering the "unique"
factual circumstances involved.
The CTA refuses to take cognizance of this case since it challenges the constitutionality
of Ordinance No. 18, which is outside the province of the CTA.
Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No.
9282, created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3) of
the law vests the CTA with the exclusive appellate jurisdiction over "decisions, orders or
resolutions of the Regional Trial Courts in local tax cases originally decided or resolved
by them in the exercise of their original or appellate jurisdiction."
15

The question now is whether the trial court resolved a local tax case in order to fall within
the ambit of the CTAs appellate jurisdiction This question, in turn, depends ultimately on
whether the fees imposed under Ordinance No. 18 are in fact taxes.
Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not
regulatory, but revenue-raising. Citing Philippine Airlines, Inc. v. Edu, Smart contends
that the designation of "fees" in Ordinance No. 18 is not controlling.
16

The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "each local government unit
shall have the power to create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to each
local government unit. Specifically, Section 142 of the LGC grants municipalities the
power to levy taxes, fees, and charges not otherwise levied by provinces. Section 143 of
the LGC provides for the scale of taxes on business that may be imposed by
municipalities while Section 147 of the same law provides for the fees and charges that
may be imposed by municipalities on business and occupation.
17

18

The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees
against persons or property, while the term "fee" means "a charge fixed by law or
ordinance for the regulation or inspection of a business or activity."
19

In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance
Regulating the Establishment of Special Projects," to regulate the "placing, stringing,
attaching, installing, repair and construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus, and provide for the correction,
condemnation or removal of the same when found to be dangerous, defective or
otherwise hazardous to the welfare of the inhabitant[s]." It was also envisioned to
address the foreseen "environmental depredation" to be brought about by these "special
projects" to the Municipality. Pursuant to these objectives, the Municipality imposed fees
on various structures, which included telecommunications towers.
20

21

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to
regulate the "placing, stringing, attaching, installing, repair and construction of all gas
mains, electric, telegraph and telephone wires, conduits, meters and other apparatus"
listed therein, which included Smarts telecommunications tower. Clearly, the purpose of
the assailed Ordinance is to regulate the enumerated activities particularly related to the
construction and maintenance of various structures. The fees in Ordinance No. 18 are
not impositions on the building or structure itself; rather, they are impositions on the
activity subject of government regulation, such as the installation and construction of the
structures.
22

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities
of the identified special projects, which included "cell sites" or telecommunications
towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not
primarily revenue-raising. While the fees may contribute to the revenues of the
Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18
are not taxes.
In Progressive Development Corporation v. Quezon City, the Court declared that "if the
generating of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax."
23

In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that the
purpose and effect of the imposition determine whether it is a tax or a fee, and that the
lack of any standards for such imposition gives the presumption that the same is a tax.
24

We accordingly say that the designation given by the municipal authorities does not
decide whether the imposition is properly a license tax or a license fee. The determining
factors are the purpose and effect of the imposition as may be apparent from the
provisions of the ordinance. Thus, "[w]hen no police inspection, supervision, or regulation
is provided, nor any standard set for the applicant to establish, or that he agrees to attain
or maintain, but any and all persons engaged in the business designated, without
qualification or hindrance, may come, and a license on payment of the stipulated sum will
issue, to do business, subject to no prescribed rule of conduct and under no guardian
eye, but according to the unrestrained judgment or fancy of the applicant and licensee,
the presumption is strong that the power of taxation, and not the police power, is being
exercised."
Contrary to Smarts contention, Ordinance No. 18 expressly provides for the standards
which Smart must satisfy prior to the issuance of the specified permits, clearly indicating
that the fees are regulatory in nature.
These requirements are as follows:
SECTION 5. Requirements and Procedures in Securing Preliminary Development
Permit.

The following documents shall be submitted to the SB Secretary in triplicate:

a) zoning clearance
b) Vicinity Map
c) Site Plan
d) Evidence of ownership
e) Certificate true copy of NTC Provisional Authority in case of Cellsites,
telephone or telegraph line, ERB in case of gasoline station, power plant, and
other concerned national agencies
f) Conversion order from DAR is located within agricultural zone.
g) Radiation Protection Evaluation.
h) Written consent from subdivision association or the residence of the area
concerned if the special projects is located within the residential zone.
i) Barangay Council Resolution endorsing the special projects.
SECTION 6. Requirement for Final Development Permit Upon the expiration of 180
days and the proponents of special projects shall apply for final [development permit] and
they are require[d] to submit the following:
a) evaluation from the committee where the Vice Mayor refers the special project
b) Certification that all local fees have been paid.
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and
Smart is questioning the constitutionality of the ordinance, the CTA correctly dismissed
the petition for lack of jurisdiction. Likewise, Section 187 of the LGC, which outlines the
procedure for questioning the constitutionality of a tax ordinance, is inapplicable,
rendering unnecessary the resolution of the issue on non-exhaustion of administrative
remedies.
25

On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues that
the Municipality exceeded its power to impose taxes and fees as provided in Book II, Title
One, Chapter 2, Article II of the LGC. Smart maintains that the mayors permit fees in
Ordinance No. 18 (equivalent to 1% of the project cost) are not among those expressly
enumerated in the LGC.
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does
not appear in the enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision in the
LGC, the Municipality is empowered to impose taxes, fees and charges, not specifically
enumerated in the LGC or taxed under the Tax Code or other applicable law. Section 186
of the LGC, granting local government units wide latitude in imposing fees, expressly
provides:
Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not

otherwise specifically enumerated herein or taxed under the provisions of the National
Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to
declared national policy: Provided, further, That the ordinance levying such taxes, fees or
charges shall not be enacted without any prior public hearing conducted for the purpose.
Smart further argues that the Municipality is encroaching on the regulatory powers of the
National Telecommunications Commission (NTC). Smart cites Section 5(g) of Republic
Act No. 7925 which provides that the National Telecommunications Commission (NTC),
in the exercise of its regulatory powers, shall impose such fees and charges as may be
necessary to cover reasonable costs and expenses for the regulation and supervision of
the operations of telecommunications entities. Thus, Smart alleges that the regulation of
telecommunications entities and all aspects of its operations is specifically lodged by law
on the NTC.
To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching, installing,
repair and construction of all gas mains, electric, telegraph and telephone wires,
conduits, meters and other apparatus" within the Municipality. The fees are not imposed
to regulate the administrative, technical, financial, or marketing operations of
telecommunications entities, such as Smarts; rather, to regulate the installation and
maintenance of physical structures Smarts cell sites or telecommunications tower. The
regulation of the installation and maintenance of such physical structures is an exercise
of the police power of the Municipality. Clearly, the Municipality does not encroach on
NTCs regulatory powers.
The Court likewise rejects Smarts contention that the power to fix the fees for the
issuance of development permits and locational clearances is exercised by the Housing
and Land Use Regulatory Board (HLURB). Suffice it to state that the HLURB itself
recognizes the local government units power to collect fees related to land use and
development. Significantly, the HLURB issued locational guidelines governing
telecommunications infrastructure. Guideline No. VI relates to the collection of locational
clearance fees either by the HLURB or the concerned local government unit, to wit:
1wphi1

VI. Fees
The Housing and Land Use Regulatory Board in the performance of its functions shall
collect the locational clearance fee based on the revised schedule of fees under the
special use project as per Resolution No. 622, series of 1998 or by the concerned LGUs
subject to EO 72.
26

On whether Ordinance No. 18 is valid and constitutional

Smart contends that Ordinance No. 18 violates Sections 130(b)(3) and 186 of the LGC
since the fees are unjust, excessive, oppressive and confiscatory. Aside from this bare
allegation, Smart did not present any evidence substantiating its claims. In Victorias
Milling Co., Inc. v. Municipality of Victorias, the Court rejected the argument that the fees
imposed by respondent therein are excessive for lack of evidence supporting such claim,
to wit:
27

28

An ordinance carries with it the presumption of validity. The question of reasonableness

though is open to judicial inquiry. Much should be left thus to the discretion of municipal
authorities. Courts will go slow in writing off an ordinance as unreasonable unless the
amount is so excessive as to be prohibitive, arbitrary, unreasonable, oppressive, or
confiscatory. A rule which has gained acceptance is that factors relevant to such an
inquiry are the municipal conditions as a whole and the nature of the business made
subject to imposition.

