TAXATION LAW REVIEW CASES
Jann Claudine M. Amago 4 – B
1. Commissioner of Internal Revenue vs. Metro Star
Superama, Inc.
G.R. no. 185371
Facts:
 Petitioner is a domestic corporation duly organized and
existing by virtue of the laws of the Republic of
the Philippines.
 On January 26, 2001, the Regional Director of Revenue
Region No. 10, Legazpi City, issued Letter of Authority
to examine petitioners books of accounts and other
accounting records for income tax and other
internal revenue taxes for the taxable year 1999.
 For petitioner’s failure to comply with several requests for
the presentation of records and Subpoena Duces Tecum,
the Revenue District Officer of Revenue Region No.
67, Legazpi City proceeded with the investigation based on
the best evidence obtainable preparatory to the issuance of
assessment notice.
 Revenue District Officer issued a Preliminary 15-day
Letter, which petitioner received on November 9, 2001.
The said letter stated that a post audit review was held and
it was ascertained that there was deficiency value-added
and withholding taxes due from petitioner in the amount
of P 292,874.16.
 Petitioner received a Formal Letter of Demand dated
April 3, 2002 from Revenue District No. 67, Legazpi City,
assessing petitioner for deficiency VAT and withholding
taxes.
 Revenue District Office No. 67 sent a copy of the Final
Notice of Seizure dated May 12, 2003, which
petitioner received on May 15, 2003, giving the
latter last opportunity to settle its deficiency tax
liabilities within ten (10) [days] from receipt
thereof, otherwise respondent BIR shall be constrained to
serve and execute the Warrants of Distraint and/or Levy
and Garnishment to enforce collection.
 On February 6, 2004, petitioner received from
Revenue District Office No. 67 a Warrant of Distraint
and/or Levy No. 67-0029-23 dated May 12, 2003
demanding payment of deficiency value-added tax and
withholding tax payment in the amount of P292,874.16.
 Petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration which
was denied by the CIR.
 Denying that it received a Preliminary Assessment
Notice (PAN) and claiming that it was not accorded
due process, Metro Star filed a petition for
review with the CTA.
 CTA DIVISION GRANTED THE APPEAL – CTA-Second
Division opined that [w]hile there [is] a disputable
presumption that a mailed letter [is] deemed
received by the addressee in the ordinary course of
mail, a direct denial of the receipt of mail shifts the
burden upon the party favored by the presumption
to prove that the mailed letter was indeed received
by the addressee. It also found that there was no
clear showing that Metro Star actually received the
alleged PAN, dated January 16, 2002. It,
accordingly, ruled that the Formal Letter of Demand
dated April 3, 2002, as well as the Warrant of
Distraint and/or Levy dated May 12, 2003 were
void, as Metro Star was denied due process.
 CIR sought reconsideration of the decision of the
CTA-Second Division, but the motion was denied.
Aggrieved, the CIR filed a petition for review with
the CTA-En Banc, but the petition was dismissed
after a determination that no new matters were
raised.
Issue: Whether or not metro star was denied due process/ is
the failure to strictly comply with notice requirements prescribed
under section 228 of the national internal revenue code of 1997
and revenue regulations No. 12-99 tantamount to a denial of
due process?
Ruling: YES, METRO STAR WAS DENIED DUE
PROCESS. PETITION DENIED.
ON THE MATTER OF SERVING TAX ASSESSMENT
Jurisprudence is replete with cases holding that if the
taxpayer denies ever having received an assessment
from the BIR, it is incumbent upon the latter to prove by
competent evidence that such notice was indeed
received by the addressee. The onus probandi was
shifted to respondent to prove by contrary evidence that
the Petitioner received the assessment in the due course
of mail. The Supreme Court has consistently held that
while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a
disputable presumption subject to controversion and a
direct denial thereof shifts the burden to the party
favored by the presumption to prove that the mailed
letter was indeed received by the addressee.
Thus as held by the Supreme Court in Gonzalo P. Nava vs.