Plaintiff, has however not sufficiently proven that, taking these factors together, the
license taxes are unreasonable. The presumption of validity subsists. For, plaintiff has
limited itself to insisting that the amounts levied exceed the cost of regulation and the
municipality has adequate funds for the alleged purposes as evidenced by the
municipalitys cash surplus for the fiscal year ending 1956.
On the constitutionality issue, Smart merely pleaded for the declaration of
unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without any
argument or evidence to support its plea. Nowhere in the body of the Petition was this
issue specifically raised and discussed. Significantly, Smart failed to cite any
constitutional provision allegedly violated by respondent when it issued Ordinance No.
18.
Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike
down a law as unconstitutional, Smart has the burden to prove a clear and unequivocal
breach of the Constitution, which Smart miserably failed to do. In Lawyers Against
Monopoly and Poverty (LAMP) v. Secretary of Budget and Management, the Court held,
thus:
29

To justify the nullification of the law or its implementation, there must be a clear and
unequivocal, not a doubtful, breach of the Constitution. In case of doubt in the sufficiency
of proof establishing unconstitutionality, the Court must sustain legislation because "to
invalidate [a law] based on xx x baseless supposition is an affront to the wisdom not only
of the legislature that passed it but also of the executive which approved it." This
presumption of constitutionality can be overcome only by the clearest showing that there
was indeed an infraction of the Constitution, and only when such a conclusion is reached
by the required majority may the Court pronounce, in the discharge of the duty it cannot
escape, that the challenged act must be struck down.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

(On leave)
ARTURO D. BRION*
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

BIENVENIDO L. REYES
Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
* On leave.
1

Under Rule 45 of the Rules of Court. Rollo, pp. 3-45.

Id. at 51-63. Penned by Associate Justice Olga Palanca-Enriquez, concurred in

by Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C. Castaneda,
Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Esperanza R. FabonVictorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-Manalastas.
2

Id. at 64-66. Penned by Associate Justice Olga Palanca-Enriquez, concurred in

by Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C. Castaneda,
Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Esperanza R. FabonVictorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-Manalastas.
3

Id. at 111-137. Penned by Associate Justice Esperanza R. Fabon-Victorino,

concurred in by Presiding Justice Ernesto D. Acosta and Erlinda P. Uy.
4

Id. at 138-140. Penned by Associate Justice Esperanza R. Fabon-Victorino,

concurred in by Presiding Justice Ernesto D. Acosta and Erlinda P. Uy.
5

Id. at 248-252. Penned by Judge Arcadio I. Manigbas.

Id. at 271-272.

Id. at 164.

Article 4. Laws shall have no retroactive effect, unless the contrary is provided.

SECTION 166. Accrual of Tax. Unless otherwise provided in this Code, all
local taxes, fees, and charges shall accrue on the first (1st) day of January of
each year. However, new taxes, fees or charges, or changes in the rates thereof,
shall accrue on the first (1st) day of the quarter next following the effectivity of the
ordinance imposing such new levies or rates.
10

11

Rollo, p. 252.

12

Id. at 136.

13

Id. at 62.

14

Id. at 20-21.

15

Sec. 7. Jurisdiction. - The CTA shall exercise:

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

xxxx
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
xxxx
16

247 Phil. 283 (1988).

Section 143. Ta x on Business. - The municipality may impose taxes on the

following businesses:
17

(a) On manufacturers, assemblers, repackers, processors, brewers,

distillers, rectifiers, and compounders of liquors, distilled spirits, and wines
or manufacturers of any article of commerce of whatever kind or nature,
in accordance with the following schedule:
xxxx
(b) On wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature in accordance with the following schedule:
xxxx
(c) On exporters, and on manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities enumerated
hereunder at a rate not exceeding one-half () of the rates prescribed
under subsection (a), (b) and (d) of this Section:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally
manufactured, processed or preserved food, sugar, salt and other
agricultural, marine, and fresh water products, whether in their
original state or not;

(3) Cooking oil and cooking gas;

(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements, equipment and post-harvest facilities,
fertilizers, pesticides, insecticides, herbicides and other farm
inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
(d) On retailers.
xxxx
Provided, however, That barangays shall have the exclusive power to
levy taxes, as provided under Section 152 hereof, on gross sales or
receipts of the preceding calendar year of Fifty thousand pesos
(P50,000.00) or less, in the case of cities, and Thirty thousand pesos
(P30,000.00) or less, in the case of municipalities.
(e) On contractors and other independent contractors, in accordance with
the following schedule:
xxxx
(f) On banks and other financial institutions, at a rate not exceeding fifty
percent (50%) of one percent (1%) on the gross receipts of the preceding
calendar year derived from interest, commissions and discounts from
lending activities, income from financial leasing, dividends, rentals on
property and profit from exchange or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of
commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler
annually.
(h) On any business, not otherwise specified in the preceding paragraphs,
which the sanggunian concerned may deem proper to tax: Provided, That
on any business subject to the excise, value-added or percentage tax
under the National Internal Revenue Code, as amended, the rate of tax
shall not exceed two percent (2%) of gross sales or receipts of the
preceding calendar year.
The sanggunian concerned may prescribe a schedule of graduated tax
rates but in no case to exceed the rates prescribed herein.
Section 147. Fees and Charges. - The municipality may impose and collect
such reasonable fees and charges on business and occupation and, except as
reserved to the province in Section 139 of this Code, on the practice of any
profession or calling, commensurate with the cost of regulation, inspection and
licensing before any person may engage in such business or occupation, or
practice such profession or calling.
18

19

Section 131. Definition of Terms. - When used in this Title, the term:
xxxx
(g) "Charges" refers to pecuniary liability, as rents or fees against persons
or property;
xxxx
(l) "Fee" means a charge fixed by law or ordinance for the regulation or
inspection of a business or activity;
xxxx

20

Rollo, p. 165.

21

Id.

See Angeles University Foundation v. City of Angeles, G.R. No. 189999, 27

June 2012, 675 SCRA 359, 373.
22

254 Phil. 635, 643 (1989). See also City of Iloilo v. Villanueva, 105 Phil. 337
(1959).
23

24

134 Phil. 180, 189-190 (1968).

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and
Revenue Measures; Mandatory Public Hearings. - The procedure for approval of
local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the
purpose prior to the enactment thereof: Provided, further, That any question on
the constitutionality or legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty (60) days from the
date of receipt of the appeal: Provided, however, That such appeal shall not have
the effect of suspending the effectivity of the ordinance and the accrual and
payment of the tax, fee, or charge levied therein: Provided, finally, That within
thirty (30) days after receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.
25

http://hlurb.gov.ph/wp-content/uploads/laws-issuances/policies/CellSite.pdf (last
visited on 4 February 2014).
26

SECTION 130. Fundamental Principles. The following fundamental principles

shall govern the exercise of the taxing and other revenue-raising powers of local
government units:
27

xxxx
(b) Taxes, fees, charges and other impositions shall:
xxxx
(3) not be unjust, excessive, oppressive, or confiscatory;

28

Supra note 24, at 194.

29

G.R. No. 164987, 24 April 2012, 670 SCRA 373, 386-387.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 175723

February 4, 2014

THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS.
LIBERTY M. TOLEDO, in her capacity as the City Treasurer of Manila, Petitioners,
vs.
HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the
Regional Trial Court, Branch 112, Pasay City; SM MART, INC.; SM PRIME
HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE, INC.; ACE
HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS.,
INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING CORPORATION and
SIGNATURE LINES, Respondents.
DECISION
PERALTA, J.:
Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court
seeking to reverse and set aside the Resolutions dated April 6, 2006 and November 29,
2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.
1

The antecedents of the case, as summarized by the CA, are as follows:

The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty
Toledo, assessed taxes for the taxable period from January to December 2002 against
private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star Appliances Center,
Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils.,
Inc., Jollimart Philippines Corp., Surplus Marketing Corp. and Signature Lines. In addition
to the taxes purportedly due from private respondents pursuant to Section 14, 15, 16, 17
of the Revised Revenue Code of Manila (RRCM), said assessment covered the local
business taxes petitioners were authorized to collect under Section 21 of the same Code.
Because payment of the taxes assessed was a precondition for the issuance of their
business permits, private respondents were constrained to pay the P19,316,458.77
assessment under protest.
On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay
City] the complaint denominated as one for "Refund or Recovery of Illegally and/or
Erroneously-Collected Local Business Tax, Prohibition with Prayer to Issue TRO and Writ
of Preliminary Injunction"

which was docketed as Civil Case No. 04-0019-CFM before public respondent's sala [at
Branch 112]. In the amended complaint they filed on February 16, 2004, private
respondents alleged that, in relation to Section 21 thereof, Sections 14, 15, 16, 17, 18, 19
and 20 of the RRCM were violative of the limitations and guidelines under Section 143
(h) of Republic Act. No. 7160 [Local Government Code] on double taxation. They further
averred that petitioner city's Ordinance No. 8011 which amended pertinent portions of the
RRCM had already been declared to be illegal and unconstitutional by the Department of
Justice.
2

In its Order dated July 9, 2004, the RTC granted private respondents' application for a
writ of preliminary injunction.
3

Petitioners filed a Motion for Reconsideration but the RTC denied it in its Order dated
October 15, 2004.
4

Petitioners then filed a special civil action for certiorari with the CA assailing the July 9,
2004 and October 15, 2004 Orders of the RTC.
6

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners' petition for
certiorari holding that it has no jurisdiction over the said petition. The CA ruled that since
appellate jurisdiction over private respondents' complaint for tax refund, which was filed
with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded
jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari
seeking nullification of an interlocutory order issued in the said case should, likewise, be
filed with the CTA.
Petitioners filed a Motion for Reconsideration, but the CA denied it in its Resolution dated
November 29, 2006.
7

Hence, the present petition raising the following issues:

I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the
case for lack of jurisdiction.
II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in enjoining by issuing a Writ
of Injunction the petitioners, their agents and/or authorized representatives from
implementing Section 21 of the Revised Revenue Code of Manila, as amended,
against private respondents.
III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Injunction despite failure of private respondents to make a written claim for tax
credit or refund with the City Treasurer of Manila.
IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction considering that under
Section 21 of the Manila Revenue Code, as amended, they are mere collecting
agents of the City Government.
V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its
discretion amounting to lack or excess of jurisdiction in issuing the Writ of
Injunction because petitioner City of Manila and its constituents would result to
greater damage and prejudice thereof. (sic)
8

Without first resolving the above issues, this Court finds that the instant petition should be
denied for being moot and academic.
Upon perusal of the original records of the instant case, this Court discovered that a
Decision in the main case had already been rendered by the RTC on August 13, 2007,
the dispositive portion of which reads as follows:
9

WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor
of the plaintiff and against the defendant to grant a tax refund or credit for taxes paid
pursuant to Section 21 of the Revenue Code of the City of Manila as amended for the
year 2002 in the following amounts:
To plaintiff SM Mart, Inc.

P 11,462,525.02

To plaintiff SM Prime Holdings, Inc.

3,118,104.63

To plaintiff Star Appliances Center

2,152,316.54

To plaintiff Supervalue, Inc.

1,362,750.34

To plaintiff Ace Hardware Phils., Inc.

419,689.04

To plaintiff Watsons Personal Care Health

231,453.62

To plaintiff Jollimart Phils., Corp.

140,908.54

To plaintiff Surplus Marketing Corp.

220,204.70

To plaintiff Signature Mktg. Corp.

94,906.34

TOTAL:

P 19,316,458.77

Stores Phils., Inc.

Defendants are further enjoined from collecting taxes under Section 21, Revenue Code
of Manila from herein plaintiff.
SO ORDERED.

10

The parties did not inform the Court but based on the records, the above Decision had
already become final and executory per the Certificate of Finality issued by the same
trial court on October 20, 2008. In fact, a Writ of Execution was issued by the RTC on
November 25, 2009. In view of the foregoing, it clearly appears that the issues raised in
the present petition, which merely involve the incident on the preliminary injunction
issued by the RTC, have already become moot and academic considering that the trial
court, in its decision on the merits in the main case, has already ruled in favor of
respondents and that the same decision is now final and executory. Well entrenched is
the rule that where the issues have become moot and academic, there is no justiciable
controversy, thereby rendering the resolution of the same of no practical use or value.
11

12

13

In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by
petitioners owing to its significance and for future guidance of both bench and bar. It is a
settled principle that courts will decide a question otherwise moot and academic if it is
capable of repetition, yet evading review.
14

However, before proceeding, to resolve the question on jurisdiction, the Court deems it
proper to likewise address a procedural error which petitioners committed.

Petitioners availed of the wrong remedy when they filed the instant special civil action for
certiorari under Rule 65 of the Rules of Court in assailing the Resolutions of the CA which
dismissed their petition filed with the said court and their motion for reconsideration of
such dismissal. There is no dispute that the assailed Resolutions of the CA are in the
nature of a final order as they disposed of the petition completely. It is settled that in
cases where an assailed judgment or order is considered final, the remedy of the
aggrieved party is appeal. Hence, in the instant case, petitioner should have filed a
petition for review on certiorari under Rule 45, which is a continuation of the appellate
process over the original case.
15

Petitioners should be reminded of the equally-settled rule that a special civil action for
certiorari under Rule 65 is an original or independent action based on grave abuse of
discretion amounting to lack or excess of jurisdiction and it will lie only if there is no
appeal or any other plain, speedy, and adequate remedy in the ordinary course of
law. As such, it cannot be a substitute for a lost appeal.
16

17

Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the
interest of substantial justice, this Court has, before, treated a petition for certiorari as a
petition for review on certiorari, particularly (1) if the petition for certiorari was filed within
the reglementary period within which to file a petition for review on certiorari; (2) when
errors of judgment are averred; and (3) when there is sufficient reason to justify the
relaxation of the rules. Considering that the present petition was filed within the 15-day
reglementary period for filing a petition for review on certiorari under Rule 45, that an
error of judgment is averred, and because of the significance of the issue on jurisdiction,
the Court deems it proper and justified to relax the rules and, thus, treat the instant
petition for certiorari as a petition for review on certiorari.
18