Commissioner of Internal Revenue, 13 SCRA 104, January 30,
1965:
The facts to be proved to raise this presumption are
a. that the letter was properly addressed with
postage prepaid, and
b. that it was mailed
Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could
have been transmitted to him in the ordinary course of
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the mail. But if one of the said facts fails to appear, the
presumption does not lie.
What is essential to prove the fact of mailing is the registry
receipt issued by the Bureau of Posts or the Registry return card
which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located,
Respondent at the very least, should have submitted to the
Court a certification issued by the Bureau of Posts and any other
pertinent document which is executed with the intervention of
the Bureau of Posts. This Court does not put much credence to
the self-serving documentations made by the BIR personnel
especially if they are unsupported by substantial evidence
establishing the fact of mailing.
The Court agrees with the CTA that the CIR failed to
discharge its duty and present any evidence to show
that Metro Star indeed received the PAN dated January
16, 2002. It could have simply presented the registry receipt
or the certification from the postmaster that it mailed the PAN,
but failed. Neither did it offer any explanation on why it failed to
comply with the requirement of service of the PAN. It merely
accepted the letter of Metro Stars chairman dated April 29,
2002, that stated that he had received the FAN dated April 3,
2002, but not the PAN; that he was willing to pay the tax as
computed by the CIR; and that he just wanted to clarify some
matters with the hope of lessening its tax liability.
AS TO THE DENIAL OF DUE PROCESS
Section 228 of the Tax Code clearly requires that the
taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must
be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly
with tax collection without first establishing a valid
assessment is evidently violative of the cardinal
principle in administrative investigations - that
taxpayers should be able to present their case and
adduce supporting evidence.
This is confirmed under the provisions R.R. No. 12-99 of
the BIR. It is clear that the sending of a PAN to taxpayer
to inform him of the assessment made is but part of
the due process requirement in the issuance of a
deficiency tax assessment, the absence of which renders
nugatory any assessment made by the tax authorities.
The use of the word shall in subsection 3.1.2 describes the
mandatory nature of the service of a PAN. The persuasiveness
of the right to due process reaches both substantial and
procedural rights and the failure of the CIR to strictly comply
with the requirements laid down by law and its own rules is a
denial of Metro Stars right to due process Thus, for its failure
to send the PAN stating the facts and the law on which
the assessment was made as required by Section 228 of
R.A. No. 8424, the assessment made by the CIR is void.
It is an elementary rule enshrined in the 1987 Constitution that
no person shall be deprived of property without due process of
law. In balancing the scales between the power of the State to
tax and its inherent right to prosecute perceived transgressors
of the law on one side, and the constitutional rights of a citizen
to due process of law and the equal protection of the laws on
the other, the scales must tilt in favor of the individual, for a
citizens right is amply protected by the Bill of Rights under the
Constitution. Thus, while taxes are the lifeblood of the
government, the power to tax has its limits, in spite of
all its plenitude.
2. Commissioner of Internal Revenue vs. ANRON Subic
Power Corpoation
G.R. no. 166387
Facts:
 Enron, a domestic corporation registered with the Subic Bay
Metropolitan Authority as a freeport enterprise, filed its
annual income tax return for the year 1996 on April 12,
1997. It indicated a net loss of P7,684,948.
 Subsequently, the Bureau of Internal Revenue, through a
preliminary five-day letter, informed it of a proposed
assessment of an alleged P2,880,817.25 deficiency income
tax.
 Enron disputed the proposed deficiency assessment in its
first protest letter.
 Enron received from the CIR a formal assessment notice
requiring it to pay the alleged deficiency income tax
of P2,880,817.25 for the taxable year 1996. Enron
protested this deficiency tax assessment.
 Due to the non-resolution of its protest within the 180-day
period, Enron filed a petition for review in the Court of Tax
Appeals (CTA). It argued that the deficiency tax assessment
disregarded the provisions of Section 228 of the National
Internal Revenue Code (NIRC), as amended, and Section
3.1.4 of Revenue Regulations (RR) No. 12-99 by not
providing the legal and factual bases of the assessment.