Having disposed of the procedural aspect, we now turn to the central issue in this case.
The basic question posed before this Court is whether or not the CTA has jurisdiction
over a special civil action for certiorari assailing an interlocutory order issued by the RTC
in a local tax case.
This Court rules in the affirmative.
On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA
and giving to the said court jurisdiction over the following:
(1) 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;
(2) Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges; seizure, detention or release of
property affected fines, forfeitures or other penalties imposed in relation thereto;
or other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs; and
(3) Decisions of provincial or City Boards of Assessment Appeals in cases
involving the assessment and taxation of real property or other matters arising
under the Assessment Law, including rules and regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282)
amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its membership

and elevating its rank to the level of a collegiate court with special jurisdiction. Pertinent
portions of the amendatory act provides thus:
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 relations 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;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise
of its appellate jurisdiction over cases involving the assessment and
taxation of real property originally decided by the provincial or city board
of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to
him automatically for review from decisions of the Commissioner of
Customs which are adverse to the Government under Section 2315 of the
Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision
to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or
the Bureau of Customs: Provided, however, That offenses or felonies

mentioned in this paragraph where the principal amount of taxes and

fees, exclusive of charges and penalties, claimed is less than One million
pesos (P1,000,000.00) or where there is no specified amount claimed
shall be tried by the regular Courts and the jurisdiction of the CTA shall be
appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the criminal action will be
recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax cases originally decided by them, in their respected territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provides,
however, that collection cases where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One million
pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court,
Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax collection cases originally decided by them, in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the Exercise of their appellate jurisdiction over tax collection cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts, in their respective jurisdiction.
19

A perusal of the above provisions would show that, while it is clearly stated that the CTA
has exclusive appellate jurisdiction over decisions, orders or resolutions of the RTCs in
local tax cases originally decided or resolved by them in the exercise of their original or
appellate jurisdiction, there is no categorical statement under RA 1125 as well as the
amendatory RA 9282, which provides that th e CTA has jurisdiction over petitions for
certiorari assailing interlocutory orders issued by the RTC in local tax cases filed before
it.
The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the Constitution or
by law and cannot be implied from the mere existence of appellate jurisdiction. Thus, in
the cases of Pimentel v. COMELEC, Garcia v. De Jesus, Veloria v.
COMELEC, Department of Agrarian Reform Adjudication Board v. Lubrica, and Garcia
v. Sandiganbayan, this Court has ruled against the jurisdiction of courts or tribunals over
20

21

23

22

24

25

petitions for certiorari on the ground that there is no law which expressly gives these
tribunals such power. It must be observed, however, that with the exception of Garcia v.
Sandiganbayan, these rulings pertain not to regular courts but to tribunals exercising
quasi-judicial powers. With respect to the Sandiganbayan, Republic Act No. 8249 now
provides that the special criminal court has exclusive original jurisdiction over petitions for
the issuance of the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions,
and other ancillary writs and processes in aid of its appellate jurisdiction.
26

27

28

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to
the Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari,
prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas
Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original
jurisdiction, the power to issue, among others, a writ of certiorari,whether or not in aid of
its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of
certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of BP
129.
The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless,
that judicial power shall be vested in one Supreme Court and in such lower courts as
may be established by law and that judicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted that the
power of the CTA includes that of determining whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in
issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of
the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with
jurisdiction to issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it
must have the authority to issue, among others, a writ of certiorari. In transferring
exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed
that the law intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why
the transfer should only be considered as partial, not total.
Consistent with the above pronouncement, this Court has held as early as the case of
J.M. Tuason & Co., Inc. v. Jaramillo, et al. that "if a case may be appealed to a particular
court or judicial tribunal or body, then said court or judicial tribunal or body has jurisdiction
to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction." This
principle was affirmed in De Jesus v. Court of Appeals, where the Court stated that "a
court may issue a writ of certiorari in aid of its appellate jurisdiction if said court has
jurisdiction to review, by appeal or writ of error, the final orders or decisions of the lower
court." The rulings in J.M. Tuason and De Jesus were reiterated in the more recent
cases of Galang, Jr. v. Geronimo and Bulilis v. Nuez.
29

30

31

32

33

34

Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by
law, jurisdiction is conferred on a court or judicial officer, all auxiliary writs, processes and
other means necessary to carry it into effect may be employed by such court or officer.
If this Court were to sustain petitioners' contention that jurisdiction over their certiorari
petition lies with the CA, this Court would be confirming the exercise by two judicial

bodies, the CA and the CTA, of jurisdiction over basically the same subject matter
precisely the split-jurisdiction situation which is anathema to the orderly administration of
justice. The Court cannot accept that such was the legislative motive, especially
considering that the law expressly confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of judicial review over local tax cases
without mention of any other court that may exercise such power. Thus, the Court agrees
with the ruling of the CA that since appellate jurisdiction over private respondents'
complaint for tax refund is vested in the CTA, it follows that a petition for certiorari
seeking nullification of an interlocutory order issued in the said case should, likewise, be
filed with the same court. To rule otherwise would lead to an absurd situation where one
court decides an appeal in the main case while another court rules on an incident in the
very same case.
35

Stated differently, it would be somewhat incongruent with the pronounced judicial

abhorrence to split jurisdiction to conclude that the intention of the law is to divide the
authority over a local tax case filed with the RTC by giving to the CA or this Court
jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to
the CTA the jurisdiction over the appeal from the decision of the trial court in the same
case. It is more in consonance with logic and legal soundness to conclude that the grant
of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries
with it the power to issue a writ of certiorari when necessary in aid of such appellate
jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in
aid of its appellate jurisdiction should co-exist with, and be a complement to, its appellate
jurisdiction to review, by appeal, the final orders and decisions of the RTC, in order to
have complete supervision over the acts of the latter.
36

A grant of appellate jurisdiction implies that there is included in it the power necessary to
exercise it effectively, to make all orders that will preserve the subject of the action, and
to give effect to the final determination of the appeal. It carries with it the power to protect
that jurisdiction and to make the decisions of the court thereunder effective. The court, in
aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters
necessary to the efficient and proper exercise of that jurisdiction. For this purpose, it
may, when necessary, prohibit or restrain the performance of any act which might
interfere with the proper exercise of its rightful jurisdiction in cases pending before it.
1wphi1

37

Lastly, it would not be amiss to point out that a court which is endowed with a particular
jurisdiction should have powers which are necessary to enable it to act effectively within
such jurisdiction. These should be regarded as powers which are inherent in its
jurisdiction and the court must possess them in order to enforce its rules of practice and
to suppress any abuses of its process and to defeat any attempted thwarting of such
process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the
CA and shall possess all the inherent powers of a court of justice.
Indeed, courts possess certain inherent powers which may be said to be implied from a
general grant of jurisdiction, in addition to those expressly conferred on them. These
inherent powers are such powers as are necessary for the ordinary and efficient exercise
of jurisdiction; or are essential to the existence, dignity and functions of the courts, as
well as to the due administration of justice; or are directly appropriate, convenient and
suitable to the execution of their granted powers; and include the power to maintain the
court's jurisdiction and render it effective in behalf of the litigants.
38

Thus, this Court has held that "while a court may be expressly granted the incidental
powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of
prohibitive legislation, implies the necessary and usual incidental powers essential to

effectuate it, and, subject to existing laws and constitutional provisions, every regularly
constituted court has power to do all things that are reasonably necessary for the
administration of justice within the scope of its jurisdiction and for the enforcement of its
judgments and mandates." Hence, demands, matters or questions ancillary or incidental
to, or growing out of, the main action, and coming within the above principles, may be
taken cognizance of by the court and determined, since such jurisdiction is in aid of its
authority over the principal matter, even though the court may thus be called on to
consider and decide matters which, as original causes of action, would not be within its
cognizance.
39

40

Based on the foregoing disquisitions, it can be reasonably concluded that the authority of
the CTA to take cognizance of petitions for certiorari questioning interlocutory orders
issued by the RTC in a local tax case is included in the powers granted by the
Constitution as well as inherent in the exercise of its appellate jurisdiction.
Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as
quasi-judicial tribunals are concerned, the authority to issue writs of certiorari must still be
expressly conferred by the Constitution or by law and cannot be implied from the mere
existence of their appellate jurisdiction. This doctrine remains as it applies only to quasijudicial bodies.
WHEREFORE, the petition is DENIED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
ANTONIO T. CARPIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ARTURO D. BRION
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

No part
MARIANO C. DEL CASTILLO*
Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

BIENVENIDO L. REYES

ESTELA M. PERLAS-BERNABE

Associate Justice

Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
* No part.
Penned by Associate Justice Rebecca de Guia-Salvador, with Associate
Justices Ruben T. Reyes (now a retired member of this Court) and Aurora
Santiago-Lagman, concurring; Annexes "A" and "B," rollo, pp. 43-48; 49-51.
1

Rollo, p. 44. (Italics and emphasis in the original; citations omitted)

Records, vol. II, pp. 476-480.

Id. at 481-490.

Id. at 513.

CA rollo, pp. 2-31.

Id. at 321-326.

Rollo, p. 20. (Emphasis in the original)

Records, vol. II, pp. 761-762.

10

Id. at 762. (Emphasis in the original)

11

Id. at 822.

12

Id. at 837.

13

Garcia v. COMELEC, 328 Phil. 288, 292 (1996).

Caneland Sugar Corporation v. Alon, G.R. No. 142896, September 12, 2007,
533 SCRA 28, 33.
14

Republic of the Philippines, represented by Abusama M. Alid, Officer-in-Charge,

Department of Agriculture-Regional Field Unit XII (DA-RFU-XII) v. Abdulwahab A.
Bayao, et al., G. R . No. 179492, June 5, 2013.
15

Mendez v. Court of Appeals, G.R. No. 174937, June 13, 2012, 672 SCRA 200,
207.
16

17

Id.

Tagle v. Equitable PCI Bank, G.R. No. 172299, April 22, 2008, 552 SCRA 424,
444, citing Oaminal v. Castillo, 459 Phil. 542, 556 (2003); Republic v. Court of
Appeals, 379 Phil. 92, 98 (2000); Delsan Transport Lines, Inc. v. Court of
Appeals, 335 Phil. 1066, 1075 (1997); Banco Filipino Savings and Mortgage
Bank v. Court of Appeals, 389 Phil. 644, 655 (2000).
18

19

Emphasis supplied.

Department of Agrarian Reform Adjudication Board v. Lubrica, 497 Phil. 313,

322 (2005); Veloria v. COMELEC, G.R. No. 94771, July 29, 1992, 211 SCRA 907,
915.
20

21

189 Phil. 581 (1980).

22

G.R. Nos. 88158 and 97108-09, March 4, 1992, 206 SCRA 779.

23

Supra note 20.

24

Supra note 20.

25

G..R. No. 114135, October 7, 1994, 237 SCRA 552.

Department of Agrarian Reform Adjudication Board v. Lubrica, supra note 20;

Veloria v. COMELEC, supra note 20; Garcia v. Sandiganbayan, id. at 563-564;
Garcia v. De Jesus, supra note 22, at 787-788; Pimentel v. COMELEC, supra
note 21, at 587.
26

27

Supra note 25.

An Act Further Defining the Jurisdiction of the Sandiganbayan, Amending for the
Purpose Presidential Decree No. 1606, As Amended, Providing Funds Therefor,
And for Other Purposes.
28

29

118 Phil. 1022 (1963).

30

J. M. Tuason & Co., Inc. v. Jaramillo, et al., supra, at 1026.

31

G.R. No. 101630, August 24, 1992, 212 SCRA 823.

32

De Jesus v. Court of Appeals, supra, at 827-828.

33

G.R. No. 192793, February 22, 2011, 643 SCRA 631, 635-636.

34

G.R. No. 195953, August 9, 2011, 655 SCRA 241, 246-247.

Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corp.,

478 Phil. 85, 125 (2004).
35

36

Breslin v. Luzon Stevedoring Company, 84 Phil. 618, 623 (1949).

37

4 Am Jur 2d, Appeal and Error, 5, p. 536; 2 Am Jur, Appeal and Error, 9, 850.

Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633,
648.
38

Treasurer-Assessor v. University of the Philippines, 148 Phil. 526, 539 (1971);

Amalgamated Laborers' Association v. Court of Industrial Relations, 131 Phil.
374, 380 (1968); Philippine Airlines Employees' Association v. Philippine Airlines,
Inc. 120 Phil. 383, 390 (1964). (Citations omitted).
39

40

Id.

SECOND DIVISION
G.R. No. 169778, March 12, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SILICON PHILIPPINES, INC.
(FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.), Respondent.
DECISION
PEREZ, J.:
To obviate the possibility that its decision may be rendered void, the Court can, by its own
initiative, rule on the question of jurisdiction, although not raised by the parties. 1 As a
corollary thereto, to inquire into the existence of jurisdiction over the subject matter is the
primary concern of a court, for thereon would depend the validity of its entire proceedings. 2
Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 16
September 2005 Decision3 of the Court of Appeals (CA) in CAG.R. SP No. 80886 granting
respondents claim for refund of input Value Added Tax (VAT) on domestic purchases of goods
and services attributable to zerorated sales in the amount of P21,338,910.44 for the period
covering 1 April 1998 to 30 June 1998.
The Facts
The factual antecedents of the case are as follows:

chanRoblesvirtualLawlibrary

Petitioner is the duly appointed Commissioner of Internal Revenue empowered to perform the
duties of said office including, among others, the power to decide, approve and grant refunds
or tax credits of erroneously or excessively paid taxes.
Respondent Silicon Philippines, Inc., on the other hand, is a corporation duly organized and
existing under and by virtue of the laws of the Philippines, engaged primarily in the business
of designing, developing, manufacturing, and exporting advance and largescale integrated
circuits components (ICs).

On 6 May 1999, respondent filed with the OneStop Shop InterAgency Tax Credit and Duty
Drawback Center of the Department of Finance (DOF) an application for Tax Credit/Refund of
VAT paid for the second quarter of 1998 in the aggregate amount of P29,559,050.44,
representing its alleged unutilized input tax.
Thereafter, since no final action has been taken by petitioner on respondents administrative
claim for refund, respondent filed a Petition for Review before the Court of Tax Appeals (CTA)
on 30 June 2000 docketed as CTA Case No. 6129.
The Ruling of the CTA
In a Decision dated 26 May 2003,4 the CTA partially granted respondents Petition and
ordered petitioner to issue a tax credit certificate in favor of the former in the reduced amount
of P8,179,049.00 representing input VAT on importation of capital goods, the dispositive
portion of which are quoted hereunder as follows:
chanRoblesvirtualLawlibrary