Enron likewise questioned the substantive validity of the
assessment.
 CTA granted Enron’s petition and ordered the
cancellation of its deficiency tax assessment for the
year 1996. The CTA reasoned that the assessment notice
sent to Enron failed to comply with the requirements of a
valid written notice under Section 228 of the NIRC and RR
No. 12-99. The CIRs motion for reconsideration of the CTA
decision was denied in a resolution dated November 12,
2001.
 The CIR appealed the CTA decision to the CA but the
CA affirmed it. CIR filed a motion for reconsideration
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 but this was deemed abandoned when he filed a
motion for extension to file a petition for review in
this Court. The CIR now argues that respondent was
informed of the legal and factual bases of the deficiency
assessment against it.
Issue: Whether or not respondent was informed of the legal
and factual bases of the deficiency assessment against it
Ruling: NO. PETITION DENIED.
A notice of assessment is declaration of deficiency taxes
issued to a taxpayer who fails to respond to a Pre-
Assessment Notice (PAN) within the prescribed period
of time, or whose reply to the PAN was found to be
without merit. The Notice of Assessment shall inform
the taxpayer of this fact, and that the report of
investigation submitted by the Revenue Officer
conducting the audit shall be given due course.
The formal letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the fact, the
law, rules and regulations or jurisprudence on which the
assessment is based, otherwise the formal letter of
demand and the notice of assessment shall be void.
Section 228 of the NIRC provides that the taxpayer shall be
informed in writing of the law and the facts on which the
assessment is made. Otherwise, the assessment is void. To
implement the provisions of Section 228 of the NIRC, RR No.
12-99 was enacted. Section 3.1.4 of the revenue regulation
reads:
3.1.4. FormalLetter of Demand and
Assessment Notice. The formal letter of
demand and assessment notice shall be
issued by the Commissioner or his duly
authorized representative. The letter of
demand calling for payment of the
taxpayers deficiency tax or taxes shall
state the facts, the law, rules and
regulations, or jurisprudence on which
the assessment is based, otherwise, the
formal letter of demand and assessment
notice shall be void. The same shall be sent
to the taxpayer only by registered mail or by
personal delivery.
Both the CTA and the CA concluded that the deficiency tax
assessment merely itemized the deductions disallowed and
included these in the gross income. It also imposed the
preferential rate of 5% on some items categorized by Enron as
costs. The legal and factual bases were, however, not indicated.
The CIR insists that an examination of the facts shows that
Enron was properly apprised of its tax deficiency. During the
pre-assessment stage, the CIR advised Enrons representative of
the tax deficiency, informed it of the proposed tax deficiency
assessment through a preliminary five-day letter and furnished
Enron a copy of the audit working paperallegedly showing in
detail the legal and factual bases of the assessment. The CIR
argues that these steps sufficed to inform Enron of the laws and
facts on which the deficiency tax assessment was based.
The advice of tax deficiency, given by the CIR to an
employee of Enron, as well as the preliminary five-day
letter, were not valid substitutes for the mandatory
notice in writing of the legal and factual bases of the
assessment. These steps were mere perfunctory
discharges of the CIRs duties in correctly assessing a
taxpayer. The requirement for issuing a preliminary or
final notice, as the case may be, informing a taxpayer of
the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must
contain. Just because the CIR issued an advice, a
preliminary letter during the pre-assessment stage and
a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law
and facts on which the deficiency tax assessment was
made.
The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise,
the express provisions of Article 228 of the NIRC and RR No. 12-
99 would be rendered nugatory. The alleged factual bases in the
advice, preliminary letter and audit working papers did not
suffice. There was no going around the mandate of the law that
the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the
assessment notice.
Verily, taxes are the lifeblood of the Government and so
should be collected without unnecessary hindrance.
However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason
for the Government itself.