WHEREFORE, the instant petition is PARTIALLY GRANTED. [Petitioner] is

herebyORDERED to ISSUE A TAX CREDIT CERTIFICATE to [respondent] in the amount of
P8,179,049.00 representing input VAT on importation of capital goods. However, petitioners
(respondents) claim for refund of input VAT in the sum of P21,338,910.44 attributable to
zerorated sales is hereby DENIED for lack of merit.5
The CTA denied respondents claim for refund of input VAT on domestic purchases of goods
and services attributable to zerorated sales on the ground that the export sales invoices
presented in support thereto do not have Bureau of Internal Revenue (BIR) permit to print,
while the sales invoices do not show that the sale was zerorated, all in violation of Sections
1136 and 2387 of the National Internal Revenue Code (NIRC) of 1997, as amended, and
Section 4.1081 of Revenue Regulations (RR) No. 795. 8
As to respondents claim for refund of input VAT on capital goods, the CTA looked into
respondents compliance with the requirements set forth in the case of Air Liquid Philippines
v. Commissioner of Internal Revenue and Commissioner of Customs, CTA Case No. 5652, 26
July 2000, and held that said claim be partially denied considering that only the amount of
P8,179,049.00 have been validly supported by documentary evidence such as suppliers
invoices, official receipts, import declarations, import remittances and airway bills, showing
the actual payment of VAT on the importation of capital goods as required by Section 4.104
5(b) of RR No. 795.9
Relevant thereto, the CTA likewise made a factual finding that both the administrative and
judicial claims of respondent were timely filed within the twoyear prescriptive period required
by the NIRC of 1997, as amended, reckoned from the date of filing the original quarterly VAT
Return for the second quarter of taxable year 1998, or on 27 July 1998. 10
On 4 November 2003, the CTA denied respondents Partial Motion for Reconsideration (on
the denial of its claim for tax credit or refund of input VAT paid in the sum of P21,338,910.44)
for lack of merit.11
Aggrieved, respondent appealed to the CA by filing a Petition for Review under Rule 43 of the
Rules of Court on 10 December 2003, docketed as CAG.R. SP No. 80886.
The Ruling of the CA
The CA found that respondents failure to secure a BIR authority or permit to print invoices or
receipts does not completely destroy the integrity of its export sales invoices in support of its
claim for refund, since the BIR permit to print is not among those required to be stated in the
sales invoices or receipts to be issued by a taxpayer pursuant to Sections 113 and 237 of the
NIRC of 1997, as amended. In addition, the BIR permit to print was only mentioned under
Section 238 of the same code, which merely stated that the securement of the BIR authority
to print by all persons engaged in business is necessary before a printer can print receipts or

sales or commercial invoices issued in the course of ones business. Clearly, it does not state
that the same must be shown in the receipts or invoices. Thus, the omission to indicate the
said BIR authority or permit to print does not totally militate against the evidentiary weight of
respondents export sales invoices as to defeat its claim for refund.
Moreover, it was the CAs ruling that the omission to reflect the word zerorated in its
invoices is not fatal to respondents case considering that the absence of the word zero
rated in the invoices, although truly helpful in facilitating the determination of whether the
sales are subject to the normal rate of ten percent (10%) tax or the preferential rate at zero
percent, does not necessarily mean that the sales are not in fact zerorated. Sections 113
and 237 of the NIRC of 1997, as amended, are silent on the requisite of printing the word
zerorated in the invoices.
Accordingly, upon its findings of compliance with Section 112(A) of the NIRC of 1997, as
amended, the CA reversed and setaside the CTA decision dated 26 May 2003, and granted
respondents claim for tax refund/credit in the total amount of P21,338,910.44 in its Decision
dated 16 September 2005.12
Consequently, this Petition for Review wherein petitioner seeks the reversal of the
aforementioned decision on the sole ground that the CA gravely erred on a question of law
when it ordered a refund of respondents VAT Input taxes on the basis of unauthorized and
illegally printed receipts in violation of the provisions of the NIRC of 1997, as amended. 13
The Issue
The core issue for the Courts resolution is whether or not respondent is entitled to its claim
for refund or issuance of a tax credit certificate in its favor in the amount of P21,338,910.44
representing its unutilized creditable input taxes for the period covering 1 April 1998 to 30
June 1998 (second quarter), pursuant to the applicable provisions of the NIRC of 1997, as
amended.
Our Ruling
At the outset, it bears emphasis that the determination of the issue presented in this case
requires a review of the factual findings of the CTA, and of the CA.
It is well settled that in a petition for review on certiorari under Rule 45 of the Rules of Court,
only questions of law may be raised.14 The Court is not a trier of facts and does not normally
undertake the reexamination of the evidence presented by the contending parties during the
trial of the case considering that the findings of facts of the CA are conclusive and binding on
the Court15 and they carry even more weight when the CA affirms the factual findings of the
trial court.16 However, the Court had recognized several exceptions to this rule, to wit: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues
of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioners main and reply briefs are not disputed by
the respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.17
Records of this case reveal that the CTA made a factual finding that both the administrative
and judicial claims of respondent were timely filed within the twoyear prescriptive period
required by the NIRC of 1997, as amended, reckoned from the date of filing the original
quarterly VAT Return for the second quarter of taxable year 1998, or on 27 July 1998. 18 This
was the CTAs legal basis why it took cognizance of the appeal, tried the case on the merits,

and rendered its judgment on 26 May 2003.19 Likewise, the same finding was affirmed and
adopted by the CA in the assailed 16 September 2005 decision 20 by expressing that
respondent filed the application for tax refund or credit within the prescribed period of two (2)
years after the close of the taxable quarter when the sales were made 21 in accordance with
Section 112(A) of the NIRC of 1997, as amended.
However, upon an assiduous review of the said factual findings, applicable provisions of the
NIRC of 1997, as amended, and existing jurisprudential pronouncements, this Court finds it
apropos to determine whether or not the CTA indeed properly acquired jurisdiction over
respondents instant claim taking into consideration the timeliness of the filing of its judicial
claim as provided under Section 112 of the NIRC of 1997, as amended. Simply put, a
negative finding as to the timeliness of respondents judicial claim, once properly considered,
would definitely result in a different conclusion, being jurisdictional in nature.
It should be recalled that the CTA is a court of special jurisdiction. As such, it can only take
cognizance of such matters as are clearly within its jurisdiction. 22 In view thereof, although
the parties have not raised the issue of jurisdiction, nevertheless, this Court may motu
proprio determine whether or not the CTA has jurisdiction over respondents judicial claim for
refund taking into consideration, the factual and legal allegations contained in the pleadings
filed by both parties and found by the court a quo.
Section 7 of Republic Act (RA) No. 1125,23 which was thereafter amended by RA No.
9282,24 defines the appellate jurisdiction of the CTA. The said provision, in part,
reads:
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Section 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided.
(1) 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;
x x x x25 (Emphasis supplied)
Furthermore, Section 11 of the same law prescribes how the said appeal should be taken, to
wit:
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Section 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.
x x x x26 (Emphasis and underscoring supplied)
Pertinent to the instant case, it is worth mentioning that Section 112 of the NIRC of 1997, as
amended, was already the applicable law at the time that respondent filed its administrative
and judicial claims, which categorically provides as follows:
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Section 112. Refunds or Tax Credits of Input Tax.