3. Silkair (Singapore) PLE Ltd vs. CIR
G.R. no. 166482
Facts:
 Petitioner Silkair (Singapore) Pte. Ltd. is a foreign
corporation duly licensed by the Securities and Exchange
Commission (SEC) to do business in the Philippines as an
on-line international carrier operating the Cebu-Singapore-
Cebu and Davao-Singapore-Davao routes. In the course of
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 its international flight operations, petitioner purchased
aviation fuel from Petron Corporation (Petron) from July 1,
1998 to December 31, 1998, paying the excise taxes
thereon in the sum of ₱5,007,043.39. The payment was
advanced by Singapore Airlines, Ltd. on behalf of petitioner.
 On October 20, 1999, petitioner filed an administrative
claim for refund in the amount of ₱5,007,043.39
representing excise taxes on the purchase of jet fuel from
Petron, which it alleged to have been erroneously paid. The
claim is based on Section 135 (a) and (b) of the 1997 Tax
Code, which 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 regis try 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 agreementsfor 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
 Petitioner also invoked Article 4(2) of the Air Transport
Agreement between the Government of the Republic of the
Philippines and the Government of the Republic of
Singapore.
 Due to the inaction by respondent Commissioner of Internal
Revenue, petitioner filed a petition for review with the Court
of Tax Appeals. CTA rendered its decision denying
petitioner’s claim for refund. its motion for reconsideration
having been denied by the CTA, petitioner elevated the case
to the CA.
 The CA affirmed the denial of the claim for tax
refund and dismissed the petition. It ruled that
while petitioner is exempt from paying excise taxes
on petroleum products purchased in the Philippines
by virtue of Section 135 (b), petitioner is not the
proper party to seek for the refund of the excise
taxes paid. Petitioner’s motion for reconsideration
was likewise denied by the appellate court.
Issue: Whether or not the petitioner is entitled to tax refund
Ruling: NO. PETITION DENIED.
The core issue presented is the legal personality of
petitioner to file an administrative claim for refund of
excise taxes alleged to have been erroneously paid to its
supplier of aviation fuel here in the Philippines.
In three previous cases involving the same parties, this
Court has already settled the issue of whether petitioner
is the proper party to seek the refund of excise taxes
paid on its purchase of aviation fuel from a local
manufacturer/seller. Following the principle of stare
decisis, the present petition must therefore be denied.
Excise taxes, which apply to articles manufactured or
produced in the Philippines for domestic sale or
consumption or for any other disposition and to things
imported into the Philippines, is basically an indirect tax.
While the tax is directly levied upon the
manufacturer/importer upon removal of the taxable
goods from its place of production or from the customs
custody, the tax, in reality, is actually passed on to the
end consumer as part of the transfer value or selling
price of the goods, sold, bartered or exchanged. In early
cases, we have ruled that for indirect taxes (such as
valued-added tax or VAT), the proper party to question
or seek a refund of the tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid
the same even when he shifts the burden thereof to
another. Thus, in Contex Corporation v. Commissioner of
Internal Revenue, we held that while it is true that petitioner
corporation should not have been liable for the VAT
inadvertently passed on to it by its supplier since their
transaction is a zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such VAT refund.
Rather, it is the petitioner’s suppliers who are the proper parties
to claim the tax credit and accordingly refund the petitioner of
the VAT erroneously passed on to the latter.13
In the first Silkair case decided on February 6, 2008, this Court
categorically declared:
The proper party to question, or seek a refund of, an indirect
tax is the statutory taxpayer, the person on whom the tax is
imposed by law and who paid the same even if he shifts the
burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "[u]nless otherwise specifically allowed, the return
shall be filed and the excise tax paid by the manufacturer or
producer before removal of domestic products from place of
production." Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund
based on Section 135 of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and
Singapore.
Even if Petron Corporation passed on to Silkair the burden of the
tax, the additional amount billed to Silkair for jet fuel is not a tax
but part of the price which Silkair had to pay as a purchaser.
The person entitled to claim a tax refund is the statutory
taxpayer. Section 22(N) of the NIRC defines a taxpayer as "any
person subject to tax." In Commissioner of Internal Revenue v.