(A) Zerorated or Effectively Zerorated Sales. Any VATregistered person, whose sales
are zerorated or effectively zerorated 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
xxxx
(D)27 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) 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 twentyday period, appeal
the decision or the unacted claim with the Court of Tax Appeals.
x x x x (Emphasis and underscoring supplied)
Based on the foregoing provisions, prior to seeking judicial recourse before the CTA, a VAT
registered person may apply for the issuance of a tax credit certificate or refund of creditable
input tax attributable to zerorated or effectively zerorated sales within two (2) years after
the close of taxable quarter when the sales or purchases were made.
Additionally, further reading of the provisions of Section 112 shows that under paragraph (D)
thereof, the Commissioner of Internal Revenue is given a 120day period, from submission
of complete documents in support of the administrative claim within which to act on
claims for refund/applications for issuance of the tax credit certificate. Upon denial of the
claim or application, orupon expiration of the 120day period, the taxpayer only has 30
days within which to appeal said adverse decision or unacted claim before the CTA.
In the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex
Mining Corporation v. Commissioner of Internal Revenue (San Roque),28 the Court En Banc
finally settled the issue on the proper interpretation of Section 112 of the NIRC of 1997, as
amended, pertaining to the proper observance of the prescriptive periods provided therein.
The relevant portion of the discussions pertinent to the focal issue in the present case are
quoted hereunder as follows:
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Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late
filing. Philex did not file any petition with the CTA within the 120day period. Philex
did not also file any petition with the CTA within 30 days after the expiration of the 120
day period. Philex filed its judicial claim long after the expiration of the 120day period, in
fact 426 days after the lapse of the 120day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philexs judicial claim will have to
be rejected because of late filing. Whether the twoyear prescriptive period is counted
from the date of payment of the output VAT following the Atlas doctrine, or from the close of
the taxable quarter when the sales attributable to the input VAT were made following
the Mirant and Aichi doctrines, Philexs judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of
the Commissioner on Philexs claim during the 120day period is, by express
provision of law, deemed a denial of Philexs claim. Philex had 30 days from the
expiration of the 120day period to file its judicial claim with the CTA. Philexs failure
to do so rendered the deemed a denial decision of the Commissioner final and
unappealable. The right to appeal to the CTA from a decision or deemed a denial decision
of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of
such statutory privilege requires strict compliance with the conditions attached by the statute
for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences.29 (Emphasis and italics supplied)
Undoubtedly, it becomes apparent from the foregoing jurisprudential pronouncements and the
applicable provisions of Section 112 of the NIRC of 1997, as amended, that a taxpayer
claimant only had a limited period of thirty (30) days from the expiration of the 120day period
of inaction of the Commissioner of Internal Revenue to file its judicial claim with this Court.
Failure to do so, the judicial claim shall prescribe or be considered as filed out of time.

Applying the foregoing discussion in the case at bench, although respondent has indeed
complied with the required twoyear period within which to file a refund/tax credit claim with
the BIR by filing its administrative claim on 6 May 1999 (within the period from the close of the
subject second quarter of taxable year 1998 when the relevant sales or purchases were
made), it appears however, that respondents corresponding judicial claim filed with the CTA
on 30 June 2000 was filed beyond the 30day period, detailed hereunder as follows:
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Filing date of
Taxable year the
1998
administrative
claim
2nd Quarter
(1 April 1998
to 30 June
1998)

6 May 1999

Last day of the 120

day period under
Section 112(C) from
the date of filing of
the administrative
claim in case of
inaction

Last day of
the 30day
period to
judicially
appeal said
inaction

3 September 199930

3 October
1999

Filing
date of
the
Petition
for
Review
30 June
2000

Notably, Section 112(D) specifically states that in case of failure on the part of the
Commissioner of Internal Revenue to act on the application within the 120day period
prescribed by law, respondent only has thirty (30) days after the expiration of the 120day
period to appeal the unacted claim with the CTA. Since respondents judicial claim for the
aforementioned quarter was filed before the CTA only on 30 June 2000, 31 which was way
beyond the mandatory 120+30 days to seek judicial recourse, such noncompliance with the
said mandatory period of thirty (30) days is fatal to its refund claim on the ground of
prescription.
In the more recent consolidated cases of Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue, and Mindanao I Geothermal Partnership v. Commissioner
of Internal Revenue,32 the Second Division of this Court, in applying therein the ruling in the
San Roque case, provided a Summary of Rules on Prescriptive Periods Involving VAT as a
guide for all parties concerned, to wit:
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We summarize the rules on the determination of the prescriptive period for filing a tax
refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax
Code, as follows:
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(1) An administrative claim must be filed with the CIR within two years after the close of the
taxable quarter when the zerorated or effectively zerorated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in support of
the administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The 120day period may extend beyond the twoyear period from the filing of the
administrative claim if the claim is filed in the later part of the twoyear period. If the 120day
period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the
CIRs decision denying the administrative claim or from the expiration of the 120day
period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA48903 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as
an exception to the mandatory and jurisdictional 120+30 day periods. 33(Emphasis supplied)

To recapitulate, the mandatory rule is that a judicial claim must be filed with the CTA within
thirty (30) days from the receipt of the Commissioners decision denying the administrative
claim or from the expiration of the 120day period without any action from the Commissioner.
Otherwise, said judicial claim shall be considered as filed out of time.
This Court is mindful that when respondent filed its administrative claim on 6 May 1999, and
its corresponding judicial claim on 30 June 2000, the NIRC of 1997, as amended, was already
in effect. Clearly therefore, the strict observance in applying the provisions of Section 112 of
the NIRC of 1997 is proper. Hence, failure of respondent to observe the 30day period under
said Section through its belated filing of the Petition for Review before the CTA warrants a
dismissal with prejudice for lack of jurisdiction.
Parenthetically, it must be emphasized that jurisdiction over the subject matter or nature of an
action is fundamental for a court to act on a given controversy,34 and is conferred only by law
and not by the consent or waiver upon a court which, otherwise, would have no jurisdiction
over the subject matter or nature of an action. Lack of jurisdiction of the court over an action
or the subject matter of an action cannot be cured by the silence, acquiescence, or even by
express consent of the parties.35 If the court has no jurisdiction over the nature of an action,
its only jurisdiction is to dismiss the case. The court could not decide the case on the merits.36
As regards the prints on the supporting receipts or invoices, it is worth mentioning that the
High Court already ruled on the significance of imprinting the word zerorated for zerorated
sales covered by its receipts or invoices, pursuant to Section 4.1081 of Revenue
Regulations No. 795.37 Thus, inPanasonic Communications Imaging Corporation of the
Philippines v. Commissioner of Internal Revenue,38 the Second Division of this Court
enunciated:
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But when petitioner Panasonic made the export sales subject of this case, i.e., from April
1998 to March 1999, the rule that applied was Section 4.1081 of RR 795, otherwise
known as the Consolidated ValueAdded Tax Regulations, which the Secretary of
Finance issued on 9 December 1995 and took effect on 1 January 1996. It already
required the printing of the word zerorated on the invoices covering zerorated
sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this
particular revenue regulation a part of the tax code. This conversion from regulation to law
did not diminish the binding force of such regulation with respect to acts committed prior to
the enactment of that law.
Section 4.1081 of RR 795 proceeds from the rulemaking authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the
efficient enforcement of the tax code and of course its amendments. The requirement is
reasonable and is in accord with the efficient collection of VAT from the covered sales of
goods and services. As aptly explained by the CTAs First Division, the appearance of the
word zerorated on the face of invoices covering zerorated sales prevents buyers
from falsely claiming input VAT from their purchases when no VAT was actually paid.
If, absent such word, a successful claim for input VAT is made, the government would
be refunding money it did not collect.
Further, the printing of the word zerorated on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zerorated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.
xxxx
This Court held that, since the BIR authority to print is not one of the items required to be
indicated on the invoices or receipts, the BIR erred in denying the claim for refund. Here,
however, the ground for denial of petitioner Panasonics claim for tax refundthe
absence of the word zerorated on its invoicesis one which is specifically and
precisely included in the above enumeration. Consequently, the BIR correctly denied
Panasonics claim for tax refund.39 (Emphasis supplied)

Clearly, the foregoing pronouncement affirms that absence or nonprinting of the word zero
rated in respondents invoices is fatal to its claim for the refund and/or tax credit representing
its unutilized input VAT attributable to its zerorated sales.
On the other hand, while this Court considers the importance of imprinting the word zero
rated in said invoices, the same does not apply to the phrase BIR authority to print. In Intel
Technology Philippines, Inc. v. Commissioner of Internal Revenue, 40 the Court ruled that there
is no law or BIR rule or regulation requiring the taxpayerclaimants authority from the BIR to
print its sales invoices (BIR authority to print) to be reflected or indicated therein. It stressed
that while entities engaged in business are required to secure from the BIR an authority to
print receipts or invoices and to issue duly registered receipts or invoices, it is not required
that the BIR authority to print be reflected or indicated therein.41
All told, the CTA has no jurisdiction over respondents judicial appeal considering that its
Petition for Review was filed beyond the mandatory 30day period pursuant to Section 112(D)
of the NIRC of 1997, as amended. Consequently, respondents instant claim for refund must
be denied.
WHEREFORE, the petition is GRANTED. Accordingly, the 16 September 2005 Decision of
the Court of Appeals in CAG.R. SP No. 80886 is hereby REVERSED and SET ASIDE. The
Petition for Review filed before the Court of Tax Appeals docketed as CTA Case No. 6129 is
DISMISSED for lack of jurisdiction. No costs.
SO ORDERED.
Carpio, (Chairperson), Brion, Del Castillo, and PerlasBernabe, JJ., concur.

Endnotes:

Ker & Company, Ltd. v. Court of Tax Appeals, et al., G.R. No. L12396, 31 January 1962, 4
SCRA 160, 163.
2

Commissioner of Internal Revenue v. Villa, et al., 130 Phil. 3, 4 (1968).

Rollo, pp. 3450; Penned by Associate Justice Monina ArevaloZenarosa with Associate
Justices Remedios A. SalazarFernando and Rosmari D. Carandang concurring.
4

CA rollo, pp. 3241; Penned by Associate Judge Juanito C. Castaeda, Jr. with Presiding
Judge Ernesto D. Acosta and Associate Judge Lovell R. Bautista concurring.
5

Id. at 40.

Section 113. Invoicing and Accounting Requirements for VATRegistered Persons.

(A) Invoicing Requirements. A VATregistered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 237, the following
information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VATregistered person, followed by his taxpayers
identification number; and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the valueadded tax.
(B) Accounting Requirements. Notwithstanding the provisions of Section 233, all persons
subject to the valueadded tax under Sections 106 and 108 shall, in addition to the regular
accounting records required, maintain a subsidiary sales journal and subsidiary purchase
journal on which the daily sales and purchases are recorded. The subsidiary journals shall

contain such information as may be required by the Secretary of Finance. (Italics supplied)
7

Sec. 238. Printing of Receipts or Sales or Commercial Invoices. All persons who are
engaged in business shall secure from the Bureau of Internal Revenue an authority to print
receipts or sales or commercial invoices before a printer can print the same.
No authority to print receipts or sales or commercial invoices shall be granted unless the
receipts or invoices to be printed are serially numbered and shall show, among other things,
the name, business style, Taxpayer Identification Number (TIN) and business address of the
person or entity to use the same, and such other information that may be required by rules
and regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.
All persons who print receipts or sales or commercial invoices shall maintain a
logbook/register of taxpayer who availed of their printing services.
The logbook/register shall contain the following information:

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(1) Names, Taxpayer Identification Numbers of the persons or entities for whom the receipts
or sales or commercial invoices are printed; and
(2) Number of booklets, number of sets per booklet, number of copies per set and the serial
numbers of the receipts or invoices in each booklet. (Italics supplied)
8

CA rollo, pp. 3638.

Id. at 3839.

10

Id. at 40.

11

Id. at 6770.

12

Rollo, pp. 3450.

13

Id. at 21.

14

Salcedo v. People, 400 Phil. 1302, 1308 (2000).

15

The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, 28 April
2004, 428 SCRA 79, 8586.
16

Borromeo v. Sun, 375 Phil. 595, 602 (1999).

17

The Insular Life Assurance Company, Ltd. v. Court of Appeals, supra note 15 at 86.
(Emphasis supplied).
18

CA rollo, p. 40.

19

Id. at 3241.

20

21

22

23

24

Rollo, pp. 3450.

Id. at 48.
Ker & Company, Ltd. v. Court of Tax Appeals, et al., supra note 1.
AN ACT CREATING THE COURT OF TAX APPEALS which took effect on 16 June 1954.

AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA),

ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL

JURISDICTION AND ENLARGING ITS MEMBERSHIP AMENDING FOR THE PURPOSE

CERTAIN SECTIONS OF REPUBLIC ACT NO.1125, AS AMENDED, OTHERWISE KNOWN
AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES
which took effect on 23 April 2004. This Act was a consolidation of Senate Bill. No. 2712 and
House Bill No. 6673 finally passed by the Senate and the House of Representatives on 8
December 2003 and 2 February 2004, respectively.
25

RA 9282 amended this provision as follows:

SEC. 7. Jurisdiction. The CTA shall exercise:

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

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(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 provides a specific period for action, in which case the inaction shall be
deemed a denial;
x x x x (Emphasis supplied)
26
RA 9282 amended this provision as follows:

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SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or
the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) daysafter the receipt of such
decision or ruling or after the expiration of the period fixed by law for action as referred
to in Section 7(a)(2) herein.
Appeal should be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTAwithin thirty
(30) days from the receipt of the decision or ruling or in the case of inaction as herein
provided, from the expiration of the period fixed by law to act thereon. x x x (Emphasis
supplied).
27

Presently Section 112(C) upon the effectivity of Republic Act No. 9337 on 1 November
2005.
28

G.R. Nos. 187485, 196113, and 197156, 12 February 2013, 690 SCRA 336.

29

Id. at 389390.

30

As there was no sufficient proof that respondent submitted any supporting documents to the
BIR, the 120day period commenced to run from 6 May 1999, the date of filing of
respondents administrative claim.
31

Almost nine (9) months had lapsed since the last day allowed by law to file the appropriate
judicial claim.
32

G.R. Nos. 193301 and 194637, 11 March 2013.

33

Id.

34

Commissioner of Internal Revenue v. Villa, et al., supra note 2.

35

Laresma v. Abellana, G.R. No. 140973, 11 November 2004, 442 SCRA 156, 169.

36

Please refer to De Guzman, et al. v. Escalona, et al., G.R. No. L51773, 16 May 1980, 97
SCRA 619, 627.
37

The Consolidated ValueAdded Tax Regulations, issued on 9 December 1995 and

implemented beginning 1 January 1996, provides:
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Section 4.1081. Invoicing Requirements. All VATregistered persons shall, for every
sale or lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. The name, TIN and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT registered purchaser,
customer or client;
5. The word zerorated imprinted on the invoice covering zerorated sales;
6. The invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market value is
higher than the actual consideration, the VAT shall be separately indicated in the invoice or
receipt.
Only VATregistered persons are required to print their TIN followed by the word VAT in their
invoices or receipts and this shall be considered as VAT Invoice. All purchases covered by
invoices other than VAT Invoice shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue separate invoices
or receipts for the taxable and exempt operations. A VAT Invoice shall be issued only for
sales of goods, properties or services subject to VAT imposed in Sections 100 and 102 of the
code.
The invoice or receipt shall be prepared at least in duplicate, the original to be given to the
buyer and the duplicate to be retained by the seller as part of his accounting records.
(Emphasis supplied)
38

G.R. No. 178090, 8 February 2010, 612 SCRA 28, 3538. See also Hitachi Global Storage
Technologies Philippines Corp. v. Commissioner of Internal Revenue, G.R. No. 174212, 20
October 2010, 634 SCRA 205.
39

Id.

40

550 Phil. 751 (2007).

41

Id. at 786. (Emphasis supplied)