Procter and Gamble Phil. Mfg. Corp., the Court ruled that:
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‘A "person liable for tax" has been held to be a "person subject
to tax" and properly considered a "taxpayer." The terms "liable
for tax" and "subject to tax" both connote a legal obligation or
duty to pay a tax.’
The excise tax is due from the manufacturers of the
petroleum products and is paid upon removal of the
products from their refineries. Even before the aviation
jet fuel is purchased from Petron, the excise tax is
already paid by Petron. Petron, being the manufacturer,
is the "person subject to tax." In this case, Petron, which
paid the excise tax upon removal of the products from
its Bataan refinery, is the "person liable for tax."
Petitioner is neither a "person liable for tax" nor "a
person subject to tax." There is also no legal duty on the
part of petitioner to pay the excise tax; hence, petitioner
cannot be considered the taxpayer.
Even if the tax is shifted by Petron to its customers and
even if the tax is billed as a separate item in the aviation
delivery receipts and invoices issued to its
customers, Petron remains the taxpayer because the
excise tax is imposed directly on Petron as the
manufacturer. Hence, Petron, as the statutory taxpayer,
is the proper party that can claim the refund of the
excise taxes paid to the BIR.
Petitioner’s contention that the CTA and CA rulings would put
to naught the exemption granted under Section 135 (b) of
the 1997 Tax Code and Article 4 of the Air Transport Agreement
is not well-taken. Since the supplier herein involved is also
Petron, our pronouncement in the second Silkair case,
relative to the contractual undertaking of petitioner to submit a
valid exemption certificate for the purpose, is relevant. We thus
noted:
The General Terms & Conditions for Aviation Fuel
Supply (Supply Contract) signed between petitioner (buyer) and
Petron (seller) provide:
"11.3 If Buyer is entitled to purchase any Fuel sold pursuant to
the Agreement free of any taxes, duties or charges, Buyer
shall timely deliver to Seller a valid exemption
certificate for such purchase." (Emphasis supplied)
This provision instructs petitioner to timely submit a valid
exemption certificate to Petron in order that Petron will not pass
on the excise tax to petitioner. As correctly suggested by the
CTA, petitioner should invoke its tax exemption to Petron before
buying the aviation jet fuel. Petron, however, remains the
statutory taxpayer on those excise taxes.
Revenue Regulations No. 3-2008 (RR 3-2008) provides that
"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." The Department of Finance
and the BIR recognize the tax exemption granted to
international carriers but they consistently adhere to the view
that manufacturers of articles subject to excise tax are the
statutory taxpayers that are liable to pay the tax, thus, the
proper party to claim any tax refunds.
The above observation remains pertinent to this case because
the very same provision in the General Terms and Conditions for
Aviation Fuel Supply Contract also appears in the documentary
evidence submitted by petitioner before the CTA. Except for its
bare allegation of being "placed in a very complicated situation"
because Petron, "for fear of being assessed by Respondent, will
not allow the withdrawal and delivery of the petroleum products
without Petitioner’s pre-payment of the excise taxes," petitioner
has not demonstrated that it dutifully complied with its
contractual undertaking to timely submit to Petron a valid
certificate of exemption so that Petron may subsequently file a
claim for excise tax credit/refund pursuant to Revenue
Regulations No. 3-2008 (RR 3-2008). It was indeed premature
for petitioner to assert that the denial of its claim for tax refund
nullifies the tax exemption granted to it under Section 135 (b)
of the 1997 Tax Code and Article 4 of the Air Transport
Agreement.
In the third Silkair case decided last year, the Court called
the attention to the consistent rulings in the previous
two Silkair cases that petitioner as the purchaser and
end-consumer of the aviation fuel is not the proper party
to claim for refund of excise taxes paid thereon. The
situation clearly called for the application of the doctrine, stare
decisis et non quieta movere. Follow past precedents and do not
disturb what has been settled. Once a case has been decided
one way, any other case involving exactly the same point at
issue, as in the case at bar, should be decided in the same
manner. The Court thus finds no cogent reason to deviate from
those previous rulings on the same issues herein raised.